National Company Law Tribunal: Challenges, Delays, and the Way Forward for Effective Corporate Adjudication in India.

Author: Shobha Khot, Dr. Bhimrao Ambedkar Law University

Introduction

In recent news, you must have heard about increasing NCLT benches to handle increasing cases, but have you wondered what NCLT is and what work they do? NCLT That is, the National Company Law Tribunal is a quasi-judicial body that was established on the recommendation of the V. Balakrishna Eradi Committee.

It mandates various roles like adjudicating disputes and issues related to the Companies Act, complying with the interests of stakeholders, insolvency processes, limited liability partnerships (LLPs), and liquidation of companies. It also hears of mismanagement of companies and promotes good corporate governance practices. Though NCLT was created to speed up proceedings, it is facing various problems like systemic weaknesses, delays, and shortages of personnel.

Formation and Powers of NCLT in India

India was facing issues related to company law, such as a lack of uniformity, inefficiency, delay, and multiple forums. To solve this issue, the Eradi committee was formed. The main duty of this committee was to suggest ways to solve the system problems and handle company-related matters.

Understanding the slow and complicated system The Eradi committee came up with NCLT The National Company Law Tribunal. Section 408 of the Companies Act of 2013 gives the government the authority to set up the NCLT. This section explains the structure, power, and function.

According to The Companies Act, 2013:

Section 408—408—408-—Constitution of National Company Law Tribunal— The Central Government shall, by notification, constitute, with effect from such date as may be specified therein, a tribunal to be known as the National Company Law Tribunal, consisting of a president and such number of judicial and technical members as the Central Government may deem necessary, to be appointed by it by notification, to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force. [1]

Landmark judgment with questioned powers of NCLT was Union of India v. R. Gandhi [(2010). The case questioned encroachment, qualification, and the manner of appointment of the members of NCLT. It was argued that the members of tribunals were lacking sufficient experience of the judiciary and prescribed technical knowledge, which is violating the structure of the constitution.

The Supreme Court judgment recognized the importance of NCLT and NCLAT to handle complex commercial disputes. Court also mentions that these quasi-judicial bodies should be independent of that of the executive body and also have attributes of a judicial body. The court found few aspects of the original structure to be inconsistent and issued directions to amend it. The court recognized the importance of the judiciary in the appointment of both technical members and judicial members.

If we talk about Jurisdiction of NCLT, it handles various matters like,

1. Mergers and acquisitions—it monitors companies consolidating and combining and processes their legal aspects.

2. Oppressions and mismanagement—NCLT steps in matters where the company's management system acts unfairly towards their stakeholders.

3. Winding up—This tribunal also manages the process of dissolving a company and makes sure that it is done in a fair manner.

Insolvency proceedings under IBC, 2016 deal with companies that cannot pay their debts and oversee the whole of their insolvency process, right from admitting the case to approving the resolution plan.

If a party wants to appeal the decisions made by the NCLT, they can approach the NCLAT. This body acts as an authority body, reviews the NCLT decisions, and makes sure that there is a balance maintained.

Systemic Delays and Challenges

A few challenges that NCLT faces are

1. Vacancies: Various positions of skilled technical and judicial positions are unfilled, which leads to delay in case handling.

2. Overburdened benches: As the current members of the tribunal are fewer in number, they are overburdened with work, which makes the process slow.

3. Delays in Insolvency: Though IBC aims to resolve the matter in 330 days, this time is always exceeded, and the recovery rate for creditors declines, which is a major concern.

Besides this, infrastructure and technological glitches in the e-filing system also contribute to delays. Because of a shortage of skilled members, it leads to frequent adjournment, which makes the proceedings delayed.

Case Studies

For better understanding of the topics, let's look into a real-life case study.

1. Videocon Industries: Videocon, a company, had taken lots of money from various banks, which they were unable to pay. To solve this, NCLT stepped in to solve this issue. As this was a huge company, NCLT took 4 years to come up with the perfect plan to repay everyone. Despite this, the bank only got a small amount of money that they owned, which is 5%.

2. IL&FS Group Insolvency: IL&FS was involved in various infrastructure projects like bridges and roads. When the company took on a lot of debt and was not able to repay it, the matter went to NCLT. As the company has over 300+ subsidiaries, the process is extremely slow, as NCLT is taking time to understand who owns what.

3. Jaypee Infratech CIRP: When the big infrastructure companies like Jaypee Infratech ran into financial trouble, the homebuyers were worried if they would ever get their apartments. This started in 2017 and the matter was reported to NCLT. Though it has been suggested by Suraksha Reality and has been approved, the legal hurdles are still present.

Global Learnings and Comparison

As rightly said, “Education without application is just entertainment.”

- Tim Sanders

Let us now understand how other countries tackle all the above-mentioned problems:

1. US Bankruptcy Courts: The US has specialized bankruptcy courts and judges who are experts in bankruptcy matters. With technological advancement, these courts are able to function in an efficient and organized manner.

2. Singapore Insolvency Model: Not only arbitration, Singapore also has a well-planned insolvency model. It has a “pre-pack” agreement. Before a company enters into an insolvency proceeding, the company and creditors negotiate a restructuring plan. Once a significant number of creditors agree, the plan is then presented in court for approval, which reduces time and cost. Singapore works on strict timelines, where all the parties are required to act promptly and avoid delay. Singapore also invests in regular training for judges to increase their expertise and have knowledge of the latest developments in insolvency law.

3. Learning for India: Learning from the US and Singapore, India should encourage more out-of-court negotiation to make the proceedings smoother and more effective. India should have a strict timeline for each step in insolvency matters.

India should invest in a tech-driven system that would manage case information, like tracking assets, and manage communication between the parties. Also, there should be special up-to-date training, which would increase experts in insolvency matters.

The Way Forward

Though NCLT has played a vital role in India’s insolvency system, the tribunal has faced various problems that are hindering its effectiveness. Below are a few suggestions that could reform the insolvency process in India:

1. Transparent recruitment system: Delay in filling the required vacancy increases caseload on the tribunal, which leads to backlog. The recruitment process should be made accessible to the public so that a deserving candidate can be recruited. There should be a fixed recruitment cycle, which would avoid prolonged understaffing.

2. Specialized benches for IBC and company law: Having judges who have expertise in IBC and company law would make for fast and accurate decision-making, as they know the ins and outs of the complexities. This would help reduce workload, as they are not dealing with other complex legal issues.

3. Reform calendar management. This could include transparent and predictable court dates to minimize delays. Emphasizing prompt action by the parties would reduce delay in proceeding. Penalties on delayed action would also make the process smoother.

4.E-court Infrastructure: Technological advancements and automation like virtual hearings, digital records, e-filing, and online document filing would keep the data accessible for all the parties involved. This e-court infrastructure would make the whole process faster and more convenient for the parties.

5. Capacity Building and Training: The US and Singapore have specialized models; India should introduce special training for judicial and technical members. This can include complex financial instruments, recent amendments in IBC, evolving technological advancements, and nuances of IBC and company law. Conducting workshops for registry staff to improve their work efficiency will eventually improve NCLT proceedings in Indian courts.

6. Reinforce NCLAT Capacity: Having a sufficient number of members for NCLAT (National Company Law Appellate Tribunal) would help in handling APPEAL BACKLOG and will reduce long waits for appeal decisions. NCLAT should make sure that the standards of both NCLT and NCLAT are being maintained. Conducting regular audits to ensure accountability and improvement in the appellate process would eventually improve insolvency law.

Conclusion

NCLT plays an important role in India’s financial health, but a few hurdles, like a shortage in staffing, delays in proceedings, an absence of technological advancement and an insufficient number of IBC and company law experts, make this process stagnant. Learning from global models like Singapore skills like automation, pre-pack agreements, and developing expert personnel would improve the state of NCLT. It is high time India needed reform in this sector. Improving these pointers would enable quicker resolution of disputes, which would eventually boost investors, companies, and shareholders' faith back in the Indian Insolvency Law.