Bidders may walk away as NCLT delays erode value, tests patience, BFSI News, ET BFSI
[ad_1]
Read More/Less
Nearly 47 per cent or 1,349 cases closed under the insolvency law ended up in liquidation till the end of June this year but the economic value in the majority of the cases had eroded even before the commencement of the corporate insolvency resolution process.
The absence of members, the equivalent of judges, in the National Company Law Tribunal, which deals with both bankruptcy cases as well as those related to Companies Act matters, is showing and threatens to stall the landmark reform.
Bidders who are willing to take over the distressed companies may walk away due to the delays.
Depleted strength
The parliamentary standing committee on finance had noted that there were only 28 members in NCLT as against the sanctioned strength of 62. “The committee is deeply concerned to note that more than 50% of the sanctioned strength of NCLT is lying vacant and that the issue of vacancy has plagued the tribunal for years,” the panel observed, while noting how it had been working without a regular president either.
The report also showed how at the end of May, 71% of the IBC-related cases were pending in the NCLT for over 180 days when the law seeks to ensure that a case is decided within six months. At the end of May, over 40% of the cases filed in the tribunal were pending.
The recommendations for appointments are lying with the government for close to a year.
In contrast, fearing a rush of cases following the pandemic, the US had hired several of its retired judges to ensure that cases were decided quickly.
Parliamentary Committee suggestions
While speaking to ETCFO last month, Jayant Sinha, chairman of the Parliamentary Standing Committee on Finance, had suggested three steps to reduce litigation.
Firstly, fill the vacancies at NCLT as quickly as possible because then there is more time to adjudicate a case well and come up with a good resolution, he had said.
If judges don’t have enough time and rush through cases, they won’t give good judgments, and then things will end up in litigation. Therefore, adding capacity as soon as possible is one way in which we can deal with these endless litigation type issues.
Secondly, improve the quality of NCLT members. The parliamentary committee has recommended that the NCLT should at least have high court judges so that we can benefit from their experience and their wisdom. That’s another way to prevent litigation.
The third way of preventing litigation is to ensure when people submit the resolution plan as per the deadline, they do not have an opportunity to come in with another resolution plan after that. Because not doing so, will again rest in litigation, and a lot of contentions back and forth.
“So these are three very concrete steps that we have suggested to reduce litigation as it is one of the reasons a lot of these timelines are being extended,” he said.
[ad_2]
