Resolution of most of the stressed assets under the insolvency law missed their timelines amid a shortage of staff at the National Company Law Tribunal (NCLT) and the appellate tribunal this year, which also saw aviation players seeking solace in insolvency provisions albeit without much success.
As the Insolvency and Bankruptcy Code (IBC) timelines stretched well beyond their specified limits, the companies undergoing the resolution process saw an erosion in the value of their assets.
As of September this year, creditors have realised Rs 3.16 lakh crore by way of resolutions under the IBC since it came into force in December 2016, as per data from the Insolvency and Bankruptcy Board of India (IBBI).
In 2024, NCLT and the National Company Law Appellate Tribunal (NCLAT) are expected to conclude important Corporate Insolvency Resolution Processes (CIRPs), including that of Future Retail, Go First and Reliance Capital.
The latest data showed that 67 per cent of the ongoing CIRPs missed the 270-day deadline.
In the June quarter, the average time taken for resolution reached a three-year high of 643 days for financial creditors.
Animesh Bisht, partner at law firm Cyril Amarchand Mangaldas, said the average time for a CIRP yielding resolution plans has increased to 662 days for operational creditors and 659 days for financial creditors as per the IBBI Quarterly Newsletter for June-September, 2023, exceeding the 270-day limit set by the IBC.
Currently, NCLT has 55 members as against the sanctioned strength of 63 members. In August 2023, the government had appointed 17 new members.
"Filling up the remaining vacancies would further help in increasing the disposal rate. In fact, given the increasing volume of cases the sanctioned strength of NCLT members ought to be further increased to ensure higher disposal rates," Bisht said.
Since the IBC came into force, 7,058 cases were initiated till September 2023. There are over 2,000 ongoing CIRP cases.
The aviation sector kept the insolvency ecosystem much engaged this year, including the IBBI amending the norms with respect to leased aircraft in the wake of the crisis at the now-grounded Go First.
NCLT and the National Company Law Appellate Tribunal (NCLAT) dealt with the matters of no-frills airline Go First, which went for voluntary insolvency resolution proceedings in May this year and the move was opposed by various lessors.
Besides NCLAT, several of them approached the Delhi High Court, which gave them relief regarding the inspection of their assets during the moratorium period under IBC. Assets refer to the aircraft that were leased to Go First when it was flying.
Amid mounting concerns of lessors about their inability to take back the leased planes, the corporate affairs ministry on October 3 exempted transactions involving aircraft, plane engines, airframes and helicopters from the moratorium under IBC.
Meanwhile, companies from the manufacturing and real estate sectors accounted for half of the total admissions for insolvency proceedings.
Regarding the delay in completing CIRP, advocate Rajsekhar Rao said it is a matter of concern.
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"The larger questions of law (insolvency) which now to a large extent, have been settled by the Supreme Court, however the same issues are constantly agitated. A large number of Section 9 petitions (those filed by operational creditors) are being entertained at the threshold," he said.
"There should be more rigorous scrutiny of section 9 at the threshold itself," he said and added that such admissions should be limited.
Moreover, he highlighted that homebuyers now have effectively taken over the entire insolvency process.
"In the process, the financial lenders who are the real financial creditors are taking a back seat," he said.
Lakshmikumaran & Sridharan Attorneys - Partner, Yogendra Aldak said the increasing pendency of cases is a litmus test which illustrates the challenges faced by the tribunal.
"While the problem may be associated with the plethora of applications filed either to cause delays or to circumvent the jurisdiction of other courts/tribunals ' it cannot be denied that the tribunal's contradicting observations regarding statutory provisions result in prolonged litigation.
The need to increase the strength of the tribunal has often been highlighted," he said.
In 2023, the tribunal constituted 16 special benches to make up for absentee members, however, the efficacy of such measures remains wanting, both due to frequency and capacity.
The government has initiated a positive step by aiming to drastically increase the strength of sitting members in the NCLT to 163 and that in the NCLAT to 20, he said.
Besides, Aldak also suggested the tribunal must aim to hold a unified approach for interpretation of the statues in order to avoid conflict and prolonged litigation.
Advocate Abhijeet Sinha, who has represented before NCLAT in several insolvency matters, said that despite facing challenges such as limited members, it has practically achieved much more than it could have with the efforts put in by its members.
Advocate Rajsekhar Rao said that with more benches, things have started to move. "As regular hearings are taking place now, we will see more decisions coming out on more aspects as larger benches are constituted".
According to NCLT Bar Association Secretary General and advocate Saurabh Kalia, NCLT clearing all almost close to 190 resolution plans only shows the strides this law has taken in 2023.
"We hope that with improved infrastructure and more members in the year 2024, IBC will take further strides," he added.
Bisht also suggested setting up another NCLAT bench at Mumbai, which is the busiest of the NCLT Benches with six functioning courts.
"It would be welcome and greatly help in reducing the time taken at the appeal stage for final and interim order," he said.
(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)