Over 1,600 merger cases pile up before NCLT as insolvency takes precedence

Sources say the time taken by the tribunal to approve mergers is more than what high courts used to take

With the Insolvency and Bankruptcy Code (IBC) gaining precedence before the National Company Law Tribunal (NCLT), merger and amalgamation cases are beginning to pile up before the quasi-judicial body set up to fast-track issues related to domestic corporates.

Industry players say several companies, particularly small- and medium-sized, which had requisitioned for approval of mergers, have been facing challenges as the Bench is preoccupied with IBC cases.

Some of these firms are said to have approached market regulator Securities and Exchange Board of India and Ministry of Corporate Affairs seeking an intervention.

Earlier, companies had to approach high courts to seek approval for any merger or scheme of arrangement. Now, the NCLT is the judicial body for approving such schemes.

The rationale behind this move was to fast-track such approvals; however, sources say the time taken by the tribunal is more than what high courts used to take.

IBC cases have taken precedence as the government focuses on addressing the bad loan issue plaguing the banking sector. Also, the Reserve Bank of India recently sent out a directive which said that if a debtor defaulted on more than Rs 20 billion, its case would have to be taken up by the NCLT within 15 days. As a result, the tribunal might be giving priority to insolvency matters over other cases, said a banking expert.

Legal experts are of view that the government should create an ecosystem in advance to ensure the tribunal does not get bogged down with multiple legislation. “It is true that Parliament has burdened the NCLT with multiple legislations. At the National Company Law Appellate Tribunal level, even the Competition Act gets added. Before creating a jurisdiction, one has to plan and model for capacity to handle it, but we singularly fail to adopt an empirical approach. What we now see is an outcome of that approach to policymaking,” said Somasekhar Sundaresan, an independent counsel.

The Centre should understand that technology, human resources, and real estate are the three pillars for running a court. “All of this requires planning before a law is made creating a jurisdiction. But this is never done,” he added.

According to government data, 1,630 cases of merger and amalgamation are pending before the tribunal as on January 31, 2018. “A total of 9,073 cases are under consideration in the NCLT, including 1,630 cases of merger and amalgamation, 2,511 cases of insolvency, and 4,932 cases under other sections of the Companies Act,” Minister of State for Corporate Affairs P P Chaudhary informed the Rajya Sabha in March.

“All efforts are being made to dispose of the cases according to the time limits laid down in the  Companies Act and the IBC. Systems and procedures are being used on an extensive basis to ensure quick disposal of cases,” Chaudhary had said when asked about the timely disposal of cases.

Another expert is of view that to make the tribunal more efficient, the government should increase the Benches to address pendencies. “There is pressure of backlog of cases on the entire judicial system. Being a specialised tribunal and a one-stop forum for corporate law cases, it could affect the time-bound disposal of cases. To ease the stress and pendency, the government should seriously think of increasing the number of Benches and members of the tribunal to ensure time-bound disposal of cases,” said Lalit Kumar, a corporate law partner at J Sagar Associates.

Currently, the NCLT has 10 Benches in Delhi, Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, and Mumbai. The new Benches are expected to be added in Bhubaneswar, Jaipur, and Kochi.

STATUS OF PENDING CASES AT NCLT

9,073:  Total no. of pending cases

4,932: Others under Companies Act

2,511: Insolvency matters

1,630: Merger and amalgamation