NCLT has exceeded expectations in terms of deciding cases in 2 yrs: Experts

Come July, the National Company Law Tribunal (NCLT) would have functioned for two full years. The provisions setting up the NCLT were notified on 1 June 2016. It began functioning on 1 July that year. 

The NCLT was part of the changes introduced under the Companies Act 2013, as a bid to overhaul the commercial disputes resolution system and doing away with the Company Law Boards, and the Board for Industrial and Financial Reconstruction. After the Insolvency and Bankruptcy Code (IBC) was passed, corporate insolvency cases were also made amenable to the NCLT’s jurisdiction.

Two years is nearly not enough time to judge how a tribunal is functioning, but there is an increasing focus on these specialised bodies that especially deal with commercial matters owing to the business impact of these decisions. The government, in the last four years, has made several amendments to various laws and enforcement of the same in order to make resolution of disputes faster -- a marker that affects India’s rankings in the Doing Business Report released by World Bank each year. 

Two years report card

According to experts, the NCLT has exceeded expectations in terms of deciding cases in the last two years. 

“The NCLT has broken myths around the ineffective functioning of tribunals. It is commendable how quickly the learning curves have developed, how quickly they’ve understood the goals of law, how they’ve identified their own significance in the insolvency framework and grasped the real essence of insolvency law,” said Sumant Batra, managing partner at law firm Kesar Dass B. and Associates.

Alok Dhir, managing partner at law firm Dhir and Dhir Associates, agreed. “Despite infrastructural deficiencies, the NCLT has been making great efforts in dealing with an avalanche of cases filed under the IBC. In the first two years, there has been a great development of jurisprudence on the IBC, giving clarity to the procedural issues and implementation of various provisions of the IBC,” Dhir said.

Improving tribunals

Besides judicial pronouncements, there have been detailed reports on how to improve tribunals, given the variety of such bodies that have come up in the last couple of decades. 

The Law Commission, in its 252nd report on Tribunals, brought out a comprehensive set of recommendations for the tribunal system in the country. The report said that if the jurisdiction of high courts is transferred to tribunals, the members of the tribunals should have the same qualification as high court judges. This is significant for the NCLT as it took over the functions of winding up from the high courts. The report also recommends that the benches of tribunals should be located at all places where high courts are situated. The NCLT at present only has 11 benches – two in Delhi, and nine others.

“A new set of judges and more benches are likely to increase in the near future,” Batra said, adding, “It is important to have more judges and better infrastructure like support staff, better courtroom, greater use of technology, less paperwork, and extensive training.”

Yet another report by think tank Vidhi Centre for Legal Policy highlights the concerns with tribunals. The Vidhi interim report, titled “Reforming the Tribunals Framework in India”, notes that there are three criticisms of tribunals at present -- lack of independence, non-uniformity in regulating these quasi-judicial bodies, and the aspect of the jurisdiction of high courts plagues tribunals across the country. The issue of independence is significant as these bodies are dependent on a ministry, like the NCLT falls under the Ministry of Corporate Affairs, and can also have bureaucrats as members.

Looking ahead

The Insolvency Code and its cases under the NCLT are noteworthy, especially at a time when there are issues of large loan defaults in the country. The way forward, according to experts, requires the tribunal to stick to the letter of the law while interpreting the law and deciding cases. 

“In the coming years, the NCLT needs to understand timeframes are critical and one cannot liberalise the resolution period of 270 days on multiple grounds,” Batra said. Time-bound decisions are critical for foreign investors. Further, he said that an emerging trust deficit between the tribunal and insolvency professionals (IPs) needs to be bridged. 

This does not necessarily mean that the timelines given in the law are too short and need changing. Dhir said, “It is also too early to take a call on whether the 270-day timeline is too short.” 

Under the IBC, the NCLT was to only ensure that all procedural requirements are met, and entrust the committees of creditors (CoCs) to take decisions. “The goal of the IBC was to ensure judicial forbearance -- that is the NCLT would restrict itself to ensuring that the decision-making process and the procedure was being rightly followed and but not interfere with decisions of the CoC. However, in practice, a certain overlap is developing where the NCLT is asking the COC to reconsider its decisions. Such oversight on decisions by the COC was not conceived and the NCLT should not step into this area,” Dhir said.