The long road to recovery: Need to expand NCLT strength to reduce delays

India's bad loan problem is easing, but rising delays at the NCLT highlight the urgent need to expand tribunal strength to speed up insolvency resolution

Bad assets on banks’ balance sheets have been reducing. The gross non-performing asset (GNPA) ratio of the Indian banking sector declined to a multidecade low of 2.2 per cent in March 2025 from 2.7 per cent a year ago. During 2024-25 (FY25), around 42.8 per cent of the reduction in GNPAs was attributable to recoveries and upgrades. 

The net NPA (NNPA) ratio declined to 0.5 per cent in March 2025, as banks were quite aggressive in making provisions for bad loans. By September 2025, the GNPA and NNPA ratios stood at 2.1 per cent and 0.5 per cent, respectively. 

What’s more, the slippage ratio, or the share of fresh NPAs in standard advances, declined for a fifth consecutive year to 1.4 per cent in March 2025, and further to 1.3 per cent in September 2025. 

What’s happening to the companies that failed to repay banks? 

The journey towards a faster resolution of sick industries began with the setting up of the Eradi Commission in 1999. Its recommendations on company law reforms, insolvency and winding-up laws led to the formation of the National Company Law Tribunal (NCLT). 

Now, we have a single-window insolvency and bankruptcy resolution process under the framework of the Insolvency & Bankruptcy Board of India (IBBI) and NCLT. 

The Insolvency and Bankruptcy Code (IBC) came into being about a decade ago to minimise cost and time for the resolution or liquidation of bad assets. 

Based on a two-volume November 2015 report of the Bankruptcy Law Reforms Committee, headed by T K Viswanathan, it was legislated in record time. After clearance in both Houses of Parliament, then President Pranab Mukherjee approved it on May 28, 2016. The Code was in place by August 2016. Two months after the setting up of IBBI, the regulatory body, the process kicked off on December 1, 2016. 

Besides insolvency resolution under the IBC, the NCLT’s key functions include corporate restructuring, mergers, demergers and other corporate reorganisations. 

In the first phase, there were 11 NCLT Benches — one principal Bench in New Delhi and 10 others in New Delhi, Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai.  

Now, it has 16 Benches. 

Since 2017, this quasi-judicial body has successfully concluded many of the pending matters much faster than the debt recovery tribunals (DRTs) and civil courts. The DRTs and debt recovery appellate tribunals were established under the Recovery of Debts and Bankruptcy Act, 1993, for speedy adjudication and recovery of debts due to banks and financial institutions. 

Until March 2020, the resolution process for 3,774 cases was initiated under the IBC. The NCLT had closed 469 cases — 312 of them were either settled or reviewed, or had appeals against them, and 157 cases were withdrawn — and approved resolutions in 221 cases. 

There were 914 cases of liquidation at the time, while hearings were on in 2,170 cases. Of the cases in which hearings were on, 738 were at least 270 days old, 494 between 180 and 270 days old, and 561 between 90 and 180 days old. The remaining 377 cases did not spill over 90 days. 

Let’s take a look at the cases pending before the NCLT in the past five years. In FY21, 536 cases were admitted and 1,621 were pending. In FY22, 888 cases were admitted and 1,701 were pending. In FY23, 1,262 cases were admitted and 1,949 were pending. In FY24, 1,003 cases were admitted and 1,917 were pending. And in FY25, 723 cases were admitted and 1,926 were pending. 

The time taken to settle a case has been rising steadily. In FY20, it was 375 days. From there it rose to 459 days in FY21, 528 in FY22, 613 in FY23, 679 in FY24, and 713 in FY25. 

Delay in settling such cases erodes the quality of assets preserved for resolution and deprives creditors of the realisable value. 

Typically, after a case is filed, it takes between a fortnight and a month for it to be admitted into the NCLT. The platform should find a solution within 180 days; but it can take another 90 days, depending on the complexity of a case. This means a case should be resolved within 270 days. But more than three-fourths of the cases are taking longer than 270 days. 

Of course, this timeline does not include the time spent on litigation, which can be long. To reduce this, the Act was amended in August 2019. The objective was to ensure completion within 330 days of the admission of a case, including any intervening litigation period. Even this timeline is hardly met in most cases. 

While admitting a case, the NCLT appoints an interim resolution professional (IRP) whose term lasts till the appointment of a resolution professional (RP) to carry forward the process. The IRP is generally identified by the person filing the application with the NCLT. The IRP collates the claims and forms a committee of creditors (only financial creditors) or CoC. 

At the next stage, the information memorandum is prepared, and the so-called expression of interest is sought from prospective bidders.  

After checking the eligibility of the bidders and evaluating resolution plans, the CoC takes a view. 

The RP then submits the plan approved by the CoC to the NCLT for its approval. A Supreme Court ruling says the CoC’s commercial wisdom cannot be challenged in a court. 

The IBBI amended the regulations to prevent any fresh bids from being entertained after a certain deadline. Even though nothing prevents the CoC from extending the deadline for all bidders to allow for better bids, the schedule needs to be maintained for a timely conclusion of the process. 

Certain assets may not get any bids at all. In the past, there had also been cases where the NCLT allowed fresh bidding after the original winner cited misrepresentation of facts in the information shared. 

Nothing prevents defaulters from moving first to the appellate body, the National Company Law Appellate Tribunal (NCLAT), and after that, or at any time, the high courts, and even the Supreme Court. 

Before the NCLT, cases related to the recovery and settlement of unrecovered corporate loans were referred to DRTs. And before DRTs, cases were settled in civil courts, which took too long to examine evidence admissible under the Indian Evidence Act. 

As these courts were overloaded with civil disputes, recovery often took a decade, by which time an asset’s value eroded substantially. 

The IBC and the NCLT have enormously helped banks and other creditors in faster recovery and resolution. This, in turn, has contributed to strengthening banks’ balance sheets. Through this process, the banking sector has resolved and realised at least ₹4 trillion. But the time taken to resolve cases must come down. 

Currently, there are 39 NCLT members running the show, against a sanctioned strength of 63 across the 16 NCLT Benches. The government is understood to be proposing to immediately increase the number of NCLT members to 85. The plan is to add another 200 in the next few years to deal with the backlog in insolvency cases. 

Faster rolling of funds stuck in the bad assets of defaulters will help lenders, even as handing over of defaulting companies’ management to new suitors will get them going. 

Indeed, there are a few cases where the Supreme Court has overturned the decisions of the NCLT and NCLAT on different grounds, including procedural lapses and violations of IBC provisions. But none can deny that this mechanism is playing a critical role in resolving and restarting closed companies. 

Incidentally, a recent IBC amendment has introduced the group insolvency framework — a creditor-initiated insolvency resolution process to settle out of court. The enhanced power of CoC is likely to reduce the time taken to resolve cases. If the increase in the number of NCLT members and Benches goes hand in hand, bankers will smile, as the long-drawn process of resolving bad assets will be streamlined. 

---

The writer is an author and senior advisor to Jana Small Finance Bank Ltd. His latest book: Roller Coaster: An Affair with Banking. To read his previous columns, log on to www.bankerstrust.in. X: @TamalBandyo