IBC 2016 legislation empowers NCLT for faster admission of corporate insolvency cases
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IBC 2016 legislation empowers NCLT for faster admission of corporate insolvency cases.
The Insolvency and Bankruptcy Code, 2016 (IBC) is a landmark legislation that aims to provide a speedy and efficient resolution of Insolvency and Bank Bankruptcy cases in India. The IBC empowers the National Company Law Tribunal (NCLT) to admit and adjudicate applications for initiating Corporate Insolvency Resolution Process (CIRP) against defaulting companies.
Benches of the National Company Law Tribunal (NCLT) should not get into questioning a company’s default once it is established by the creditors, particularly financial creditors, for admission to the corporate insolvency process. This is one of the key themes of the draft guidelines for the NCLT, which are being finalised by the Ministry of Corporate Affairs (MCA), a senior official said.
The Ministry of Corporate Affairs (MCA) is also looking to fill all vacant posts at various NCLT Benches by August and put in place an IT-enabled system that would use artificial intelligence (AI) for case management.
“The adjudicating authority has rules for closing down companies which is a Companies Act matter, but the IBC is a very different law,” a senior government official said.
The rules under consideration would work as guidelines for the tribunal. For instance, NCLTs could be directed to penalise frivolous applications that end up delaying the corporate insolvency resolution process.
What the professionals have to say:
Law firm Alvarez and Marshal, in its paper titled ‘The Next Phase of the IBC Must Focus on Efficiency’, noted there was lack of transparency at the registry level in terms of sequential listing of petitions at NCLT benches which, at times, requires multiple follow-ups.
“The burden of excessive documentation and procedures has clogged the movement of cases in the NCLT.
“Streamlining of procedures across the NCLT with respect to filing, elimination of unwanted administrative steps, and shifting the process to e-mode or digital as adopted during Covid will help decongest case workload,” said Abhilash Lal, insolvency professional.
NCLT’s backlog of over 31203 cases
Between November 2017 and August 2022, the NCLT dealt with 31,203 cases for initiation of insolvency, of which 7,175 were pending in the pre-admission stage and 3,369 were pending after admission, according to the data provided by the tribunal.
Admission of cases in the NCLT has been one of the biggest bottlenecks in current insolvency proceedings, since it takes several months to admit an application in most cases, despite 14 days envisaged in the Code.
To address this, the MCA has proposed mandatory admission of applications filed by financial creditors, once the tribunal is satisfied with the occurrence of default.
The MCA is also proposing that information regarding the occurrence of a default or dispute may be ascertained at information utility (IU), which can be relied on for speedy default verification.
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