Lawyers laud budget announcement on additional NCLT, DRT benches to reduce pendency

In order to unclog NCLT, which has been facing criticism over delays, the government plans to add new benches to the to exclusively hear cases filed under the companies act, 2013.

“The establishment of exclusive benches within the National Company Law Tribunal (NCLT) dedicated to company law cases is poised to significantly ameliorate the issue of case pendency. This approach ensures the allocation of specialised resources and the development of judicial expertise, thereby enhancing the efficiency and focus of case adjudication,” said Tushar Kumar advocate at the Supreme Court of India.

The Government has also announced the introduction of an integrated technology platform for the IBC. The FM said that over Rs. 3.3 lakh crore has been recovered via IBC and over 28,000 cases have been disposed of so far.

The IBC was introduced to strengthen the corporate insolvency regime. The code introduced timeframes for resolving corporate insolvencies. According to the economic survey, in the eight years since IBC was introduced in 2016, 31,394 corporate debt cases involving a value of Rs 13.9 lakh crore have been disposed of (including pre-admission case disposals) as of March 2024.

The survey said “IBC led debtors to settle with creditors as soon as the applications are filed..... A singularly notable fact is that Rs 10.2 lakh crore of underlying defaults were addressed at the pre-admission stage."

However, the tribunals have been subject to immense criticism, mainly owing to the delay in the disposal of cases. As of January 2023, the 15-bench NCLT had over 21,000 pending cases, of which close to 13,000 pertain to the IBC. In 2023, it took an average of 643 days for a case to be resolved, as opposed to 270 days as prescribed by the code. This has led to a loss of faith in the IBC process and put a question mark on the insolvency framework.

The Debts Recovery Tribunal (DRT) deals with Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, Recovery of Debts Due To Banks and Financial Institution (RDDBFI), 1993 among others. Banks and financial institutions can move DRT to recover debts that are over Rs 20 lakh.

Despite being hailed as a go-to tribunal for banks and financial institutions, DRT has been criticised for being slow and ineffective. Even though the tribunal has powers under law, enforcing its orders has become increasingly difficult and archaic ever since the introduction of new legislations such as the Insolvency and Bankruptcy Code, 2016.

In fact, the pendency in the tribunals rose manifold in recent years owing to unfilled vacancies. Many DRT practitioners moved the Supreme Court, asking the government to fill up the vacancies at once as no work was happening at many benches of the tribunal. In late 2021, the Supreme Court requested the High Courts to hear SARFAESI and RDDBFI matters.

What kind of company law cases does NCLT hear?

The Companies Act 2013, empowers NCLT to decide on schemes of mergers and acquisition, amalgamations among other things. The NCLT also decides cases of oppression and mismanagement (ie. When minority shareholders’ rights are being usurped by the majority) and winding up of the company.

“IBC reforms were the need of the hour. Having increased the number of Tribunals as also separate Tribunals for IBC and Companies Act, will be beneficial for speedy disposal of not only IBC cases but also proceedings filed under the Companies Act. IBC when introduced in 2016 was a welcome move and it did give the required reliefs to the creditors,” said Shruti Maniar Partner at Solomon and Co

Thus, the NCLT is burdened with deciding many high stakes cases of big commercial value day in and day out. Since IBC usually involved resolution and restructuring of companies with big defaults, it was given priority by the NCLT initially. However, the pendency kept rising in IBC and company law cases owing largely to lack of sufficient benches and infrastructure. The president of NCLT, justice (retd) Ramalingam Sudhakar came up with company law days in a week, wherein no IBC cases would be heard.

Deep Roy, Managing Partner, Equilex said: “First measure that was taken by NCLT president was to apportion a specific day in each bench to hear only company cases. This too was not considered enough. The budgetary announcement will definitely help improve the time taken for the non IBC, companies act cases..oppression and mismanagement cases sometimes require very detailed hearings which was not being provided by the existing benches.”

However, Ramesh Vaidyanathan, managing partner at law firm BTG Advaya noted that the effect of the budgetary announcement can be fully realised only when more appointments are made to the NCLT. He said “The decision to earmark some of the tribunals exclusively to cases under the companies law is to be welcomed. Needless to add, a lot will depend on ensuring that vacancies are filled up faster and competent members are appointed, an aspect that has weighed the system in the recent past.”