The never ending CIRP process: Why the IBC needs better coordination

The central government may also encourage the use of alternative dispute resolution mechanisms such as mediation and arbitration to resolve disputes amicably and quickly, thereby reducing the burden on the NCLT, say analysts.

Despite the National Company Law Tribunal (NCLT) functioning at almost full strength since March, the time taken for conclusion of the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC) has not reduced.

According to the latest Insolvency and Bankruptcy Board of India (IBBI) newsletter, the average time for conclusion of CIRP matters in the January-March 2025 quarter stood at 865 days. This is sharply higher than the mandatory timeline of 330 days prescribed in the IBC.

Experts say a multi-pronged approach is required by the government, such as strengthening enforcement against non-cooperating promoters, improving coordination among statutory authorities, developing robust information utilities (IU), and introducing mechanisms to discourage "frivolous litigation," to ensure that the mandatory timeline is not violated.

The Supreme Court (SC) has on several occasions stated the need for the NCLT to ensure that the resolution process is concluded in the 330-day time period. For instance, in the November 2024 ruling on the Jet Airways case, the apex court had stated that the current state of affairs of the NCLT cannot be permitted to continue interminably as it “defeats the very object and purpose of the provisions and timelines” under the IBC.

Timely resolution of insolvency cases is vital for sustaining the effectiveness and credibility of the insolvency framework, the SC had said. “Therefore, concerted efforts and decisive actions are imperative to break the deadlock and ensure the expeditious implementation of the resolution plan."

In March, the central government had assigned benches to 24 new members of the NCLT. As a result, the NCLT as of today is functioning at a strength of 62 members against a sanctioned strength of 63, which may to an extent help accelerate matters.

However, Abhishek Swaroop, Partner at Saraf and Partners, says that while the members have been appointed, there is a huge backlog of cases. "Lot of matters which were heard earlier and were either reserved or were at an advanced stage of arguments are being re-heard, as the member has demitted office," he said.

Expert take

One key reason for CIRPs not being concluded as per stipulated timelines is the frequency of litigations over insolvency resolution processes. "A CIRP of a corporate debtor has a variety of stakeholders such as financial creditors, operational creditors, promoters, etc. All of them have interests which are often in conflict with each other. These conflicting interests invariably lead to litigations which may delay the timelines for the completion of a CIRP," explained Kumar Saurabh Singh, Partner at Khaitan & Co.

Therefore, some experts stress on the need to develop a mechanism, which identifies and discourages "frivolous litigation." Madhav Kanoria, Partner, Cyril Amarchand Mangaldas says: "Implement stricter penalties, including disqualification from directorship, for promoters obstructing the CIRP. Empower the resolution professional (RP) to take quicker action against uncooperative management."

Moreover, the government can consider establishing specialised NCLT benches for complex cases and to prioritise critical matters like resolution plan approvals, which will cut the burden on regular benches, and help expedite the resolution process, say experts.

Additionally, the government can develop robust IUs, which will create a centralised, accessible platform for information related to corporate debtors, creditors, and assets, they say. "Leverage technology to improve transparency and facilitate efficient information sharing," said Kanoria.

The central government may also encourage the use of alternative dispute resolution mechanisms such as mediation and arbitration to resolve disputes amicably and quickly, thereby reducing the burden on the NCLT, say analysts.

Singh stated that while speed is of the utmost importance in a CIRP, it cannot become a ground to dilute judicial efficacy. "What we have seen is that in the last nine years since the inception of IBC (in 2016), a lot of critical issues regarding the CIRP have been judicially tested and settled. But there are still certain critical issues which are complex in nature and require thorough and patient time of the NCLT," he said.