Senior Advocate and commercial law expert Chinmoy Pradip Sharma feels that Supreme Court (SC) judgments have addressed the lacunae in the Insolvency and Bankruptcy Code (IBC), and now the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), which are responsible for implementing the law, must do so more efficiently.
“The SC has mostly addressed the lacunae in the IBC, now the tribunals need to take it forward. It is only when cases are taken to their logical conclusion will the issues in law be truly addressed,” he said.
Sharma told Moneycontrol how the IBC, which was introduced in 2016, has panned out as a legislation over the last seven years. Brought in to strengthen the corporate insolvency regime in India, the law introduced time frames for resolving corporate insolvencies. Per data from the Insolvency and Bankruptcy Board of India (IBBI), which governs the IBC, the law had helped 2,622 companies (720 through resolution plans, 1,005 through appeal, review, or settlement, and 897 through withdrawal of insolvency proceedings till June 2023.
However, the tribunals have been subject to immense criticism, mainly owing to the delay in 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.
“IBC saw the resolution of big cases like Bhushan Steel, Amtek Auto, ABG Shipyard, Essar Steel, among others. The resolution and the disposal of cases in the initial years was high,” Sharma explained. He, however, noted that at present, the NCLT and NCLAT are over-burdened due to parties filing numerous applications in each and every case, delaying the timely resolution and disposal of cases.
According to Sharma, NCLT and NCLAT are unable to take up all the cases in the daily cause lists due to paucity of time, which affects the disposal rate of the cases. Furthermore, the Senior Advocate said that the tribunals are now being used for recovery of dues, which has led to an increase in cases. Sharma stated that the intention of the law, however, is to ensure that corporates escape the clutches of insolvency.
To make the tribunals more efficient, final hearings should be listed at the top of the daily cause list (the list of cases a judge is to hear in a day), and should be disposed of at the earliest, said Sharma, and added that more members should be added to the tribunals ``for effective distribution and speedy disposal of cases.”
Lacunae that are yet to be fixed
Sharma highlighted that while most of the lacunae in the IBC have been addressed, there are some areas, like differences between types of creditors, that need fixing.
There are two kinds of creditors under IBC: operational creditors (OCs), and financial creditors (FCs). OCs are those who provide goods and services to a business, but have not been paid, FCs are those who lent money to the company.
According to Sharma, while the IBC enables both OCs and FCs to initiate an insolvency resolution process upon a minimum default of Rs. 1 crore, the Committee of Creditors (CoC) formed after the admission of the case comprises only FCs. He added that the CoC is empowered to approve resolution plans (RPs), and the commercial wisdom of the CoC is held to be paramount.
While the SC has upheld the distinction between OCs and FCs in the Swiss Ribbons case, the senior advocate says, “This leads to the claims of FCs being favourably treated over the claims of OCs, leading to discrimination, and putting the FCs on a higher footing than OCs. The insolvency process can be initiated by an OC, but once it begins, OCs become silent spectators in the entire corporate insolvency resolution process (CIRP) and are at the mercy of FCs for their claims.”
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