Rethinking insolvency

Introduction and Importance of IBC

• The IBC was introduced to address insolvency resolution in a structured and time-bound manner.

• The IBC was seen as a tool to help India’s business standing and bring bad borrowers and big defaulters to book.

Challenges in the IBC

• The National Company Law Tribunal (NCLT) and its appellate body, the National Company Law Appellate Tribunal (NCLAT), face the dual burden of handling corporate insolvencies under the IBC and cases under the Companies Act.

• The NCLT’s structure, based on the Eradi Committee’s recommendations, is ill-equipped to meet contemporary demands.

• The NCLT has become a bottleneck for insolvency resolutions and corporate transactions such as mergers and amalgamations.

• Delays have worsened, with the average time for insolvency resolutions increasing to 716 days in FY2023-24, up from 654 days in FY2022-23.

Need for Domain Expertise

• The current framework’s deficiencies are manifest across other dimensions, including the qualitative dimension of institutional capacity.

• The current method of appointment ignores the need for domain experience, creating a paradox where an institution tasked with resolving complex cases is hindered by a lack of specialized knowledge.

• There is no effective system in place before the NCLTs for urgent listings.

• There is a growing tendency among NCLT and NCLAT members to ignore or defy its orders, threatening the foundation of India’s judicial hierarchy.

Sparse Use of Alternatives

• The procedural framework further exacerbates these constraints.

• The requirement for a mandatory hearing for all applications results in considerable delays.

• The limited use of alternative dispute settlement methods adds to the problems of an already overworked system.

Recommendations

• The recent reform proposals, including the initiative for mandatory mediation prior to the submission of insolvency applications, present a degree of optimism.

• There needs to be a hybrid model that values judicial experience and domain expertise.

• The creation of specialized benches for different categories of cases could enhance efficiency and expertise.