Centre pushes for faster admission of corporate insolvency cases at NCLT

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.

According to the official, while the company law matters could involve the “principle of natural justice” and justify extended proceedings to hear all parties concerned, the same does not apply to the Insolvency and Bankruptcy Code (IBC) proceedings.

“If a default has been established by the creditor, there is no need for the adjudicating authority to further look into the matter and admit challenging petitions, which only delay the process,” the official said.

The need to differentiate between the two arises because the NCLT, which came into existence even before the IBC, operates using rules that were set up for company law matters.

To reduce delays at the adjudicating authority level, the MCA has drafted IBC-specific guidelines, starting with the first stage of application admission.

For instance, a decision on admitting an application is supposed to take 14 days according to the IBC.

In practice, however, case admissions in the NCLT have been one of the biggest bottlenecks in the insolvency proceedings, which take up to a year or more, with the tribunal often questioning and admitting litigations against initiation of this process.

“As long as the default of the corporate debtor is proved by the creditor, it is imperative that the corporate debtors get admitted into insolvency,” said Anshul Jain, partner at PwC India.

Demand for single window clearance

The MCA could also look into the industry’s demand for a single window clearance for companies resolved under the IBC, for different processes falling under the Company Law.

These processes include changes in the company's board of directors, promoters, share capital, as well as issues related to non-compliances, according to industry sources.

Experts point out that when a resolution applicant acquires a corporate debtor, it faces several difficulties in changing directors, cancelling current capital, and issuing new shares because there is no process under the Companies Act or e-forms that enable such changes.

“Despite the MCA being the nodal ministry for IBC, such procedural enablements are yet to be done in RoC processes.

"It is high time that a resolution plan, once approved by the NCLT, be considered a single window clearance for all processes and procedures under company law and Sebi regulations,” Jain said.

Between November 2017 and August 2022, the NCLT dealt with 31,203 cases for initiating insolvency, of which 7,175 were pending in pre-admission stage and 3,369 post-admission, according to the data provided by the tribunal.

The MCA also plans to empower NCLT to take action against those filing frivolous litigation adding to delays.

To address these delays, the MCA has proposed mandatory admission of applications filed by financial creditors, once it is satisfied of the occurrence of default.

The MCA is also proposing that the information regarding the occurrence of a default or dispute be ascertained at the information utility (IU), which can be relied upon for speedy default verification.

The MCA’s consultation paper has proposed a provision that when the IBC is initiated by financial or operational creditors, the adjudicating authority should rely solely on records available with the IUs.

Having conducted the interministerial discussions of the proposed IBC amendment Bill, the MCA is still ironing out some issues before finalising the draft for introduction in Parliament, the senior official added.