UPSC Syllabus Topic: GS Paper 3 –Economics
Introduction
India needs a National Insolvency Tribunal because the success of the Insolvency and Bankruptcy Code depends not only on good law but also on the forum that applies it. The Code changed creditor rights, lending behaviour, and expectations of time-bound resolution. However, delays in adjudication show a mismatch between the Code’s design and the institutional system supporting it. This makes a review of the present NCLT structure necessary.
Insolvency and Bankruptcy Code and the NCLT
- The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted to create a time-bound and structured process for resolving financial distress and improving creditor confidence.
- For corporate insolvency cases under the IBC, the National Company Law Tribunal (NCLT) functions as the key adjudicatory forum. The NCLT was constituted under Section 408 of the Companies Act, 2013, and it came into effect on 1 June 2016.
For detailed information on Insolvency & Bankruptcy Code – Features, Achievements & Limitations read this article here
NCLT’s present design and workload
Origins: The NCLT was created as an adjudicatory forum under the Companies Act, 2013. It was designed to handle corporate disputes such as governance issues, mergers, capital reduction, and shareholder remedies.
Expansion to insolvency jurisdiction: Within six months, the NCLT was also assigned corporate insolvency matters under the Insolvency and Bankruptcy Code. This decision combined two very different legal regimes within one forum.
Emergence of a dual mandate: Over time, the volume and complexity of both jurisdictions increased. Matters that require urgent decisions began competing with cases that demand detailed judicial examination. This dual role has strained the Tribunal’s capacity.
For detailed information on National Company Law Tribunal (NCLT) read this article here
Concerns and challenges with the present NCLT structure
- Different nature of disputes: Insolvency proceedings demand speed, certainty, and strict timelines. Company law disputes involve questions of fairness, valuation, shareholder rights, and governance, which require careful and prolonged hearings.
- Overburdened: The NCLT currently handles insolvency resolution, oppression and mismanagement cases, mergers, and capital restructuring. This wide scope has led to congestion, overlapping priorities, and delays that hurt both objectives.
- Delays in insolvency resolution: Data from the Insolvency and Bankruptcy Board of India’s Q2 2025–26 Newslettershows that the average time from commencement to approval of a resolution plan is 821 days. Even after removing excluded periods, the timeline remains 688 days.
- Frequent breach of statutory limits: Out of 1,898 ongoing CIRPs, 78% have crossed the statutory 270-day limit. Nearly 61% have continued for more than two years. These figures show a clear failure to meet the Code’s time-bound framework.
- Impact on value and recoveries: Prolonged delays weaken enterprise value, influence creditor recoveries, and put the very purpose of the Code at risk. A Tribunal dividing its attention between insolvency and company law cannot deliver the pace the Code assumes.
- Limits of incremental reform: The Parliamentary Standing Committee on Finance noted delays, shortages of members, and limited benches. It suggested capacity augmentation and tighter timelines, but it still assumes the present adjudicatory structure is settled, and treats delay mainly as a resources-and-process problem.
Way forward
- Addressing the institutional design gap: The core issue is whether a time-sensitive insolvency regime can share a forum with slower-moving company law disputes without impairing the objectives of either. The present structure has struggled to meet insolvency timelines.
- Dedicated insolvency tribunal: A dedicated National Insolvency Tribunal would focus only on insolvency and bankruptcy matters. This would allow specialised expertise to develop and help stabilise insolvency jurisprudence.
- Improving speed and predictability: A specialised forum supports swift adjudication, consistent outcomes, and predictable timelines. Since speed is central to preserving value, this aligns better with the Code’s design.
- International experience: The United States Bankruptcy Courts show how a dedicated insolvency system can improve consistency and outcomes through focused adjudication. This supports the case for specialisation.
- Creating a stronger insolvency ecosystem: A dedicated tribunal would give creditors clearer expectations and enable companies in distress to restructure through a transparent and expedited framework. Predictable timelines would strengthen the wider insolvency ecosystem.
- Relocation of company law: Company law disputes, especially oppression and mismanagement cases, involve detailed factual inquiry and doctrinal development. These are too intricate to be hurried and too complex to be pushed to the margins.
- Role of High Courts: Commercial divisions of the High Courts already handle high-value disputes under structured timelines. Transferring company law matters there would reduce pressure on insolvency adjudication and ensure company disputes get the time they need.
- Legal and procedural transition: This restructuring requires amendments to Sections 408 to 434 of the Companies Act and related rules. India has earlier managed institutional shifts through phased transitions, which shows such reform can be carried out without disruption.
Conclusion
The Insolvency and Bankruptcy Code remains a strong and coherent law, but its execution is weakened by institutional strain. The NCLT’s dual mandate has slowed insolvency resolution and harmed value. A dedicated National Insolvency Tribunal, along with shifting company law cases to High Courts, can restore speed, role clarity, and effectiveness.
Question for practice:
Examine whether the present structure and workload of the National Company Law Tribunal are adequate to meet the time-bound objectives of the Insolvency and Bankruptcy Code.
Source: Businessline
