Delays, even with no jurisdiction

Source: The post is based on an article “Delays, even with no jurisdiction” published in Business Standard on 12^th January 2023.

Syllabus: GS 3 – Indian Economy

Relevance: problems with the IBC, 2016.

News: Judicial delays are acting as hindrance towards the insolvency process. It takes almost two years to admit an application and another two years to approve a resolution plan. This affects the purpose of the Insolvency and Bankruptcy Code, 2016 (IBC).

What are the issues with the IBC?

The IBC provides for a regulator in the form of the Insolvency and Bankruptcy Board of India (IBBI) which makes regulations relating to resolution processes.

It provides for an Adjudicating Authority (AA) to adjudicate matters in relation to insolvency proceedings. It designates the National Company Law Tribunal to act as the AA for corporate insolvency proceedings.

The market participants and insolvency professionals conduct processes in accordance with the IBC and the regulations and submit them to the AA for adjudication.

The AA provides that a tribunal cannot test the legality of the parent legislation but claims that it is competent to test the legality of regulations, including the competence of the IBBI to make a regulation.

Hence, AA has been striking down regulations in collateral proceedings which is one of the reasons behind the delay in insolvencies.

Moreover, other tribunals which have exceeded its jurisdiction have faced setbacks from the Supreme Court.

The Court ruled in 2010 (PTC India Ltd vs Central Electricity Regulatory Commission) and in 2013 (BSNL vs Telecom Regulatory Authority of India) that the appellate tribunal does not have the jurisdiction to entertain challenges to regulations framed by the Central Electricity Regulatory Commission and the Telecom Regulatory Authority of India.

What can be the way ahead?

The shift to a market economy required two major changes – a) the institutional environment and b) the institutional arrangement.

The IBC provides the institutional environment but it needs to evolve with the dynamics of the ecosystem for the institutional arrangement (regulators and tribunals) for implementing the law to work efficiently.

Therefore, these agencies need to discharge their assigned roles and not take over others’ roles for best results.