Ease of doing business at risk if issue of appointments to tribunals is not resolved

Synopsis: Article discusses the vacancies in the tribunals and how it’s affecting the Insolvency and bankruptcy code’s actual purpose to resolve the debt. Timely appointment will make strict time-bound insolvency resolutions a reality. 

Introduction 

Recently, Supreme Court questioned the government on vacancies in the National Company Law Tribunals (NCLT), and the National Company Law Appellate Tribunal (NCLAT). 

What are the implications of the vacancies? 

First, IBC helps to improve India’s ranking on the “Ease of Doing Business”. But vacancies in the tribunals have slowed down insolvency resolution due to the huge pendency of cases. Both the NCLT and NCLAT have been without chairpersons for many months and also had members less than the actual strength. Recently, government appointed members and chairpersons to both NCLT and NCLAT. 

Second, IBC was enacted with an object of time-bound resolution of debts, pendency of appeals. But in reality, it is leading to delay in the final resolution. 

Why a slower resolution process is bad? 

Resolution applicants take a higher risk if the process is uncertain and if there is no fixed time for transfer of control of a corporate debtor to the successful applicant. A longer approval period means greater value erosion of a corporate debtor which would be an unattractive proposition for any prospective resolution applicant.  

This uncertainty can be cured by a faster approval process by the NCLTs by the creation of more benches and filling up of current vacancies. 

What steps can be taken? 

First, along with filling up vacancies, the members being appointed must have sufficient domain expertise, and they must be provided with training. 

Second, we can recover the lending process which got disrupted due to COVID-19 by supporting the mechanism under the IBC to inspire confidence in creditors. 

Third, Supreme Court can make appointments by itself, and it can take harsher steps like transferring jurisdiction under the IBC to high courts.  

Source: This post is based on the article “Ease of doing business at risk if issue of appointments to tribunals is not resolved ” published in the Indian Express on 20th September 2021.