Vacancies at the NCLTs are jeopardizing IBC reforms, it must be filled as quickly as possible by GoI

In May 2016, the Insolvency and Bankruptcy Code (IBC) was passed. It was rightfully heralded as a watershed moment in economic change, lowering both departure barriers for businesses and lending risks for financial intermediaries. The effectiveness of IBC is based on a group of institutions that work together to provide. This point was brought to light recently when the Supreme Court expressed its unhappiness with the Tribunal Reform Act and vacancies across tribunals during a hearing. It focused on the condition of two major IBC institutions, the National Company Law Tribunal (NCLT) and its appellate body, the National Company Law Appellate Tribunal (NCLAT).

NCLT is involved in two stages of the insolvency process. It assesses whether a complaint can be admitted from the outset, within a specified time. Following that, it must determine whether a firm's resolution plan offered by creditors complies with the law. Due to a lack of personnel, this body is underperforming. As a result, there is an increasing backlog of unresolved cases, jeopardizing IBC's effectiveness. According to a parliamentary standing committee report released last month, there are 34 vacancies among the 63 members sanctioned for the NCLT's 16 benches, including the president's seat.

June was the lowest point. In the first ten days of the month, NCLT had four different acting presidents. The full-time chairperson's position at NCLAT has been vacant for over 18 months. As a result, the NCLT is now dealing with 13,170 IBC cases worth roughly Rs. 9 lakh crore. Approximately 71% of them have been pending for more than six months. When it comes to resolution, time is of importance. IBC was created with the goal of prioritizing resolution above liquidation. This goal can only be realised if the settlement process adheres to deadlines since it prevents a company's worth from eroding.

Last year's pile-up gave us a sense of the problem's scope. As a result of the pandemic, IBC has been halted for defaults occurring on or after 25 March 2020. Despite this lag, just 176 of the 2,278 IBC cases submitted between April and December 2020 had been resolved by early February. IBC stands the risk of following in the footsteps of past reforms if NCLT and NCLAT are not fully functional. Going well at first, but eventually underperforming due to GoI's failure to nurture the appropriate ecology. This tale is just too significant for IBC to repeat itself.