NCLT member crunch slows down bankruptcy resolution

Twenty-two businesses have found debt resolution under the Insolvency and Bankruptcy Code (IBC) in October-November period of this year, against 47 in the year-ago period, provisional public data from Insolvency and Bankruptcy Board of India (IBBI) showed.

And in the first half of the current fiscal year, 143 businesses got their rescue plans approved by the National Company Law Tribunal (NCLT), the judicial authority that clears debt resolution schemes under the bankruptcy code. In the same period last fiscal, a higher 177 debt resolutions were cleared by the NCLT. 

FY24 had witnessed a record number of 269 business rescues under the bankruptcy code as IBBI kept refining its regulations to cut delays and improve efficiency of the code’s operation.

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Data available from the NCLT shows that at the end of September, the tribunal had 43 members, or 30% short of its sanctioned strength of 62 judicial and technical members. That was after 11 members demitted office in 2024 so far. In addition to judicial and technical members, NCLT also has a president (currently it is Justice Ramalingam Sudhakar).

Data from the NCLT showed that only 13 out of its 30 courts are functioning on a full-day basis while 12 others are functioning on a half-day basis due to the non-availability of members. The remaining courts are sitting for two or three days a week and that, too, for half a day only.

This shortage has hit the functioning of India’s bankruptcy courts.

Queries emailed to IBBI, NCLT and to the spokesperson for the ministry of corporate affairs on 3 December seeking comments for the story remained unanswered at the time of publishing.

In August, minister of state for corporate affairs Harsh Malhotra had informed the Rajya Sabha that as many as 55 appointments were made to NCLT in the three years up to 2023 and that filling up of vacancies for members is a dynamic and collaborative process between the executive and judiciary. Appointments are made based on the recommendations of a selection panel chaired by the chief justice of India or his nominee.

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Vacant member positions impact the functioning of NCLT and lead to piling up of cases, experts said.

Non-functioning of a full time Bench hampers the process and results in avoidable delay in bankruptcy resolution and other company law matters, said Ritesh Adatiya, an insolvency professional and director at NPV insolvency Professionals Pvt. Ltd.

“Appointment of members and judicial Infrastructure was always a challenge since the inception of NCLT and National Company Law Appellate Tribunal (NCLAT). If we compare the current position with that of a few years ago, it has improved but has still a long way to go," said Adatiya.

He pointed out that the country needs more Benches and members who can discharge the function, which is something that needs to be taken on priority.

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The government is well aware about the term of members and, therefore, filing of vacancies should be dealt with in advance, said Subodh Dandawate, associate director - regulatory services at Nexdigm, a business and professional services company.

“The selection, training and appointment of judicial and technical members should be considered a high priority area as it involves time and process," said Dandawate.