It is a well-known fact that India’s banking system was in deep trouble some years ago. The gross NPA ratio of public sector banks in 2016-17 was 11.7 per cent. Apart from the question of how these NPAs came into being, it was clear that it reflected the failure of legislation such as the SARFAESI Act, 2002, the RDDBFI Act 1993, SICA 1985, and to some extent the winding up regime under the Companies Act, 1956. All of these performed initially but as time went by they gave way to delays, frivolous litigations, abuse of the process of law and more.

One aspect of Insolvency and Bankruptcy Code, 2016 (IBC) that makes it a unique law is how its regulator, namely the Insolvency and Bankruptcy Board of India (IBBI) has from time to time, provided data on various aspects of the law. This is right from the number of companies that have been initiated into the corporate insolvency resolution process (CIRP), liquidations, time taken for completion of each of these and other procedures under the IBC such as voluntary liquidation, percentages of recoveries and a lot more. It seems that easy access to data has become a major reason for loose criticism of the IBC and the National Company Law Tribunal (NCLT). The NCLT is a specialised tribunal formed to adjudicate upon company law matters and cases under the IBC 2016.

To begin with, let us first get the facts in place and then assess whether IBC as a law has been a success or failure. To what extent is it justified to easily blame the NCLT for supposedly being “slow” and not “swiftly deciding” the cases? As of December 31, 2023, 891 CIRPs that yielded resolution plans took an average of 671 days or 558 days (after excluding the time by the NCLT for specific reasons) from the date of commencement of the insolvency proceedings. It is interesting to observe that from October to December 2023 alone, about 79 resolution plans have been approved, which shows the pace at which the tribunal is picking up and trying to clear the backlog post-pandemic.

Similarly, in terms of liquidation, 2,376 companies were ordered to be liquidated, which took an average time of 486 days from the liquidation commencement date (LCD) for conclusion. Further, out of the 2,376 companies, for about 830 companies, the final reports have been filed, and these took about 575 days for closure from the LCD. Another process under IBC, namely, voluntary liquidation took about 409 days from the LCD, and about 1,253 companies could successfully participate in this process and wrap up their operations.

In addition to the above, the inflow of applications in the context of personal guarantor insolvencies have significantly picked up after the Supreme Court’s decision upholding the constitutional validity of several sections of IBC in Dilip B Jiwrajka vs Union of India & Ors. As many as 2,417 applications have been filed before the NCLT as on December 31.

IBC is a law where the underlying issues are all related to money and finances, barring matters where homebuyers are involved and emotions run very high. It has been held in Univalue projects (P) Ltd vs Union of India, that the NCLT and the Appellate Tribunal shall be bound by the principles of natural justice while regulating the procedures before them, in addition to being governed by the provisions of the Companies Act, 2013 and IBC.

It is often seen that right from the very admission stage of a company into the corporate insolvency process, the proceedings turn adversarial. Issues such as non-cooperation between stakeholders and day-to-day challenges between the promoters and the insolvency professional (IP/RP) or Committee of Creditors (CoC), clashes among creditors, third party issues are commonly observed.

At the ground level, during the resolution process, there are litigations concerning partial admission or rejection of claims, which could range from a few lakhs for an operational creditor to possibly hundreds of crores for a financial creditor, related party issues, and more. It is a pressure situation even for the financial institution to fight for its entitlements right till the end, and the Tribunal cannot ignore this. Then comes the grand finale in the resolution process in some cases where the competitive bidders and/or the promoters end up litigating for acquiring the company; proposals of one-time settlements, etc.

We claim to be a judicial system wherein any aggrieved person can approach a court of law and has the right to be heard. Is it then easy for the NCLT to brush aside these interim applications which form part and parcel of the CIRP or liquidation? Before rushing to the conclusion that there are delays in the resolution process by the NCLTs, one needs to accept that there are complicated issues that need to be looked into. These include the NCLT’s efforts to give all relevant stakeholders a fair chance to be heard; the unsuccessful ones would take the appeal route.

Is it merely the judicial system that is responsible for the delays or is it the nature of issues and concerns of relevant stakeholders involved around this law that are equally or more responsible? This calls for sober reflection.

The writer specialises in corporate and IBC disputes in New Delhi and Chennai, and is the author of ‘Defaulter’s Paradise Lost’