Take Your Roles Seriously: Supreme Court Berates NCLTs, NCLAT For Poor Insolvency Case Management
The Supreme Court flagged systemic issues in insolvency management, including delays, lack of expertise, and infrastructure shortages at the NCLT and NCLAT, urging immediate reforms.
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Nearly 2,000 days went by after Jet Airways Ltd. was first admitted into insolvency and what is now left behind is a pile of aircraft lying scattered in some corner of the nation.
"The NCLTs and the NCLAT must seriously rethink their approach towards admission and disposal of insolvency matters; they should not act as a mere rubber stamping authority and must take their roles seriously in ensuring time-bound hearings and resolutions," the top court has said.
The court said so in its verdict on Thursday, whereby it was forced to exercise its extraordinary powers to order the liquidation of the grounded carrier.
The top court flagged that tribunal members often lack the domain knowledge required to appreciate the nuanced complexities involved in high-stake insolvency matters and stated that the benches don’t have the practice of sitting for the full working hours.
There are serious issues in the manner in which the insolvency matters are listed and there is no effective system in place before the NCLTs for urgent listings, the court said. It added that the staff of the registry has been given wide power to list or not to list a particular matter.
It has become a practice of the NCLTs and the NCLAT to ignore urgent mentionings and listings of time-sensitive matters and show no deference to long-pending matters resulting in value erosion of the assets of the corporate debtor and rendering their insolvency resolution process a foregone conclusion.Supreme Court of India
The court added that the tribunals have adopted the habit of disregarding the top court's orders and categorically stated that, moving forward, any act of contravention of its orders and the larger rubric of judicial propriety will not be tolerated.
Suggestions For Effective Implementation Of The IBC
For the betterment of the economy at large, it is imperative that the insolvency ecosystem be continuously strengthened through a regular identification of its shortcomings and a quick redressal of its practical deficiencies, the top court said.
As a result, the court has suggested certain changes to the Insolvency and Bankruptcy Code of 2016.
For the committee of creditors, the court has suggested that while approving or rejecting a resolution plan, it would be in everyone’s interest that the same is accompanied with adequate reasoning. This, the court said, will help the tribunals understand the rationale behind their decision.
The court added that the tribunals should be sensitised of not exercising their judicial discretion in extending the timelines fixed under the Code or the resolution plan in order to ensure that the entire resolution process as envisaged by the legislature is not rendered obsolete.
“Timely implementation and strict adherence to the terms of the resolution plan is crucial,” the court said.
In order to ensure effective implementation of a resolution plan, the court said that while approving a plan, the NCLTs must outline the next steps that are to be taken by the concerned parties. This will make certain that parties are more vigilant, as non-performance of the obligation may lead to a violation of the terms of the approved resolution plan.
The court suggested the statutory inclusion of a monitoring committee to oversee the implementation of resolution plans, which may be entrusted with the powers of monitoring and supervising till the expiry of the term of the resolution plan.
Lastly, it also flagged the issue of a shortage of members in the tribunals and inadequate infrastructure to support their functioning, saying that such lapses come in the way of adherence to the strict timelines provided in the Code.
