Union Budget 2024: Lawyers Urge Government to Increase NCLT Benches for Enhanced IBC Effectiveness

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Union Budget 2024: Lawyers Advocate for Increased NCLT Benches to Strengthen IBC

Calls for Amendments to the Insolvency and Bankruptcy Code (IBC), 2016

As the Union Budget 2024 approaches, legal experts are calling on the government to amend the Insolvency and Bankruptcy Code (IBC), 2016. Lawyers are urging the government to increase the number of benches at the National Company Law Tribunal (NCLT) to improve the effectiveness of the IBC and reduce case pendency.



The Need for More NCLT Benches

Lawyers believe that increasing the number of NCLT benches will significantly reduce the backlog of cases, thereby strengthening India’s insolvency framework. Sanjeev Kumar, Partner at Luthra and Luthra Law Offices India, suggested that more courtrooms could be designated to handle specific stages of the Corporate Insolvency Resolution Process (CIRP). This includes allowing petitions for administrative work to be listed before Registrar courts.

Anticipated Amendments in the Union Budget 2024

The newly formed union government is expected to announce the budget on July 23 or 24. Reports suggest that the budget may include amendments to the IBC to address critical gaps and ensure the timely resolution of distressed assets. Proposed changes may redesign the CIRP to permit financial creditors to drive resolutions for corporate debtors outside of the judicial process.

Current Challenges with the IBC

The IBC was introduced to strengthen the corporate insolvency regime, with set timeframes for resolving corporate insolvencies. Data from the Insolvency and Bankruptcy Board of India (IBBI) shows that the IBC has helped 2,622 companies until June 2023. However, tribunals have faced criticism for delays in case disposal. As of January 2023, the 15-bench NCLT had over 21,000 pending cases, with close to 13,000 related to the IBC. In 2023, it took an average of 643 days to resolve a case, far exceeding the 270 days prescribed by the code.

Expert Opinions on Enhancing the IBC

Jayesh H, Co-Founder of Juris Corp Advocates and Solicitors, emphasized the need for a strict no-stay policy on the commencement of CIRP to reduce delays and expedite case resolutions. Manmeet Kaur, Partner at Karanjawala and Company, suggested increasing resources for the tribunal and introducing a preliminary screening mechanism to filter out frivolous insolvency petitions.

Addressing the Creditor Divide

The IBC categorizes creditors into operational creditors (OCs) and financial creditors (FCs). While both can initiate an insolvency resolution process upon a minimum default of Rs 1 crore, only FCs form the Committee of Creditors (CoC), which approves resolution plans. This creates a disparity between FCs and OCs. Muksh Chand, Senior Counsel at Economic Law Practice, noted that the current provisions heavily favor financial creditors and advocated for a balanced treatment to support entrepreneurship.

Allowing Promoters to Bid

Once a company enters the insolvency resolution process, the existing management loses control, and the CoC takes over, calling for bids to sell the company to the highest bidder. Muksh Chand proposed amending the IBC to allow promoters to submit resolution plans, except in cases of willful default or fraudulent accounts. This would enable promoters to turn around their businesses and optimize value for creditors, reducing delays and litigation.

Regular Monitoring for Improvement

Chand also recommended that the Ministry of Corporate Affairs (MCA) implement a system for regular monitoring of case progress before the NCLT. Generating reports to identify bottlenecks and areas for improvement would enhance the efficiency of the insolvency resolution process.

Conclusion

As the Union Budget 2024 looms, the legal community is hopeful that the government will consider these recommendations to amend the IBC. Increasing the number of NCLT benches and implementing proposed changes could significantly enhance the effectiveness of India's insolvency framework, ensuring timely and efficient resolution of distressed assets.

By addressing these issues, India can strengthen its corporate insolvency regime, restore faith in the IBC process, and promote a more robust economic environment.

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