Updated: January 2, 2021 6:01:09 am
In its fifth year of existence, the Insolvency and Bankruptcy Code (IBC) — brought with an aim to speed up the bad debt resolution process in the country and clean up banks’ books — has come to an abrupt halt. Calendar year 2020 was particularly harsh, with one factor after another impeding the functioning of the Code.
Consider this. On January 5, 2020, only five days into the year, the first president of the National Company Law Tribunal (NCLT), Justice M M Kumar, retired from his post. The insolvency body has been without a full-time president ever since. The tenure of acting NCLT president, BSV Prakash Kumar, which was initially supposed to end within three months, April 5, has been extended multiple times since. On December 9, the Supreme Court, in an order, said he would continue to function as the acting president until the appointment of a regular one.
In March, the first chairperson of the National Company Law Appellate Tribunal (NCLAT), Justice S J Mukhopadhaya also retired. Justice B L Bhat, the second-most senior judge at the appellate body, took over as acting chairperson and has been in office since. In a recent notification, the government said his tenure, too, would continue either till December 31 or the new chairperson was appointed.
The manpower issues had barely been resolved when a nationwide shutdown in March, to prevent the spread of Covid-19, was announced. This also led to the shutdown of the NCLT and the NCLAT for the time being. However, while other courts of law across the country slowly made provisions to start hearings through video conferencing or limiting the number of litigants and advocates, the insolvency courts could not do much.
A new system of filing online submissions and cases also slowed the functioning of the NCLT and the NCLAT, with lawyers complaining of the complexity of the process. In addition to that, both the tribunals recorded frequent positive cases of Covid-19 among its staff, due to which they opted for a complete shutdown, without listing any provisions for online hearing.
Following a nudge from the Supreme Court, which, in July said the NCLT and the NCLAT must find a way to listen to the cases as “doors of justice” could not be closed, both the courts came back online. In June, however, the government issued an Ordinance suspending the admission of new companies into insolvency for six months, with provision for extending it by another six months. The Ordinance has now been extended till March 31, 2021.
All these issues have taken their toll on the IBC and the impact is likely to be seen even in the coming financial year. According to a report by Icra, lenders such as banks, financial institutions and other creditors may realise only
Rs 60,000-65,000 crore through successful resolution of bad debt via IBC in financial year 2020-21, compared to nearly Rs 1 lakh crore realised in 2019-20. This drop of 40 per cent in realisation is likely to be exacerbated in the next fiscal, if and when the government moratorium on admission of fresh cases into insolvency courts is lifted. Apart from the usual numbers, there would be a flood of big-ticket cases such as those of Jet Airways and Reliance Communications. These cases would bring with them a litany of issues and claims — ranging from banks to small operational creditors. Long pending insolvency cases, such as those of Bhushan Power and Steel and asset resolution of IL&FS are likely to be completed in the coming fiscal.
However, not all was lost last year at the NCLT and the NCLAT. Despite all the challenges, the insolvency appellate tribunal passed over 1,000 judgments in a wide range of cases, including important ones with respect to the Companies Act and the Competition Act. Similarly, the NCLT, which got several new Benches operational last year, okayed resolution plans for over 75 debt-ridden companies, as per the data from the Insolvency and Bankruptcy Board of India. The principal Bench at New Delhi, and the 14 other Benches in various parts of the country, also passed liquidation orders for over 200 companies, which had debt of over Rs 70,000 crore.
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