Suspension of fresh proceedings under the insolvency law as well as the NCLT and the appellate tribunal switching to virtual hearings due to the coronavirus pandemic seem to have put the brakes on the pace of resolution process for stressed assets and realisation for creditors.
To provide relief for entities impacted by the pandemic, the government has suspended fresh proceedings under the Insolvency and Bankruptcy Code (IBC) starting from March 25, when the nationwide lockdown was imposed to curb spreading of coronavirus infections. The suspension has been extended till March next year.
While the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) are conducting virtual hearings with a new set of standard operating procedures, experts are of the opinion that the pandemic has caused an overall slowdown in the resolution process.
For most part of 2020, both the NCLT and the NCLAT functioned without a full time President or Chairperson, respectively. Besides, the need for more benches and adequate number of judicial and technical members along with presiding officers was also felt. A recent report by rating agency Icra said that creditors may realise just Rs 60,000-65,000 crore in the current fiscal through successful resolution plans under the IBC compared to about Rs one lakh crore realised in 2019-20, which will be a decline of around 40 per cent.
Legal experts have apprehensions that once fresh filings resume under the IBC, the NCLT and the NCLAT would witness a substantive jump in the number of fresh cases of default. The system needs to be ready to face the expected wave, they opined. "There could be a tremendous rush," senior advocate Abhinav Vashisht said, adding that the tribunals would have to prioritise urgent matters for hearing given their present strength.
Moreover, the number of benches should be increased and vacancies should be immediately filled after retirements, he added. "They may take up more urgent matters and some would be taken up later but unless you increase the number all over the place, it would be difficult to handle if you have a gap of a year-and-a-half of the non-filings and with pandemic leading to further insolvencies," Vashisht said.
According to senior advocate Ramji Srinivasan -- who has appeared in several key cases, including IL&FS -- the government's decision to provide a holiday against default occurring after the lockdown and raising the threshold of the defaults have had both a positive and a negative impact.
"The positive impact is that it has proved to be a support and a shield for businesses finding themselves in liquidity crisis... while the negative impact has been... to slow down the growth of IBC," he said. Another negative impact is that on "smaller businesses who were owed smaller amounts by bigger businesses and are facing difficulty in recovering amounts due to them," he noted.
In 2020, the NCLAT did not get a regular Chairperson after Justice S J Mukhopadhaya retired on March 15. In October, the government had again extended the tenure of Justice B L Bhat as the officiating Chairperson of the NCLAT till the end of this year. Moreover, judicial functioning of the appellate tribunal was disrupted several times as some of its staff and members tested positive for coronavirus. The situation had also caught the attention of Supreme Court, which asked the NCLAT to find a way on how to resume online hearing while its functioning remains suspended and observed "the doors of justice cannot be closed".
The NCLAT passed more than 1,050 judgements this year in matters related to the IBC, Companies Act and Competition Act, as per its website. In 2021, the appellate tribunal is expected to pass orders on several ongoing insolvency matters such as those related to Bhushan Power & Steel, Jaypee Infratech and IL&FS.
This year, the NCLAT passed several key judgements, including setting aside the government's plea to supersede the board of 63 Moons Technologies and dismissing pleas of auditors in a case related to alleged fraud at IL&FS group firm IFIN. Among other matters, the appellate tribunal gave conditional go-ahead to NBCC for buying Jaypee Infratech under the IBC, upheld Adani group firm's takeover of Dighi Port and set aside some resolution plans.
The NCLAT also held that successful resolution applicants cannot be permitted to withdraw their offer. In another matter, it ruled that insolvency proceedings cannot be initiated once the debt is converted into capital. In an unprecedented move, a three-member NCLAT bench, in September, said a previous judgement passed by a five-member bench related to deciding the time frame for initiating insolvency proceedings against a company, was "contrary to settled law" and referred it for reconsideration.
However, the five-member bench of the NCLAT turned down the reference terming it as "misadventure", "inappropriate" and crossing the red line.
Meanwhile, the NCLT -- which has its principal bench in the national capital and fourteen other benches across the country -- approved resolution for 78 corporate debtors as on September 30, 2020 , according to data from the Insolvency and Bankruptcy Board of India (IBBI).
In 2019, the NCLT had approved 122 resolution plans. According to NCLT Bar Association Secretary Saurabh Kalia, the NCLT's functioning like other courts and tribunals has been affected, resulting in the regular matter not being taken up.
"Though the existing benches have tried to take up urgent matters, lack of a sufficient number of members in various benches and infrastructural issues have not helped in the functioning of the NCLT. Appointment of a sufficient number of members have always been an issue with the NCLT and the same persists even today," he said.
He also noted that a sheer number of matters with the NCLT requires sufficient number of members without which the litigant as well as the corporate suffer. The tribunal ordered liquidation in 228 cases in the first nine months of this year after debtor companies failed to attract any resolution plan/ probable buyer.
After the retirement of Justice M M Kumar as the NCLT President, the government-appointed B S V Prakash Kumar as Acting President of the tribunal. According to Vashisht, despite several odds, both the NCLT and the NCLAT have functioned during the pandemic and have done a tremendous job.
"Once the vaccine is out, we feel that there could be a hybrid model of both -- virtual hearing and physical hearing -- with proper precautions and I do expect only better things to come forward," he said. Srinivasan said that after some initial hesitation, and plenty of trial and error, courts have slowly but steadily adopted virtual hearings and video conferences as a minimum acceptable alternative. This is welcome and heralds a possible change that will continue in some form or the other going ahead, he added.