Role of the NCLT under the Insolvency and Bankruptcy Code, 2016
The National Company Law Tribunal (NCLT) plays a pivotal role as the primary adjudicating authority for resolving corporate insolvency and bankruptcy matters under the Insolvency and Bankruptcy Code (IBC), 2016. Its responsibilities include overseeing the insolvency resolution process for companies and limited liability partnerships (LLPs), ensuring a time-bound and transparent mechanism to protect the interests of creditors, debtors, and other stakeholders.
Key Roles and Responsibilities of the NCLT under the IBC
1. Initiation of Corporate Insolvency Resolution Process (CIRP)
The NCLT adjudicates applications to initiate the Corporate Insolvency Resolution Process (CIRP) against a corporate debtor. It decides whether the debtor has committed a default and whether the CIRP can be initiated.
- Who Can File the Application?
- Financial Creditors: Entities or individuals to whom a debt is owed, such as banks and financial institutions, can file an application under Section 7.
- Operational Creditors: Creditors supplying goods or services to the debtor can initiate proceedings under Section 9.
- Corporate Debtor Itself: Companies facing financial distress may voluntarily initiate insolvency under Section 10.
- Criteria for Admissibility:
- Existence of default of ₹1 crore or more (threshold as of 2024).
- Proper filing of requisite documents.
- The application must meet procedural requirements under the IBC.
- Timeline for Admission/Rejection:
- The NCLT must decide on the application within 14 days of its receipt.
2. Appointment of Interim Resolution Professional (IRP)
Upon admission of a CIRP application, the NCLT appoints an Interim Resolution Professional (IRP) who takes control of the corporate debtor’s management and financial affairs. The IRP also constitutes the Committee of Creditors (CoC).
3. Moratorium Declaration
Once the insolvency process begins, the NCLT declares a moratorium period under Section 14, during which:
- Legal proceedings against the corporate debtor are suspended.
- Recovery or enforcement of security interests, and the transfer of assets, are prohibited.
- This allows the company to focus solely on the resolution process.
4. Approval of Resolution Plans
The resolution plan prepared by a Resolution Professional (RP) and approved by the Committee of Creditors (CoC) is submitted to the NCLT for final approval under Section 31.
- The NCLT examines whether the resolution plan:
- Complies with all statutory requirements.
- Maximizes the value of the debtor’s assets.
- Balances the interests of all stakeholders, including operational creditors.
If the plan is approved, it becomes binding on all stakeholders, including creditors and employees.
5. Overseeing Liquidation Proceedings
If the CIRP fails (i.e., no viable resolution plan is approved within the stipulated time), the NCLT can order the liquidation of the corporate debtor under Section 33.
- The NCLT appoints a liquidator, who:
- Realizes the corporate debtor’s assets.
- Settles claims in the order of priority specified under the IBC.
- Distributes proceeds among stakeholders.
- Grounds for Liquidation:
- Rejection of all resolution plans by the CoC or NCLT.
- Voluntary liquidation requested by the corporate debtor.
6. Fast-Track Insolvency Process
For small companies, startups, and certain other categories, the NCLT supervises a fast-track insolvency process under Chapter IV of the IBC. This process ensures quicker resolution and adherence to simpler procedures.
7. Handling Voluntary Liquidation
The NCLT is also responsible for adjudicating voluntary liquidation applications filed by companies or LLPs under Section 59 of the IBC.
8. Resolution of Cross-Border Insolvency Cases
Although cross-border insolvency provisions under the IBC have not been fully enacted, the NCLT plays a critical role in determining jurisdiction and recognition of insolvency proceedings related to companies with assets in multiple countries.
9. Adjudication of Avoidance Transactions
The NCLT adjudicates applications under the IBC to set aside the following types of avoidance transactions that occurred before the insolvency commencement date:
- Preferential Transactions (Section 43): Transactions benefiting one creditor over others.
- Undervalued Transactions (Section 45): Transactions that transfer assets at significantly less value.
- Fraudulent Trading (Section 66): Transactions to defraud creditors.
- Extortionate Transactions (Section 50): Transactions requiring excessive payments compared to the market standard.
Resolution professionals identify such transactions and submit applications to the NCLT for action.
10. Appeals and Redressal of Grievances
The NCLT serves as the appellate authority for disputes arising during CIRP and liquidation proceedings, including grievances about decisions made by the IRP or the CoC.
11. Protection of Creditors’ and Employees’ Interests
The NCLT ensures that the rights of all stakeholders, especially operational creditors and employees, are upheld during the insolvency resolution and liquidation processes.
Significance of the NCLT’s Role Under the IBC
- Timely Resolution of Insolvency:
By adhering to strict timelines, the NCLT expedites the resolution or liquidation process, minimizing the financial deterioration of corporate debtors. - Creditor Empowerment:
Creditors, especially financial creditors, are given precedence in decision-making, enhancing confidence in credit markets. - Reduction of Non-Performing Assets (NPAs):
The tribunal’s swift and effective handling of insolvency cases helps reduce NPAs in the banking and financial sectors. - Transparency and Accountability:
With a focus on structured processes and accountability, the NCLT ensures fair treatment of stakeholders. - Balancing Interests of Stakeholders:
While focusing on creditor recovery, the NCLT safeguards the interests of employees, government dues, and other operational creditors.
Challenges in the NCLT’s Role Under IBC
- High Pendency of Cases:
A large number of unresolved cases hampers the timely resolution process envisioned by the IBC. - Resource and Infrastructure Constraints:
Lack of adequate manpower, including members and support staff, affects efficiency. - Complex Cross-Border Cases:
Limited guidelines under Indian law make resolving cross-border insolvency disputes challenging. - Frequent Appeals:
Delays are exacerbated by frequent appeals to the National Company Law Appellate Tribunal (NCLAT) and higher courts.
Landmark Judgments by NCLT Under IBC
- Essar Steel India Ltd. Case:
The NCLT approved a landmark resolution plan that balanced stakeholder interests and reaffirmed the Code’s effectiveness. - Jaypee Infratech Case:
The NCLT ruled on creditors’ rights versus homebuyers’ rights, setting important legal precedents. - Binani Cement Case:
The tribunal emphasized that the IBC’s objective is resolution and not liquidation.
Conclusion
The NCLT is instrumental in ensuring the effective implementation of the Insolvency and Bankruptcy Code, 2016. By serving as the adjudicating authority for corporate insolvency and restructuring matters, it streamlines processes, provides speedy resolutions, and instills confidence among creditors and investors. However, addressing its challenges, including resource constraints and delays, is crucial for its continued success. With a robust framework and enhanced capabilities, the NCLT remains the backbone of corporate insolvency law in India.
Let me know if you need further elaboration on any specific aspect!
Disclaimer: This information is intended for general guidance only and does not constitute legal advice. Please consult with a qualified lawyer for personalized advice specific to your situation.
Adcocate J.S. Rohilla (Civil & Criminal Lawyer in Indore)
Contact: 88271 22304