Home World Economy NCLT: Government must focus on creating infrastructure and make the tribunal self-sufficient

NCLT: Government must focus on creating infrastructure and make the tribunal self-sufficient

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On its first birth anniversary, the National Company Law Tribunal (NCLT) does not have much to showcase for its achievements. All that it has are cases of a company gaming the system, some orders to liquidate companies, and debt resolution of some small firms. All the major cases have hardly taken a baby step, leave alone the big strides.

One year is too short a time in the life of an institution, but the bankruptcy law has acquired such a vital position that hundreds of billions of rupees are riding on it and the burden of economic recovery is as much on its shoulders as it is on the Reserve Bank of India, and the government.

While bankruptcy courts appear to be a new breed, it is just another arm of the judiciary created to ensure that struggling borrowers and worried lenders get the best deal by ensuring that the economic value of an asset is preserved. The threat of it stumbling without infrastructure and expertise is ever more than it being a welloiled mechanism.

Twenty six judges at NCLT across the country are looking at handling at least 7,000 cases this year. Apart from this, 15,000 cases are set to crawl in from the Debt Recovery Tribunals and 4,000 from the Company Law Board.

NCLT: Government must focus on creating infrastructure and make the tribunal self-sufficient

With numbers stacked up against the quick disposal of cases, the very purpose for which it was created, is the NCLT model set to fail?

“I think they are trying to do their best,” says Shikha Sharma, chief executive at Axis Bank. “Let’s remember we are doing a major transformation. The good thing is they are engaging and they are having a conversation in terms of what are the bottlenecks, what needs to be streamlined and they are responding to that.”

CREAKY INFRASTRUCTURE
The NCLTs are institutions that millions of businessmen and scores of financial creditors believe would change their lives forever. But nearly 12 months after the law, the infrastructure to deliver the promise is woefully inadequate.

The two registrars at the Mumbai NCLT — Brijesh Balan and VS Hajare — put in nearly 12 hours a day with hundreds of filings on some days and ensuring that hearings take place in an orderly manner.

NCLT: Government must focus on creating infrastructure and make the tribunal self-sufficient

Balan, who came from the less demanding work profile at the Indian Railways, and Hajare, from the Registrar of Companies, declined to comment on the story. But a day spent at the MTNL building in South Mumbai that houses the NCLT shows that the two hardly have time even for a quick lunch.

“The very limited resources that NCLT has in terms of the number of judges, support staff, availability of technology and lack of space are a challenge,” says Sumant Batra, managing partner, Kesar Dass, a law firm specialising in bankruptcies. “Even the quality of the system is not of a very high level — from the lawyers who appear before them to the IRPs who work on these resolution plans — its subpar. The quality of the system will reflect in the quality of these judgements.”

NCLT: Government must focus on creating infrastructure and make the tribunal self-sufficient

The once sleepy Mumbai NCLT office has now as many as 300 to 400 visitors a day and often resembles a crowded Mumbai suburban railway station. There are fourmember judges in the two NCLT Mumbai benches — MK Shrawat, BSV Prakash Kumar, Bhaskara Pantula Mohan and V Nallasenapathy.

Two court rooms with a capacity of about 34 seats each try to accommodate the hundreds who troop in. Those courts are estimated to hear an average of 100-110 cases compared with about 30-odd cases a year ago.

The number of pending cases is close to 5,000 at the Mumbai chapter. There are now about 200 daily inward receipts of documents like applications, request for certified copies compared with just 5-7 such documents popularly known as “Dak”, a year ago.

“The Mumbai NCLT despite being one of the overburdened NCLTs has a very good disposal rate, be it by way of persuading the parties to settle wherever possible or by deciding the matter on merit by giving a patient hearing to the advocates,” said Jyoti Singh, partner at Phoenix Legal, who is representing many insolvency cases.

NEED FOR STAFF
It is not just the judicial officers but the support staff, which are in short supply. The requirement for skilled people in stenography, clerical matters like filing and helping the officers in dealing with the hearings are equally important.

“An application may run into more than 1,000 pages,” says Nikhil Shah, managing director at Alvarez & Marsal, a bankruptcy advisory firm. “The NCLT should have more administrative staff to support the increasing volume of cases.”

NCLT was a giant leap to match the developed bankruptcy systems in the US and the UK, where a fast resolution of corporate stress enabled creditors to recover quickly and put the assets back to work.

The reluctant Indian lenders were forced by the government to take defaulters to bankruptcy courts. In the first round, it was the top 12 defaulters with loan value of Rs 2.16 lakh crore.

“The cases that are before NCLT today will give us a guidance in terms of how to resolve faster under a judicial system,” says B Sriram, managing director at State Bank of India. “Once we get to the endgame of these, we will be putting in place a fullfledged system where each and every learning from NCLT will be hard-coded, and evolve one internal mechanism to resolve faster through the legal route.”

WAY AHEAD
Just like any other project, the biggest obstacle is funding of the initiative. With the government finances already stretched, the amount of money that could be spent may limit the efficiency of the system.

When the Mumbai NCLT recently planned to host a conference to spread the knowledge about the process, the ministry is said to have directed it to find a hotel room and, in particular, the days when the tariff was low. Those low tariff days were not compatible to have sufficient attendance.

When an NCLT wanted to appoint a stenographer, the government is said to have fixed a cap of Rs 40,000 a month, a salary for which few were willing to work. After a lot of back and forth, the government raised it by 10%. The immediate struggle doesn’t mean that it is a non-starter.

“I have always said that the establishment of bankruptcy courts, credibility of the insolvency professionals, all of this is going to take some time,” says Romesh Sobti, chief executive at IndusInd Bank. “The question is you have to push it and it is being pushed. The regulatory push has come and that has forced the pace, which is the right way to do it.”

The government could change the way it funds the NCLT, which could at least ease the financial constraints. It could levy a 0.2% or 0.5% of the value of claims, which could run into hundreds of crores of rupees.

“An easier way is to make NCLT self-sufficient,” says Shah of Alvarez and Marsal. “Claimants may pay a very small proportion of the claim amount as an administrative cost for the NCLT. This way the NCLTs can become selfsustaining.”

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