As bankruptcy reform crumbles due to member shortage, NCLT refuses circular on shortages
The shortage of judicial and technical members threatens to halt due process before the National Company Law Tribunal (NCLT), possibly derailing a major reform of the Narendra Modi government. The shortage of members is a fact and it seems to be confirmed by an authentic looking circular from the NCLT that has been circulating on WhatsApp and other social media. The circular dated August 8 claimed that due to a lack of members, the NCLT had decided to only hear urgent cases by videoconference starting August 10.
Curiously, the NCLT had clarified on Tuesday that the message broadcast was false and that no such circular had been published by it. The clarification is signed by the same person in whose name the apparently false circular was published.
The NCLT was established in June 2016 to much fanfare to help expedite arbitration cases under the Companies Act by dissolving the Company Law Tribunal (CLT). NCLT was also expected to help further improve the ease of doing business in the country, a key area of the Narendra Modi government.
However, like other courts, the NCLT faces difficult times due to vacancies over the years. Currently, nearly 50% or 30 of the 63 sanctioned positions for NCLT members are vacant. A selection committee has recommended 15 names to the Union government, but there is no decision on the filing of the posts.
According to a banker and resolution professional, the eligibility criteria to become a member of NCLT cause enormous problems for applicants. “The criteria does not yield enough passable members for NCLT,” he says, referring to the delay in filing for membership positions at the Tribunal.
Another aspect affecting the operation of NCLT is the additional burden of cases that fall strictly outside the scope of the Companies Act. The Union government introduced the Insolvency and Bankruptcy Code (IBC). However, there is no Adjudication Authority (AA) at BAC.
“Even the Debt Collection and Bankruptcy Act 1993 has its own AA, but for some strange reason the NCLT, which is an offshoot of the Companies Act, has been designated the AA for the IBC. Now that the NCLT failed, the government must create the IBC Tribunal and IBC Appellate Tribunal, which will be designed and implemented for quality and timely approvals by a framework with attractive performance incentives and disincentives for non-performance,” the expert said.
According to the expert, ruling on the IBC requires excellent knowledge of business, accounts and finance so that the AA can quickly understand the issues and make quick decisions. Although they have these professional limitations, sometimes they may not read the applications.
“This can be solved by creating a cadre of judges like the Indian Administrative Services (IAS). Indian Legal Services exist to hire law graduates in the government. The government should also create Indian Judicial Services to create an army of senior members for NCLTs and Debt Collection Tribunals (DRTs),” the expert suggested.
NCLT has a main bench in New Delhi and 15 benches at other locations across the country. NCLT has benches in New Delhi, Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, Mumbai, Cuttack, Jaipur, Kochi, Amravati and Indore.
The terms of 23 NCLT members ended in June-July. A high-level committee chaired by the Chief Justice of India decided to increase the term of eight members to five years. A notification issued by the NCLT indicates that the terms of two judicial members and six technical members have been extended by five years until they reach age 65.
In July, the Ministry of Corporate Affairs (MCA) posted an advertisement to fill eight judicial member positions and 11 technical member positions in the NCLT.
Earlier this month, the Supreme Court denied a request to extend the terms of 23 NCLT members from three years to five years, according to a notice issued by MCA on September 20, 2019. It clarified, however, that for the future appointments, the Union Government is bound by Section 413 of the Companies Act, which prescribes a five-year term for members of the NCLT.
Bench of Justice DY Chandrachud and Judge Sudhanshu Dhulia also told the NCLT Bar Association that the tenure of NCLT members is not something they should be interested in. “The Bar Association’s plea can only be that vacancies be filled as soon as possible. The Bar Association cannot choose who is a member of the Tribunal and for how long they are a member,” said the SC.
The MCA notification issued on September 20, 2019 provided for a term of three years or until reaching age 65 for NCLT members. On September 11, 2021, the ministry issued another notification to appoint 18 members for five years.