The Process of Insolvency Resolution in India - UPSC Editorials

The main difficulties that India's insolvency framework faces are as follows:

• Tribunals get Overburdened:
  • The National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), both address IBC issues as well as issues under the Companies Act.
  • The NCLT's structure according to the vision of the Eradi Committee Report in 1999 is outdated and cannot suit the times.
• Resolution Time:

• The insolvency resolutions are taking a massive average time of 654 days in FY2022-23 and shoot-up to 716 days in FY2023-24 much above the time-bound IBC framework.
• The judicial discretion that allows the timeline to be extended defeats the very purpose of an efficient IBC.
• Lack of Domain Expertise:
  • Most members of the tribunal lack the requisite domain expertise in handling complex insolvency cases.
  • This lacuna bars effective disposal of such high-value matters as Jet Airways, which are based on subtle appreciation.
• Administrative Inefficiencies:
  • Procedural logjams come from the discretion power of the Registry over matters for listing and mandamus hearings for those applications which were not strictly needed.
  • Meagre use of ADR mechanism has reduced the efficiency even more.
• Institutional Integrity Issues:
  • The NCLT and NCLAT members are not adhering to the directives by the Supreme Court, and that will ultimately reduce the credibility for the judiciary as a whole.

Some of the proposed reforms for revamping the insolvency framework are as follows:

• Strengthening Institutional Capacity:
  • Sanction strength of NCLT members should be increased. Dedicated benches for IBC cases may also be there.
  • Suitable infrastructure, like courtrooms and permanent staff, will also be ensured so that it can sustain well.
• Enhancing Expertise:

• Hybrid appointment model with an emphasis on both judicial experience and domain knowledge in the area of insolvency law and finance.
• Up-gradation of tribunal members through regular training programs on complicated financial and legal issues.
• Procedural Rationalization:
  • There should be minimal use of compulsive hearings, especially for the non-essential applications like the progress reports.
  • Compulsory mediation or resolution mechanisms before applications should be promoted to minimize the burden on the tribunals.
• Promotion of ADR Mechanisms:

• Cases of insolvency should be dealt with more efficiently using arbitration and mediation processes.
• Specialized Benches:
  • There should be special benches for mergers and amalgamations and others of such categories to bring procedural efficiency to the proceedings.
• Compliance and Supervision to be Stiffened:
  • Make stricter guidelines in compliance of Supreme Court directions so that judicial integrity is made strong.

The Jet Airways case serves as a harsh reminder of the need to address systemic deficiencies and reposition the IBC as a robust and dynamic framework for insolvency resolution. Only by undergoing a comprehensive overhaul can India's insolvency system achieve its potential as a cornerstone of economic progress.

Discuss the key challenges and inefficiencies in India's insolvency resolution framework as highlighted by recent cases like Jet Airways. Suggest measures. to enhance IBC, 2016. (150 words, 10 marks)