As Bankruptcy Reform Splutters due to Shortage of Members, NCLT Denies a Circular about Shortages
Moneylife Digital Team 09 August 2022
The shortage of judicial and technical members threatens to halt regular proceedings at the National Company Law Tribunal (NCLT), possibly derailing a big reform of the Narendra Modi government. The shortage of members is a fact and it seemed to be confirmed by an authentic-looking circular from NCLT that has been circulating on WhatsApp and other social media. The circular dated 8th August claimed that due to a shortage of members, NCLT has decided to hear only urgent cases via video conferencing from 10th August.
 
Strangely enough, NCLT had clarified on Tuesday that the message being circulated is false and no such circular was issued by it. The clarification is signed by the same person in whose name the ostensibly fake circular had been issued. 
 
The clarification issued by Kamal Sultanpur, registrar (in-charge), says, " The said notification is not issued by NCLT and it is not authentic. The so-called notification dated 08.08.2022 has not been approved by president of NCLT (competent authority). The said notification to be ignored as not valid. It has not been uploaded on the NCLT website."
 
NCLT was set up in June 2016 amidst much fanfare to help expedite adjudication matters 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 focus area of the Narendra Modi government. 
 
However, like other tribunals, NCLT is facing challenging times due to vacancies over the years. Currently, nearly 50% or 30 posts out of the 63 sanctioned for members of NCLT are vacant. A selection panel has recommended 15 names to the Union government, but there is no decision on filing up the posts. 
 
According to a banker and resolution professional, the eligibility criteria to become a member of NCLT cause massive problems for candidates. "The criteria do not give enough passable members for NCLT," he says, referring to the delay in filing up the posts of members at the Tribunal. 
 
Another aspect affecting the working of NCLT is the additional load of cases that are strictly not within the purview of the Companies Act. The Union government introduced the Insolvency and Bankruptcy Code (IBC). However, there is no adjudication authority (AA) in IBC. 
 
"Even the Recovery of Debts and Bankruptcy Act, 1993 has its own AA, but for a strange reason, NCLT, which is an offshoot of the Companies Act, was made AA for IBC. Now that NCLT has failed, the government must create IBC Tribunal and IBC Appellate Tribunal, which will be designed and implemented for quality and timely approvals by a cadre with attractive performance incentives and disincentives for non-performance," the expert says. 
 
According to the expert, adjudicating on IBC requires excellent command over business, accounts and finance so that the AA can quickly understand issues and make swift decisions. While they have these professional limitations, they sometimes may not read the applications. 
 
"This can be fixed by creating a cadre of judges like Indian Administrative Services (IAS). Indian Law Services exists for hiring law graduates in government. The government should also create Indian Judicial Services to create an army of high-class members for NCLTs and debt recovery tribunals (DRTs)," the expert suggested. 
 
NCLT has one principal 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 tenure of 23 members of NCLT came to an end in June-July. A high-powered committee chaired by the chief justice of India decided to increase the term of eight members to five years. A notification issued by NCLT says that the tenure of two judicial and six technical members has been extended for five years until they attain 65 years. 
 
In July, the ministry of corporate affairs (MCA) issued an advertisement for filling up eight posts of judicial members and 11 posts of technical members of NCLT. 
 
Earlier this month, the Supreme Court (SC)  turned down a plea to extend the tenure of 23 members of NCLT to five years from three years, as per a notification issued by MCA on 20 September 2019. It, however, clarified that for future appointments, the Union government is bound by Section 413 of the Companies Act, which prescribes a tenure of five years for members of NCLT. 
 
The bench of justice DY Chandrachud and justice Sudhanshu Dhulia also told the NCLT Bar Association that the tenure of NCLT members is not something they should be interested in. "The plea of the Bar Association can only be that the vacancies be filled at the earliest. Bar Association cannot have a choice in who is a member of the Tribunal and for what length of time they are members," SC says. 
 
The MCA notification issued on 20 September 2019 prescribed tenure of three years or until attainment of 65 years for members of NCLT. On 11 September 2021, the ministry issued another notification to appoint 18 members for five years.
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