Urgent need to reduce bankruptcy resolution times, according to MCA
NEW DELHI : There is an urgent need to reduce the procedural delays in the resolution of bankruptcies, despite the significant achievements of the National Company Law Tribunal (NCLT) and the Appeal Tribunal in the implementation of the Insolvency Code and bankruptcy (IBC), according to Rajesh Verma, secretary of the Ministry of Corporate Affairs.
Verma said in a monthly business sector update released by the ministry that the number of NCLT cases has increased over the years and there is a huge backlog of cases. Verma said the role of these courts was “of prime importance” in concluding bankruptcy proceedings and that they have worked tirelessly to meet the demands of the ever increasing workload. They also played a “great job” in smoothing out the issues. and the difficulties encountered in implementing the bankruptcy code, Verma said.
“Despite these important achievements by contracting authorities, in order to fully achieve the objectives of the Code, there is an urgent need to address procedural delays, as they often lead to an erosion of the value of the debtor company,” said Verma. In 2019, Parliament amended the IBC to provide for the conclusion of the bankruptcy resolution process within 330 days, including the time needed for litigation.
Verma said the government recently authorized the appointment of 21 new members to the NCLT and that the process to fill the positions of 15 members in NCLT and three members in NCLAT was underway.
The government also introduced an alternative bankruptcy resolution scheme for small businesses earlier this year, which is informal to a point, before the business recovery plan goes to court for sanction. It should also reduce the burden on the courts. Staying on schedule under the Code would help quickly resolve stressed assets and improve ease of exit, Verma said in the review.
The Parliamentary Standing Committee on Finance said in August that more than 71% of cases remained pending for more than 180 days, indicating a deviation from the original Code targets intended by Parliament.
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