The Article is written by Tanvir Uddin Molla, Shyambazar Law College University of Calcutta, BA. LLB 4th Year Student Under Internship at LeDroit India
Abstract
The NCLT is the exclusive forum for initiating and adjudicating corporate insolvency matters under the IBC. The IBC mandates strict timelines aiming for the Corporate Insolvency Resolution Process (CIRP) to be completed within 330 days which the NCLT is responsible for enforcing. The process is designed to empower creditors specifically the Committee of Creditors or CoC to drive the resolution with the National Company Law Tribunal ( NCLT ) overseeing the process to ensure compliance and fairness prioritizing resolution over liquidation.
The NCLT has a broad residuary jurisdiction to decide all questions of law and fact arising out of corporate insolvency or liquidation proceedings. The NCLT ensures that due process is followed that all stakeholders have an opportunity to be heard and that the process is not abused for malicious intent.
Keywords : Insolvency and Bankruptcy Code ( IBC ), National Company Law Tribunal ( NCLT ), Insolvency Petition and Application, Default, Debt, Adjudication .
Introduction
The National Company Law Tribunal (NCLT) serves as the adjudicating authority for corporate insolvency under the Insolvency and Bankruptcy Code (IBC), 2016 . The process for handling a petition involves several stages; The application typically in Form NCLT-1 is filed with the relevant NCLT bench where the corporate debtors registered office is situated. The NCLT has a statutory limit of 14 days to ascertain the existence of a default from the information utility records or other evidence. The NCLT must either admit or reject the application based solely on whether a debt and default exist and if the application is complete. It cannot force parties into a settlement.
If admitted the NCLT appoints an Interim Resolution Professional (IRP) to take over the management of the corporate debtors affairs. The IRP then forms the CoC. The RP invites resolution plans from prospective buyers and investors. The CoC evaluates these plans and approves one with a 66% majority vote. The CoC approved resolution plan is then submitted to the NCLT for final approval. The NCLT ensures the plan complies with the IBC’s legal requirements. An approved plan is binding on all stakeholders.
If no resolution plan is approved within the stipulated time 330 days maximum or if the CoC decides to liquidate the NCLT passes an order for the liquidation of the corporate debtors assets. The NCLT then supervises the process for the fair distribution of proceeds according to a set “waterfall mechanism”.
Definitions and Purpose Petition :
Rule 2(17) of the NCLT Rules defines a “petition” as a petition or an application or an appeal or a complaint in pursuance of which any proceeding is commenced before the Tribunal , This is the primary mechanism for initiating substantive proceedings seeking final relief. Petitions commence the core adjudicatory process for significant disputes like oppression and mismanagement, class actions, insolvency commencement and compounding of offences .
Nature Of Petition :
- Section 71(9) – Petition by debenture trustees .
- Section 119(4) – Petition to pass an order directing immediate inspection of minutes books or directing a copy thereof be sent forthwith to person requiring it .
- Also Section 241(1) – Petition in cases of oppression and mismanagement .
- Also Section 245 – Class actions suits .
- And Section 441 – Petition for compounding of certain offences .
Eligibility to Filing
The specific requirements and procedures vary depending on the type of applicant,
Section 7, any person to whom a financial debt is owed, including banks, financial institutions and allottees in real estate projects like the latter must file jointly by at least 100 allottees or 10% of the total whichever is less. The creditor must file an application in Form 1 with the NCLT providing evidence of the debt and the occurrence of a default like records from an information utility, bank statements or a court order. The NCLT needs to ascertain the existence of a default within 14 days of receiving the application.
Section 9, a person to whom an operational debt is owed for the provision of goods or services including employees and government authorities for statutory dues. The creditor must first deliver a demand notice in Form 3 or 4 of an unpaid invoice to the corporate debtor. If the debtor does not pay or raise a dispute within 10 days of the notice the operational creditor can then file an application in Form 5 with the NCLT. Key Requirement the applicant must affirm that no notice of a dispute was received from the corporate debtor regarding the unpaid debt.
Section 10, the corporate debtor itself a member or partner authorized to file or an individual in charge of the company’s management and financial affairs. The corporate applicant must file an application in Form 6 with the NCLT accompanied by information like books of account and a special resolution from shareholders and partners approving the filing. Key Requirement the filing must be approved by a special resolution of shareholders or at least three-fourths of the partners.
Analyzing
Institutional Efficiency and Procedural Challenges :
This area explores the operational bottlenecks and how they impact the fundamental objective of time bound resolution under the IBC. Analysis of NCLT case management and timelines a study on the reasons for delays in admitting and disposing of insolvency petitions, contrasting the statutory 14 day limit with the actual time taken.
Impact of infrastructure and capacity on NCLT performance Research on factors like the number of benches, technical and judicial member vacancies, and e-filing systems affect the speed and quality of adjudication. Examination of variations in rulings across different NCLT benches on the application of the Limitation Act or interpretation of “dispute” and the subsequent impact of NCLAT and Supreme Court precedents. An analysis of the NCLT’s use of inherent powers to recall orders or manage procedural errors and this balances with the need for finality in the process.
Jurisdictional Issues and Discretionary Powers :
These topics focus on the boundaries of the NCLT authority and its interaction with other legal frameworks. Examining the limits of NCLT’s power to adjudicate all disputes “arising out of or in relation to” insolvency proceedings especially regarding pre-insolvency contractual disputes. A critical study of the NCLT role as a gatekeeper, particularly the discretion to reject a financial creditor’s application even if a default is proven the Vidarbha Industries case. Research on navigating conflicts between the NCLT jurisdiction under the IBC and other authorities like the DRT or PMLA courts. An assessment of how effectively the NCLT utilizes its powers under Section 65 to penalize parties initiate proceedings with malicious intent or to defraud creditors.
Stakeholder Dynamics and Specific Processes :
This area looks at the practical implications for various parties involved in the insolvency process. Treatment of operational versus financial creditors a study of potential disparities in the NCLT’s handling and protection of interests for different classes of creditors. Analysis of the legal boundaries of the NCLT’s review power ensuring compliance with the IBC while respecting the commercial wisdom of the Committee of Creditors (CoC). Evaluating the NCLT’s role in the newer, faster PPIRP framework and whether it achieves its objective of expedited resolution for smaller businesses. Cross-border insolvency and NCLT practice research on NCLT benches are handling cases with multi-jurisdictional elements especially in the absence of a fully enacted cross-border insolvency framework based on the UNCITRAL Model Law.
Key Focus Areas of this topic
- Adjudication and Admission of petitions :
In NCLT practice regarding the adjudication and admission of insolvency petitions under the Insolvency and Bankruptcy Code (IBC) key focus areas include verifying the existence of a debt and a default, ensuring procedural compliance, preventing the abuse of process and adhering to strict timelines. The NCLT acts as the primary “gatekeeping” authority for the Corporate Insolvency Resolution Process (CIRP).
- Procedural Integrity and Timelines :
In NCLT practice regarding the Insolvency and Bankruptcy Code (IBC) the key focus areas for procedural integrity and timelines center on strict adherence to statutory deadlines, preventing abuse of process, ensuring fairness to all stakeholders and the effective management of an overburdened judicial system.
- Approval of Resolution Plans :
The NCLT’s primary role is to ensure that the resolution plan complies with all the requirements specified in Section 30(2) of the IBC. Ensures that the costs incurred during the insolvency process are paid in priority to all other debts. The plan must provide operational creditors with at least the amount they would have received in a liquidation scenario.
The NCLT must be satisfied that the plan contains concrete provisions and a clear timeline for its effective implementation and supervision. The plan must be in compliance with all other laws for the time being in force the Competition Act, 2002 . The plan should include a statement detailing how it has dealt with the interests of all stakeholders including financial creditors and operational creditors. The NCLT verifies that the prospective resolution applicant is not ineligible under Section 29A of the IBC.
- Addressing Misconduct and Fraud :
The National Company Law Tribunal (NCLT) as the adjudicating authority under the Insolvency and Bankruptcy Code (IBC) focuses on specific key areas to address misconduct and fraud in insolvency petitions primarily through the powers vested in it under the IBC to ensure the integrity of the process. Section 65 the NCLT is empowered to scrutinize the intent behind initiating the Corporate Insolvency Resolution Process (CIRP).
The primary focus is to ensure that the IBC is used for genuine insolvency resolution or liquidation and not for a malicious or fraudulent purpose such as debt evasion or to put undue pressure for a settlement. If a petition is found to be fraudulently or maliciously initiated the NCLT can impose a penalty of not less than one lakh rupees which may extend to one crore rupees and may even terminate the CIRP. The NCLT requires substantial and corroborative evidence, not mere suspicion, to establish fraudulent intent.
Relevant Case law
- Innoventive Industries Ltd v. ICICI Bank (2018) :
The case of Innoventive Industries Ltd. vs. ICICI Bank is a landmark Indian Supreme Court judgment that established the supremacy of the Insolvency and Bankruptcy Code (IBC), 2016 over conflicting state laws asserting the IBC’s role in streamlining corporate insolvency and prioritizing creditor rights by shifting to a creditor-in-possession model, clarifying that even disputed debt qualifies as default and preventing state laws like the Maharashtra Relief Undertakings Act from obstructing the IBC process.
This was the Supreme Court’s first major ruling on the IBC defining its core principles and objectives. It prevented state government actions like suspending liabilities under the MRU Act from blocking insolvency proceedings initiated by financial creditors. The ruling established a robust, creditor-friendly framework ensuring swift resolution and maximum value realization for businesses in distress.
- Vidarbha Industries Power Ltd v. Axis Bank Ltd (2022) :
Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022) was a significant Indian Supreme Court ruling that held Section 7(5)(a) of the Insolvency & Bankruptcy Code (IBC) is directory, not mandatory, granting the NCLT (National Company Law Tribunal) discretion to reject a financial creditor’s CIRP (Corporate Insolvency Resolution Process) application even if debt and default exist by considering other factors like the corporate debtor’s overall financial health, unlike the mandatory “shall” in Section 9 (Operational Creditors). This decision allowed tribunals more flexibility beyond the “twin test” (debt + default) and was later upheld when a review petition by Axis Bank was dismissed though it sparked debate about undermining IBC objectives.
- M. Suresh Kumar Reddy v. Canara Bank (2023) :
M. Suresh Kumar Reddy v. Canara Bank is a landmark Indian Supreme Court case under the Insolvency and Bankruptcy Code (IBC) that clarified the National Company Law Tribunal’s (NCLT) limited discretion in admitting Section 7 applications (Corporate Insolvency Resolution Process – CIRP) by holding that if a “debt” and “default” are established, admission is mandatory, except in rare cases, resolving confusion from prior rulings like Vidarbha Industries and affirming that OTS offers or balance sheet acknowledgements don’t negate default.
The judgment reinforces that the NCLT’s role is to verify debt and default, not adjudicate disputes, making insolvency initiation more predictable for creditors. In essence M. Suresh Kumar Reddy v. Canara Bank strengthened the IBC’s objective by ensuring that once a genuine default is proven, the CIRP process moves forward, preventing corporate debtors from delaying insolvency through minor disputes or settlement negotiations.
Conclusion
The conclusion of NCLT practice in handling insolvency petitions under the Insolvency and Bankruptcy Code (IBC) is that the NCLT serves as the exclusive, specialized adjudicating authority focused on a time-bound, creditor-driven resolution process rather than a traditional debt recovery forum. Its primary objective is the revival of the corporate debtor, or liquidation as a last resort, for the maximization of asset value for all stakeholders. In essence NCLT practice under the IBC has evolved into a robust mechanism for addressing corporate financial distress guided by a specialized legal framework and a growing body of judicial precedents that prioritize timely resolution and the integrity of the process .
