The Jet Airways case serves as a stark reminder of the structural infirmities that continue to hinder India’s insolvency regime. These challenges call for urgent reforms to bolster the Insolvency and Bankruptcy Code, 2016 (IBC) and its institutional architecture.
Introduction
The Insolvency and Bankruptcy Code, 2016 (IBC), heralded as one of India’s most significant economic reforms, was introduced to address the challenges of insolvency resolution in a structured and time-bound manner. It was envisioned as a robust framework to elevate India’s standing in the global business environment by holding bad borrowers and big defaulters accountable. However, as the IBC matures, several issues have surfaced, necessitating immediate attention.
Challenges and Infirmities in India’s Insolvency and Bankruptcy Code (IBC)
Institutional Capacity and Procedural Efficiency
At the core of the IBC’s effective implementation lies the performance of the National Company Law Tribunal (NCLT) and its appellate body, the National Company Law Appellate Tribunal (NCLAT). These tribunals, however, face a dual burden of handling both corporate insolvencies under the IBC and cases under the Companies Act. This duality has significantly strained their capacity.
Temporal Disjunction in Institutional Design
The NCLT, conceived in 1999 based on the Eradi Committee’s recommendations and operationalised in 2016, reflects economic realities of a bygone era. With a sanctioned strength of 63 members—many of whom split their time across multiple benches—the NCLT has become a bottleneck. This has led to significant delays in insolvency resolutions and corporate transactions like mergers and amalgamations. Many NCLT benches do not function for the full working day, exacerbating delays.
According to the Insolvency and Bankruptcy Board of India (IBBI), the average time for insolvency resolutions increased from 654 days in FY2022-23 to 716 days in FY2023-24. These delays persist despite the Supreme Court’s repeated directives for adherence to specific timelines, as highlighted in the Jet Airways case.
The Need for Domain Expertise
The deficiencies in India’s insolvency framework extend beyond institutional capacity to qualitative dimensions. A key issue is the lack of domain expertise among tribunal members. The Supreme Court, in the Jet Airways case, observed that many members lack the domain knowledge required to navigate the complexities of high-stakes insolvency matters. This paradox—an institution tasked with resolving intricate financial disputes being hindered by inadequate expertise—undermines the IBC’s objectives.
Bureaucratic and Procedural Challenges
The bureaucratic labyrinth within the NCLTs adds another layer of inefficiency. There is no effective mechanism for urgent listings, with registry staff wielding disproportionate control over whether matters are listed or not. Additionally, a “growing tendency” among NCLT and NCLAT members to defy Supreme Court orders threatens the foundational integrity of India’s judicial hierarchy.
Sparse Use of Alternatives
The procedural framework further aggravates existing constraints. Mandatory hearings for all applications, even for progress reports, are not essential from a natural justice perspective, yet they contribute to unnecessary delays. Furthermore, the limited adoption of alternative dispute resolution methods compounds the challenges faced by an already overburdened system.
Lessons from Global Practices
Institutional capacity and procedural efficiency are universal challenges in insolvency regimes worldwide. However, India’s unique scale, endemic corruption, and economic ambitions demand bespoke solutions. While incremental enhancements may suffice in other jurisdictions, India requires transformative changes.
Reform Proposals and the Way Forward
Recent reform proposals, such as mandatory mediation before submitting insolvency applications, offer a glimmer of optimism. A hybrid model valuing both judicial experience and domain expertise is crucial. Procedural innovations beyond piecemeal adjustments are necessary to address systemic inefficiencies.
Proposed Solutions:
- Specialised Benches: Establish specialised NCLT benches for different categories of cases to enhance efficiency and domain expertise.
- Infrastructure Development: Adequate courtrooms and a qualified, permanent support staff must be prioritised.
- Focus on Training: Training programs for tribunal members to enhance domain knowledge and sensitivity to insolvency timelines.
- Streamlined Procedures: Simplify procedural requirements, such as waiving mandatory hearings for non-critical applications.
- Alternative Dispute Resolution: Promote mediation and arbitration to reduce the burden on tribunals.
Conclusion
India’s insolvency regime must transcend its current focus on debt resolution to become a proactive driver of economic rejuvenation. As India seeks to attract greater foreign investment, the effective implementation of the IBC is critical. The systemic challenges and delays highlighted by the Jet Airways case underline the urgency for a bold reimagining of the insolvency framework. The choice is clear: now is the time to invest in infrastructure, expertise, and procedural innovation to ensure that India’s insolvency regime becomes a pillar of its economic ambitions.