'No Political Appointments' : Supreme Court Decries Poor Functioning Of NCLTs/NCLAT, Says Members Often Lack Domain Knowledge

In the judgment ordering the liquidation of Jet Airways, the Supreme Court made several critical remarks against the abysmal functioning of the National Company Law Tribunals and the National Company Law Appellate Tribunal benches.

Slamming the "growing tendency" of the NCLT and NCLAT members to ignore the orders of the Supreme Court, the Court stated that only persons of impeccable integrity should be appointed as the Tribunal Members. There should be no political appointment, the Court categorically stated.

The bench comprising Chief Justice of India DY Chandrachud, Justice JB Pardiwala and Justice Manoj Misra observed :

"Persons with high ideals and impeccable integrity should be appointed as Members in the NCLT as well as NCLAT. There should not be any political appointment."

The judgment authored by Justice JB Pardiwala stated that this litigation was an "eye-opener" regarding the functioning of the Tribunals.

Highlighting the lack of efficiency on the part of many Tribunal members, the Court said :

"The Members often lack the domain knowledge required to appreciate the nuanced complexities involved in high-stake insolvency matters in order to properly adjudicate such matters.It has been noticed that the benches of NCLT(s) and NCLAT don't have the practice of sitting for the full working hours. They are particularly lacking in the capacity to manage the growing number of cases and giving undivided attention required in such matters." 

The judgment authored by Justice Pardiwala issued a stern warning that any judicial indiscipline by NCLT/NCLAT members won't be tolerated.

"Over a period of time, this Court has noticed the growing tendency amongst Members of the NCLT(s) and NCLAT to ignore the orders of this Court or act in its defiance. We put the NCLT(s) and the NCLAT to notice, that any act of contravention of this Court's order and the larger rubric of judicial propriety will not be tolerated." 

"The NCLT(s) and the NCLAT must seriously rethink their approach towards admission and disposal of insolvency matters, they should not act as a mere rubberstamping authority and must take their roles seriously in ensuring time-bound hearings and resolutions. Proper and effective hearings both virtually and in-court must be given to insolvency matters of public importance, and the NCLT(s) and NCLAT(s) must earnestly work towards ensuring that the IBC, 2016 achieves its avowed objects."

The problems with the workings of the NCLT/NCLAT were highlighted as follows :

"There are serious issues in the manner in which the insolvency matters are listed. There is no effective system in place before the NCLTs for urgent listings. The staff of the Registry is given wide power to list or not to list a particular matter...it has become a practice of the NCLT(s) and NCLAT to ignore the urgent mentionings and listings of time-sensitive matters and show no deference to long-pending matters resulting in value erosion of the assets of the corporate debtor and rendering their insolvency resolution process a foregone conclusion."

Unfilled vacancies are a problem

The Court flagged the problem of unfilled vacancies and inadequate infrastructure which were impacting insolvency resolution processes.

"These vacancies heavily impact the insolvency reform initiative undertaken by the government since they lead to operational inefficiencies. A shortfall of members and the lack of requisite strength has led to Tribunals only sitting for a few days of the week or a few hours in a day," the judgment said.

Even in Tribunals where there is no vacancy, the absence of requisite infrastructure has forced the benches to share courtrooms or halls on a rotation basis. As a consequence, the strict timelines provided in Section 12 of the IBC, 2016 are not complied with.

"Filling such vacancies with experts having adequate domain knowledge in the field must be prioritized along with addressing the infrastructure needs of the Tribunals to prevent any adverse effect on the resolution process. There must be strict mandates regarding the functioning of the Tribunals within its normal working hours. The appointment of new members must be done in a manner such that it coincides with the date of retirement of the sitting members in a seamless manner to avoid such operational inefficiencies," the Court suggested.

Case Details : STATE BANK OF INDIA AND ORS. Versus THE CONSORTIUM OF MR. MURARI LAL JALAN AND MR. FLORIAN FRITSCH AND ANR.| C.A. No. 5023-5024/2024 and Connected