'Problem Of Delays Starting To Surface Even In IBC Process' : Justice N V Ramana [Read Full Speech]

Justice Ramana was speaking at the Colloquium of Members of NCLT and NCLAT on "Judicial Sensitization on Insolvency Law and Associated Best Practices".

He pointed out that companies these days preferred a declaration of insolvency over repayment of the loan amount. This, according to him, not only impacts domestic market but also adversely affects foreign investments.

In this backdrop he said,

"While insolvency is perceived as a matter of private rights, another vision of insolvency is also possible. A holistic view requires the weighing of the interests of various stakeholders and just redistribution. Such a view requires that insolvency law should attempt to ensure the survival of organizations, and if the same is not possible, then their orderly liquidation. One ought to remember that liquidation should be the last resort, and rarely has advantages over restructuring or revival."

He further remarked that the very objective with which the IBC was enacted, i.e. speedy disposal of insolvency proceedings, had been sinking lately.

Under the earlier regime, delay in proceedings was a major issue which resulted in large scale reduction in the value of assets of companies. Thus, IBC was enacted to streamline the process of insolvency with added focus on ensuring speedy resolution of insolvency and bankruptcy.

However, Justice Ramana pointed out, "the problem of delays is starting to surface even in the IBC process, requiring all stakeholders to come together and avert the same."

He associated this problem with the "serious lack of physical infrastructure" and "the problem of vacancies".

Just like other Tribunals, he said, NCLTs were also suffering from the problem of vacancies in the posts of members, which lead to inefficiency in the system.

"I believe that ultimately, service conditions discourage people from applying, which is an issue that was recently considered by the Supreme Court in the Rojer Mathews case. In that case, the Court passed interim directions to apply service conditions, salaries or emoluments on an equal basis without there being distinction between technical, judicial or other members. The Court also observed that the short tenure and other conditions set by the Government discourages meritorious candidates from applying. The Government has recently, notified rules pertaining to the salaries and service conditions of members of NCLTs, which need to be analyzed and whose effect can only be seen in the future," he said.

He further said that with the increasing workload of the members because of expansion of the jurisdiction of the Tribunal, it was necessary that the infrastructure of the Tribunal is also expanded with the same pace.

Emphasizing on the importance of IBC he said,

"The importance of this subject cannot be undermined, as it has implications on a host of other sectors such as employment, banking, company law, etc., and the economy at large. Therefore, the progress of insolvency law must happen in consonance with its philosophy."

He said that the focus of IBC had shifted from being debtor-centric, to being creditor-centric.

"The Code has brought in better credit culture in borrowers as they are apprehensive of the initiation of insolvency, and resultantly, losing control over their assets. At the same time, the fear of insolvency proceedings, should not result in an atmosphere that demotivates young business owners. I read yesterday that the proposed amendments to the Companies Act seek to decriminalize certain corporate activities, and to reduce the penalties under other provisions. This would go a long way towards creating a business-friendly environment," he said.

He stressed on the need for the insolvency professionals to possess not just a high level of competence, but also high ethical values.

He also lauded the Tribunal and all its members for being proactive in dealing with a law that did not have many parallels.

"Most of the provisions of the Code have very few parallels with the older provisions. This means that the cases that come up, raise completely new questions of law, which members have to deal with every day.

Members are required to approach the cases with a commercial sense, and not merely like any other civil dispute. The adjudication must happen in consonance with the basic character of insolvency law: that is, transactions involving money and maximization of the assets. Furthermore, the technical members are also required to take into consideration principles of justice and equity, while applying their technical expertise," he said.

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