In recent developments, the Hon’ble Supreme Court has raised significant concerns about the functioning of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), highlighting that the system appears to have lost its way. This sentiment extends to other cases in the Insolvency and Bankruptcy Code (IBC) landscape as well. Despite the IBC law being in place for seven years, its initial vision of rehabilitating struggling companies has seemingly eroded, transforming it into a “Tower of Silence” where companies are often pushed toward destruction rather than revival.
A key issue plaguing the IBC process is the hasty admission of cases into the NCLT and NCLAT. Many cases are referred by banks and creditors without thorough examination of the validity of the default or other essential factors. This can result from undue influence, as public sector banks, institutions, or regulators may exert pressure on the process. Additionally, a rush to meet statutory timelines can compromise the rigorous scrutiny necessary for effective resolution.
The original intent of the IBC was to rejuvenate companies, ensuring they continue as going concerns while addressing their underlying problems. However, the rush to settle and recover debts has, in many instances, shifted the focus from rescuing companies to creditor recovery. The Supreme Court and numerous judgments have explicitly stated that the Corporate Insolvency Resolution Process (CIRP) within the NCLT should not be misused for the sole purpose of creditor recovery.
In a recent peculiar case involving Srei Infrastructure Finance Ltd (SIFL) and SREI Equipment Finance Limited (SEFL), both companies were admitted into the CIRP process on the same day of application by creditors in October 2021. What makes this case stand out is that these companies had maintained an excellent reputation in the infrastructure finance sector for over three decades and had not defaulted on their contractual obligations with lenders.
It’s baffling how the NCLT bench admitted these applications without delving into the case details, offering stakeholders an opportunity to voice their concerns, and evaluating the existence of debt or default. In some instances, stakeholders have argued that companies like SIFL, with no debt as reflected in their audited balance sheets, should never have entered the CIRP process. This is akin to a healthy person being forcibly admitted to a hospital, undergoing unnecessary procedures, and ending up in the morgue.
In the case of SEFL, the company had no defaults, as it was under the moratorium period of COVID and the IBC. Despite this, it was admitted into the CIRP process. This highlights the need for a more judicious approach to admissions.
The recent fate of Srei Companies is now in limbo at NCLAT, Delhi, awaiting a fair trial. This case underscores the critical issue that calls for immediate rectification in the interpretation and application of the IBC. It is crucial to restore trust and fairness in the insolvency resolution process, especially in the context of recent NCLT decisions.
A robust legal framework should align with procedural rigor, natural justice, and fairness, not just for individual cases but for the entire industry. All stakeholders must come together to reshape India’s insolvency landscape to ensure coherence, predictability, and fairness. It’s imperative to restore the original spirit of the IBC, prioritizing genuine insolvency cases and upholding fairness, rather than allowing it to devolve into a tool for hurried creditor-driven actions, leaving behind a trail of injustice and shattered businesses.
