The Supreme Court has expressed its strong displeasure against the growing tendency of tribunals, such as National Company Law Tribunals (NCLTs) and the National Company Law Appellate Tribunal (NCLAT), to disregard the orders and directions passed by the Apex Court.
The Bench of Chief Justice of India DY Chandrachud, Justice JB Pardiwala and Justice Manoj Misra on Thursday warned the members of NCLTs and the NCLAT against ignoring the orders of the Apex Court or acting in defiance of the same, stating that any act of contravention of this Court’s orders and the larger rubric of judicial propriety would not be tolerated.
Noting that members appointed to these tribunals often lacked the domain knowledge required to appreciate the complexities involved in high-stake insolvency matters in order to take them to a logical conclusion, the Bench said there should not be political appointments to such tribunals.
The Apex Court also raised concern over the Benches of NCLT(s) and NCLAT not sitting for full working hours. It said the members were particularly lacking in the capacity to manage the growing number of cases and giving undivided attention required in such matters.
The Apex Court observed that lack of proper infrastructure and the increasing number of vacancies in NCLTs and NCLAT was also impacting the insolvency reform initiatives taken by the government since they led to operational inefficiencies.
A shortfall of members and the lack of requisite strength led to the Tribunals only sitting for a few days of the week or a few hours in a day, it added.
In tribunals where there were no vacancies, the absence of requisite infrastructure 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 were not complied with, added the Apex Court.
It urged the government to put strict mandates in place regarding the functioning of tribunals within its normal working hours.
The government was further asked to appoint new members in such a manner that the appointment coincided with the date of retirement of the sitting members to avoid operational inefficiencies.
The Apex Court said 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.
The Bench made these observations while passing the verdict in the Jet Airways case. The Apex Court on Thursday ordered the liquidation of the cash-strapped airlines and also set aside the NCLAT order to transfer ownership of Jet Airways to Jalan Kalrock Consortium (JKC).
In its Jet Airways judgment, the Bench criticised the NCLTs and the NCLAT for inordinate delays in timely admission and disposal of the applications filed as regards to initiation of the Corporate Insolvency Resolution Process (CIR), approval of the resolution plan, and liquidation.
It said adjudication in a time-bound manner would help prevent any further deterioration of the value of the corporate entity. The integrity of the original timelines laid down by the Code and the resolution plan must not be allowed to be violated since it would dilute the objective of the Code in its entirety, erode investor confidence, and hinder all corporate restructuring efforts.
The Apex Court also spoke about the lack of an effective system in the NCLTs for urgent listing, along with power accorded to the registry of these tribunals over listing or non-listing of a particular matter.
The Bench observed that one of the salutary objects of the Code, 2016 was to protect the assets of the corporate entity in a timely manner and take prompt decisions. However, 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.
In the Jet Airways case, the NCLAT had permitted Jalan Kalrock Consortium, the successful resolution applicant, to adjust a bank guarantee towards its payment obligations, despite explicit orders of the Supreme Court asking them to pay the amount in cash.
In view of this fact, the Apex Court asked the NCLTs and the NCLAT to rethink their approach towards admission and disposal of insolvency matters and not act as a mere rubberstamping authority.
It further asked the tribunals to take their roles seriously in ensuring time-bound hearings and resolutions.
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