Mumbai, May 16: With the Insolvency and Bankruptcy Code (IBC) gaining precedence before the National Company Law Tribunal (NCLT), merger and amalgamation cases are beginning to pile up before the quasi judicial body set-up to fast-track issues related to domestic corporates.
Industry players say several companies, particularly small and medium-sized, which had requisitioned for approval of mergers have been facing challenges as the Bench is pre-occupied with IBC cases.
Some of these firms are said to have approached market regulator Securities and Exchange Board of India (Sebi) and Ministry of Corporate Affairs seeking intervention.
According to government data, 1,630 cases of merger and amalgamation are pending before the tribunal as of 31 January 2018.
“A total of 9,073 cases are under consideration in NCLT, including 1,630 cases of merger and amalgamation, 2,511 cases of insolvency and 4,932 cases under other Sections of Companies Act,” Minister of State for corporate affairs P P Chaudhary informed the Rajya Sabha in March.
“All efforts are being made to dispose of the cases as per the time limits laid down in the Companies Act and the IBC. Systems and procedures are being used on extensive basis to ensure quick disposal of cases,” Chaudhary had said when asked about the timely disposal of cases.
However, the ground reality seems to be different as industry players say that the backlog has grown since January.
“The whole purpose of mandating NCLT for merger approval was to expedite the process. Due to lack of quorum, the company’s business plans have been stuck as they are not getting timely approval,” said one of the law firm who’s some of the clients have been waiting for NCLT’s nod.
Earlier, companies had to approach High Courts to seek approval for any merger or scheme of arrangement. Now, NCLT is the judicial body for approving such schemes.
The rationale behind this move was to fast-track such approvals; however, sources say the time taken by the tribunal is more than what High Courts used to take.
IBC cases have taken precedence as the government focuses on addressing the bad loan issue plaguing the banking sector. Also, the Reserve Bank of India (RBI) recently put out a directive which said that if a debtor defaulted on more than Rs 20 billion, its case would have to be taken up by the NCLT within 15 days. As a result, the tribunal might be giving priority to insolvency matters over other cases.
Legal experts say the government should create an ecosystem in advance to ensure the tribunal doesn’t get bogged down with multiple legislation.
“It is true that Parliament has burdened the NCLT with multiple legislations. At the NCLAT level, even Competition Act gets added. Before creating a jurisdiction, one has to plan and model for capacity to handle it but we singularly fail to adopt an empirical approach. What we now see is an outcome of that approach to policy-making,” said Somasekhar Sundaresan, an independent counsel.
He further added that the centre should understand that technology, human resources and real estate are the three pillars of running a Court. “All of this requires planning before a law is made creating a jurisdiction.