Debt resolutions gather steam as NCLT vacancies filled-OxBig News Network

In the June quarter of FY25, 58 sick companies were salvaged by their creditors and new investors, showed data available from the Insolvency and Bankruptcy Board of India (IBBI), the sector’s rule-maker.

The improvement comes in the wake of the government filling vacancies in the National Company Law Tribunal (NCLT)—the judicial authority that clears debt resolution schemes under the bankruptcy code.

As of March this year, it had 60 members out of 63 sanctioned posts, data available from the tribunal showed. That is a major improvement, given that at the end of September 2024, the tribunal had only 43 members, or 30% short of its sanctioned strength, Mint reported on 6 December.

The number of debt resolutions achieved in the June quarter, however, is a tad below the 75 resolutions reported in the March quarter of FY25. On an average, 62 cases were resolved in a quarter in FY25, with 247 companies getting their restructure plans approved in the full year, IBBI data showed.

Experts said debt resolutions in the recent past have actually improved.

“While the quarter-to-quarter trend may not provide a consistent uptick in the resolutions under the IBC, it is interesting to note that as of December 2024, 60% of all resolution plans approved under the IBC had been approved over the preceding three years. Here, it must also be highlighted that an additional 30,000 cases were settled at the pre-admission stage during the same period,” said Yogendra Aldak, partner at Lakshmikumaran and Sridharanattorneys.

Corporate debt resolution under the IBC came into force in December 2016.

Separately, the ministry of corporate affairs said in its monthly newsletter for May that increased institutional capacity and reduced litigation can help improve the outcomes of debt resolution efforts. Better training and support for insolvency professionals, streamlining procedures and enhancing effectiveness of the committee of creditors, which decides on the future of distressed companies, are important areas for future focus, the ministry stated.

Experts also believe legislative and administrative changes will help in improving debt resolution outcomes.

“While these provide an optimistic outlook for the future of resolutions in India, the process continues to be hindered by several procedural and institutional hurdles. In order to achieve a truly reliable and efficient resolution mechanism, both legislative policy and administrative practices will have to be re-evaluated in order to successfully tackle the present challenges,” Aldak said.

Experts said the recruitment of new members in NCLTs has borne fruit.

“It is imperative that the NCLT functions at full strength so that there are no delays in plan approval. Delays in plan approval may lead to further complications such as bidders expressing inability to execute due to passage of time,” said Madhav Kanoria, partner at law firm Cyril Amarchand Mangaldas.

A few members are set to retire and it is expected that the government will fill the vacancies sooner than later so that matters are disposed of expeditiously, added Kanoria.