Supreme Court slams NCLT, NCLAT for defying its orders; frowns upon political appointments

The Supreme Court on Thursday took strong exception to the shortcomings in the functioning of National Company Law Tribunals (NCLTs) and National Company Law Appellate Tribunal (NCLAT), particularly their growing tendency to disregard the orders and directions passed by the Supreme Court.

A bench led by Chief Justice of India (CJI) Chandrachud and comprising Justices JB Pardiwala and Manoj Misra warned the tribunals against flouting judicial propriety.

"Over a period of time, this Court has noticed the growing tendency amongst Members of the NCLT(s) and NCLAT to ignore the orders of this Court or act in its defiance. We put the NCLT(s) and the NCLAT to notice, that any act of contravention of this Court’s order and the larger rubric of judicial propriety will not be tolerated," the Court said.

The Court also flagged lack of proper infrastructure and increasing number of vacancies at NCLTs and NCLAT and emphasised that there should not be political appointments to such tribunals.

"Persons with high ideals and impeccable integrity should be appointed as Members in the NCLT as well as NCLAT. There should not be any political appointment," the Court said.

The judgment noted that members appointed to these tribunals often lack the domain knowledge required to appreciate complexities involved in high-stake insolvency matters in order to take them to a logical conclusion.

"It has been noticed that the benches of NCLT(s) and NCLAT don’t have the practice of sitting for the full working hours. They are particularly lacking in the capacity to manage the growing number of cases and giving undivided attention required in such matters," the judgment said.

The burgeoning vacancies and lack of infrastructure have impacted the insolvency reform initiatives by the government, the Court opined.

"These vacancies heavily impact the insolvency reform initiative undertaken by the government since they lead to operational inefficiencies. A shortfall of members and the lack of requisite strength has led to Tribunals only sitting for a few days of the week or a few hours in a day," the judgment said.

Further, it highlighted that in tribunals where there are no vacancies, the absence of requisite infrastructure has 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 are not complied with," the Court opined.

In view of the above, the apex court urged the government to put strict mandates in place regarding the functioning of the tribunals within its normal working hours.

It also asked the government to make appointment of new members in a manner such that it coincides with the date of retirement of the sitting members to avoid operational inefficiencies.

"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 judgment said.

The observations were made in the judgment in the Jet Airways case by which the Court ordered the liquidation of the airlines and also set aside the NCLAT order to transfer ownership of Jet Airways to Jalan Kalrock Consortium (JKC).

The Court in its judgment also criticised the NCLTs and the NCLAT for inordinate delays in timely admission and disposal of the applications filed as regards the initiation of Corporate Insolvency Resolution Process (CIR), approval of the resolution plan and liquidation.

"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 Court stated.

The Bench further highlighted that there is no effective system in the NCLTs for urgent listing and the registry of these tribunals are given wide powers to list or not to list a particular matter.

"One of the salutary objects of the Code, 2016 is to protect the assets of the corporate entity in timely manner and taken 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," the Court stated.

The Court also took strong exception to the NCLTs and the NCLAT defying the orders of the Supreme Court.

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.

Therefore, the 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.

Furthermore, the tribunals were asked to take their roles seriously in ensuring time-bound hearings and resolutions.

[Read Judgment]