Insolvency backlog puts mergers on hold
Over 1,600 cases pending before NCLT
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 quasijudicial 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 preoccupied with IBC cases.
Some of these firms are said to have approached market regulator Securities and Exchange Board of India and Ministry of Corporate Affairs seeking an intervention. Earlier, companies had to approach high courts to seek approval for any merger or scheme of arrangement. Now, the 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 recently sent out a directive which said that if a debtor defaulted on more than ~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, said a banking expert.
Legal experts are of view that the government should create an ecosystem in advance to ensure the tribunal does not get bogged down with multiple legislation. “It is true that Parliament has burdened the NCLT with multiple legislations. At the National Company Law Appellate Tribunal level, even the 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,” said Somasekhar Sundaresan, an independent counsel. According to government data, 1,630 cases of merger and amalgamation are pending before the tribunal as on January 31. “A total of 9,073 cases are under consideration in the NCLT, including 1,630 cases of merger and amalgamation, 2,511 cases of insolvency, and 4,932 cases under other sections of the Companies Act,” Minister of State for Corporate Affairs P P Chaudhary informed the Rajya Sabha in March.