NCLT Weeds Out Friv­o­lous Cases

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Mum­bai: In­dia’s ded­i­cated bank­ruptcy courts are ad­mit­ting fewer cases brought by trade cred­i­tors,lend­ing­cre­dence­tothe ex­er­cise that aims to re­cover about ₹ 8 lakh crores in bad debts by lenders and di­rect the flow of credit to more pro­duc­tive sec­tors of theecon­omy. Cas­es­from­trade cred­i­tors be­fore the Na­tional Com­pa­nyLawTri­bunals(NCLT) are now on the wane, and its firm ap­proachtono­tal­lowflimsy­complaints to be ad­mit­ted be­fore its benches is also fa­cil­i­tat­ing many out-of-court set­tle­ments.

Since the be­gin­ning of the year, op­er­a­tional cred­i­tors filed 184 cases — or 57% of the to­tal in dif­fer­ent NCLTs, show data by Vinod Kothari & Com­pany, a fi­nan­cial­con­sul­tant­forin­sol­vency pro­ceed­ings.NCLT­court­sad­mit­ted only 67 (37%) cases of these. The rest are dis­missed or with­drawn or set­tled out­side court. “Due to ef­fec­tive and time-bound Op­er­a­tional Cred­i­tor Statis­tics ad­mit­ted dis­missed

with­drawn or oth­ers process of IBC (In­sol­vency and Bank­ruptcy Code), many frivolous­cas­esare­be­ing­filed­by­op­er­a­tional cred­i­tors at NCLTs as pres­sure tactic for dis­pute set­tle­ment or civil recovery,” said Pa­van Ku­mar Vi­jay, founder of Cor­po­rate Pro­fes­sion­als, closely as­so­ci­ated with IBC process.

The rate of ad­mis­sion is much higher in cases filed by fi­nan­cial cred­i­tors. “Such cases by trade cred­i­tor­sarenowseen­thwart­ing t he broader obj e c t ive of In­sol­ven­cy­moves.Even­dif­fer­ent NCLTmem­ber­sare­seen­ex­press­ing reser­va­tions over such cases. Many are ei­ther dis­missed or set­tled out­side court,” Vi­jay said. New Delhi NCLT has dis­missed the case be­tween Smart Tim­ing Stee­landNa­tion­alS­tee­landA­gro In­dus­triesonMay19thisyear,cit­ing no merit in the case. NCLT ob­served the op­er­a­tional cred­i­tor - S mar t

Tim­ing - failed to fur­nish the cer­tifi­cate from its bank on non-re­ceipt of pay­ment­fromthe­da­teof de­mand no­ticetillthe­da­teof fill­ingof pe­ti­tion. “The (IBC) Code is not a law meant­for­recov­eryof dues–there are com­mer­cial courts and civil courts to han­dle money suits,” said Vinod Kothari, a char­tered ac­coun­tant who is a prac­tis­ing in­sol­ven­cypro­fes­sional.“Theen­act­ment of the Code cre­ates a vac­u­um­for­op­er­a­tional­cred­i­tors –forc­ingth­em­torun­toNCLTs­for res­o­lu­tion, where they are sent back with rep­ri­mand.” “The more strin­gent re­quire­ments for an op­er­a­tional cred­i­tor’s ap­pli­ca­tion and the NCLTs’ wel­come ap­proach in scru­ti­n­is­ing and re­ject­ing friv­o­lous ap­pli­ca­tions has set the right tone,” said Babu Si­vaprakasam, Part­ner at Eco­nomic Laws Prac­tice (ELP). “It is slowly but def­i­nitely dawn­ing on such ap­pli­cants that IBC is not a recovery tool and has to be in­voked very ju­di­ciously, weigh

ing the ob­jec­tives of the code.”

A Few

Op­er­a­tional Cred­i­tor

Cor­po­rate Debtor Fi­nan­cial Cred­i­tor

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