NCLT Weeds Out Frivolous Cases
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 The rest are dismissed or withdrawn or settled outside court.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withdrawn or others process of IBC (Insolvency and Bankruptcy Code), many frivolouscasesarebeingfiledbyoperational creditors at NCLTs as pressure tactic for dispute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.”
Corporate Debtor Financial Creditor