India's Company Law Tribunal is in a crisis

Saad (0:01)

Hello folks, you're tuned in to Finshots Daily. I'm Saad, if you're new here, welcome. If you're returning, welcome back. In today's episode, we explain why the NCLT, the body that handles corporate insolvency cases, is stuck in a sort of never-ending crisis of staff shortages and inadequate infrastructure.

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If you're an Indian company and you have a case pending for the National Company Law Tribunal or the NCLT, life isn't easy for you. That's because the NCLT deals with the company disputes and insolvency cases. And resolving these can take days, sometimes even years. Now we know you will say, hey, Finshots, but we had something called the Insolvency and Bankruptcy Code or IBC, which came into effect a decade ago. It said that such cases must be resolved within 330 days, including a grace period. But that's not really happening. Instead, there are long waits and case adjournments at the NCLT, sometimes for no clear reason. In fact, cases are even being dragged on, with delays ranging from 48 days to a whopping 738 days.

And all this has left the Supreme Court literally frustrated. For context, a couple of days ago, a bench led by Chief Justice CGI Suryakant heard a plea from the NCLT Bar Association, a body that represents lawyers who practiced before the NCLT and NCLAT. The lawyer fighting the association's case told the court that the NCLT was in shambles. And there's a reason for that. 18 NCLT benches are currently working only half a day since last month, simply because there aren't enough members. Just to give you some context, the NCLT is supposed to have 63 members, but only 50 are currently in place. Another 18 are due to retire by the end of next year.

And it's not just judges and technical members. The Supreme Court had years ago approved 246 permanent administrative staff posts for the Tribunal, but none have actually been made permanent. Besides, more than 95% of NCLT's workforce is still working on a contractual basis or on deputation. That's hardly a set up for an institution meant to resolve time-sensitive corporate insolvency cases. So, how did we get here, you ask?

To begin, the NCLT's workload grew massively, but size didn't. It was created in 2016 to handle company law disputes, but that same year, the IBC gave it another much bigger responsibility, handling corporate insolvency cases. Earlier, these cases were handled by different bodies under different laws. So the NCLT suddenly had a lot more work on its plate.

Yet, its sanctioned strength remained frozen at 63 members ever since, even as insolvency cases started making a large part of its workload. The next problem is that even when vacancies arise, filling them can take a long time. The process is actually supposed to be fairly straightforward. Since the NCLT sits administratively under the Ministry of Corporate Affairs or MCA, the MCA first advertises the vacancy. A judge-led committee called the Search Come Selection Committee or SCSC then screens candidates and recommends names, after which the government formally appoints them. But the trouble is that vacancies are usually advertised only after someone has already left. So the NCLT is often playing catch up. And the delays don't always end there. The Supreme Court has repeatedly pulled up the government over how it handles these recommendations. Take the Tribunals Reform Act of 2021, which was meant to simplify the way tribunals work across the country. India had dozens of tribunals created under different laws, each with its own rules for appointing members to their tenure and qualifications. So the government tried to streamline the system by abolishing some smaller tribunals and moving their work to existing courts. It also created a common set of rules for remaining tribunals, including the NCLT and NCLAT, which is the National Company Law Appellate Tribunal, instead of having separate rules for each of them.

But some of these rules went against what the Supreme Court had already directed. For instance, the court said the SCSE should recommend one person for each vacancy. The new law instead allowed it to recommend two names, effectively giving the government a choice between them. What you have to note here is that the court had specifically struck down this provision earlier, yet the government went ahead with it. So the Supreme Court accused the government of cherry picking candidates by appointing some people from the waiting list while leaving those recommended in the main list waiting. If you think about it, this defeated the purpose of having an independent selection committee in the first place. And that's exactly what the court thought as well. And this isn't just a theoretical problem, we've seen it happen in other cases too. In one involving the Income Tax Appellate Tribunal, a candidate selected in 2014 was still waiting for an appointment years later, because the process was stuck with the government. Delays like this are exactly why, even when the system identifies people to fill vacant seats, getting them into those seats can take years. Apart from this, the NCLT also suffers from a lack of permanent buildings and proper infrastructure at several of its benches. And the end result is that people or companies sometimes have to travel long distances just to have their cases heard. For instance, someone from Telangana or Andhra Pradesh may have to travel all the way to Kolkata because their local bench doesn't have enough members to hear their case. But that doesn't mean nothing is being done to fix the problem. The government's biggest move so far is the Tribunals Reforms Act of 2026, which received presidential assent just last month.