The Working Of The IBC – Some Thoughts And Reflections : Justice Anand Venkatesh Writes

1. The Insolvency and Bankruptcy Code (IBC), 2016 aims at timely reorganization and resolution of corporates, firms and individuals; to maximize the assets of such debtors for the benefit of all stakeholders. It has been said that introspection is a powerful tool for self-betterment. Aristotle is believed to have said that knowing yourself is the beginning of all wisdom. There is no doubt that what is true for individuals is true for institutions which they man and run. An institution which does not periodically introspect is bound to self-destruct. This is the underlying premise be- hind the observations which I now proceed to make. The observations should not be taken to be a criticism of the system. It is only meant to point our areas of concern, to call for introspection and a hope for change and betterment of the existing system. The observations made by the Supreme Court in SBI v. Consortium of Murari Lal, 2025 INSC 852 is an eye-opener to the challenges currently facing the IBC in the ef- fective implementation of its objectives and the institutions which implement the enactment.

2. The focus will be on 4 specific areas (a) structural challenges (b) administrative challenges (c) growing rise of corruption and nepotism (d) challenges in the work- ing of the IBC. The first three areas will focus on the institution : the NCLT and the last will focus on the law that it administers i.e., the IBC. I will also look at the way forward by making suggestions which, in my opinion, would provide some solu- tions for the betterment of the system.

STRUCTURAL CHALLENGES

3. As is well known, the NCLT sits in benches comprising of a judicial and a tech- nical member. The rationale for this combination was explained by RAVEENDRAN, J in Union of India v. Madras Bar Assn., (2010) 11 SCC 1, as follows:

“The judicial member would also ensure impartiality, fairness and reasonableness in consideration. The presence of a technical member ensures the

1 Judge, Madras High Court. This talk was delivered at the IBC conference “Retrospective and Roadmap for the Future” on June 7, 2025 under the aegis of the Nani Palkhivala Arbitration Centre, Chennai availability of expertise and experience related to the field of adjudication for which the special Tribunal is created, thereby improving the quality of adjudication and decision making.”

What follows is that the appointment of judicial and technical members who have expertise and domain knowledge in company law and corporate insolvency is a sine qua non if the NCLT is to achieve acceptable standards of decision making. The very purpose of setting up specialized tribunals is on the premise that these bodies would guarantee an acceptable standard of decision making. There is no use making the NCLT a haven for retired judicial officers/High Court Judges. Similarly, the post of Technical Member ought not to be viewed as a post-retirement office for mem- bers of the bureaucracy.

4. All of us present here know of this problem. Can it be honestly asserted that some of the past appointees possessed the standard of domain expertise required to work a complex code like the IBC. Appointment of domain specialists would help the law grow and evolve. Members who man these Tribunals must not be generalists who take time to become specialists and by the time they demit office, and the knowledge acquired is not ploughed back into the system. Appointing generalists to specialized Tribunals is akin to fitting a square peg into a round hole. The need of the hour is horses (read judges) for courses (Tribunals) and not courses for horses. Even the Supreme Court has taken cognizance of this issue in SBI v. Consortium of Mu- rari Lal, 2025 INSC 852, and had lamented:

“The Members often lack the domain knowledge required to appreciate the nuanced complexities involved in high-stake insolvency matters in order to properly adjudicate such matters. 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.”

There is a proposal to increase the number of members from the present 63 to 113. While an increase in the number of members is perhaps one way of tackling arrears, the stakeholders should not lose sight of Parkinson's law that expansion eventually leads to complexity and decay.

5. A word about appointments. The IBC envisages a time bound process of cor- porate insolvency resolution. Last year, the NCLT was functioning with 42 mem- bers as against the sanctioned strength of 63. The average time taken for resolution under the IBC shot up to 716 days in FY 2023-24 according to the IBBI. 21 posts lying vacant were filled only after some stern observations by the Supreme Court in February this year. If vacancies are not notified in advance and filled immediately or shortly upon such vacancies arising, there is a real risk that the Tribunal would be short staffed resulting in avoidable delays. The whole process under the IBC is founded on the understanding that the discipline of time bound resolution is re- spected. This cannot be done if the Tribunal cannot function for want of coram. This has been recently echoed in the SBI case where the Supreme Court observed:

“The appointment of new members must be done in a manner such that it coincides with the date of retirement of the sitting members in a seamless manner to avoid such operational inefficiencies. Persons with high ideals & impeccable integrity should be appointed as Members in the NCLT as well as NCLAT. There should not be any political appointment.”

6. Another aspect is the relationship the NCLT shares with the respective High Courts of the States where they function. For quite some time, the NCLT and the NCLAT entertained a notion that they were not subject to the superintendence and control of the High Courts under Article 226/227. The Supreme Court observed:

“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 notion that the orders of Constitutional Courts can be flouted is completely erroneous. Under our constitutional scheme, the NCLT/NCLAT's are subject to the judicial superintendence of the High Courts. It is true that the High Courts would not lightly interfere with the orders of these Tribunals. The High Court would not disturb the corrective avenues under the statute save except in cases where the or- ders impugned are wholly illegal and without jurisdiction. Any friction between a Constitutional Court and a statutory Tribunal is not in good taste. This is not a claim for superiority. If the High Court interferes it does so by virtue of its constitutional powers. Therefore, the NCLT/NCLAT must recognize and respect their statutory roles in the justice dispensation system and avoid conflicts which does not auger well for the system as a whole.

ADMINISTRATIVE CONCERNS

7. While upholding the Tribunalisation of justice in India, the Supreme Court in L. Chandra Kumar v. Union of India, (1997) 3 SCC 261, had ventured to observe:

“We are of the view that, until a wholly independent agency for the administration of all such Tribunals can be set up, it is desirable that all such Tribunals should be, as far as possible, under a single nodal ministry which will be in a position to oversee the working of these Tribunals. For a number of reasons that Ministry should appropriately be the Ministry of Law.”

The purpose behind this direction was to ensure that a Tribunal is seen to be inde- pendent of its parent sponsoring ministry. After all, justice must not only be done but must be seen to be done. The idea that a Tribunal functions under the aegis of a par- ticularly ministry would definitely lead a reasonable person to infer a possibility of bias in decision making. This particularly so since the Tribunal would be seen to be dependent on the Ministry for every aspect of its functioning right from infrastruc- ture, administrative staff, appointments etc.

8. In MBA-I, the Constitution Bench reiterated the observations that administra- tive support for all Tribunals should be from the Ministry of Law and Justice. Nei- ther the Tribunals nor their members should seek or be provided with facilities from the respective sponsoring or parent Ministries or Department concerned. This was in 2010. In 2018, the Supreme Court once again commented in Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17, that even though eight years have passed since the date of MBA-1, the administrative support for the NCLT and NCLAT con- tinued to be from the Ministry of Corporate Affairs. Another 7 years have passed and the situation remains the same.

9. It is important that a litigant who comes to the NCLT/NCLAT must never get an impression that its administrative set up is an extension of the Ministry of Corpo- rate Affairs. I hasten to add that it could very well be that the Ministry of Corporate Affairs is actually doing is best to ensure transparency. But what matters in matters like this is the perception of the litigant public. Impartiality and unbiased decision making rests on these foundational principles. Therefore, unless and until adminis- trative support for the NCLT and NCLAT is shifted to the Ministry of Law and Jus- tice as directed by not one but three judgments of the Supreme Court, these tribunals cannot be seen to be truly independent of their parent/sponsoring departments.

10. The present position does not appear to be healthy as was pointed out by the Supreme Court in SBI v. Consortium of Murari Lal, 2025 INSC 852 as under:

“There are serious issues in the manner in which the insolvency matters are listed. There is no effective system in place before the NCLTs for urgent listings. The staff of the Registry is given wide power to list or not to list a particular matter.”

It was also observed:

“One another serious issue pertaining to the functioning of the NCLTs and NCLAT is that there is often a shortage of members in the Tribunals and inadequate infrastructure to support their functioning. 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. Even in Tribunals where there is no vacancy, the absence of requisite infrastructure has forced the benches to share courtrooms or halls on a rotation basis.”

These are troubling observations. Lack of requisite infrastructure, short staffed Registry and lack of an independent and self-reliant Registry has only compounded the problem, as all the personnel are drawn from the parent Department. This has created an unhealthy situation which the solution given in MBA-I had intended to advert. Without a strong, transparent and self-reliant Registry the administrative work of the Tribunals are bound to suffer. This will eventually cascade and affect the quality of orders.

INSTITUTIONAL CORRUPTION

11. This is a very serious issue which has unfortunately dented the reputation of the NCLT in recent times. In 2022, corruption issues of titanic proportions titled “Cash for Orders” involving a sitting Technical Member were flagged in the Chen- nai Bench leading to an investigation by the CBI. A similar scam broke out in 2024 when a bribery scheme was discovered involving a nexus between the Registry and certain law firms. It appears the lawyer was actually a former NCLT staffer. As the saying goes, any institution which is eventually destroyed is first destroyed from within. We have heard similar cases of a nexus between Advocates and the Mem- bers as also the staff of the Registry. The news of orders being supplied in a pen drive to the NCLT was an open secret. It is not that people do not know.

12. The Members and the Advocates must realize that they do not operate in ivory towers, and that these insidious schemes are bound to come out into the open, and bring the administration of justice into disrepute. Since this is a problem of lack of probity I have made a suggestion in the last segment which may offer some over- sight to control this problem.

13. There have been grave concerns about the manner in which listing of cases is manipulated for cash. In 2022 media reports suggested the existence of a nexus called “cash for listing”. The most recent incident is a complaint involving an NCLT staff who allegedly took a bribe from a litigant to help him win the case using his contacts in the NCLT.

14. The problem is not just corruption. There have been serious complaints against IRP's, who are the backbone of the IBC. The Standing Committee on Fi- nance in its 32nd Report has observed that 123 complaints of professional miscon- duct are pending against IRP's before the IBBI. The total number of IRP's are stated to be 203 which means that complaints of professional misconduct are pending against more than 60% of the IRP's. I was amazed to find the following observation by the Committee:

“Most penalties carried out by IBBI against RPs reveal misinformation and unawareness of the CIRP process by RPs.”

This is quite shocking since they go to the very root and challenge the very basis on which these RP's are accredited. If RP's were being dealt with for unawareness the question that must be asked is on what basis were they accredited in the first place. This raises serious questions on the benchmarks which are set for persons who seek to be appointed as RP's. These persons deal with significant corporate as- sets. They must withstand the pulls and pressures of corporate existence. Above all, their conduct must be free from suspicion.

CHALLENGES IN WORKING THE IBC

15. The aforesaid challenges have had a domino effect. The Standing Committee on Finance has observed that actual recoveries on the ground are roughly between 25 to 30 per cent and some cases take as long as two years for resolution. The present trend shows that 71% of the ongoing corporate insolvency resolution processes (CIRPs) had exceeded 270 days, post admission by the NCLT. The elongated pro- cess results in further erosion of the corporate debtor, which has also resulted in high share (44%) of CIRPs being closed through liquidation orders.

16. The Standing Committee has also traced considerable delays in the process of admitting claims creating a ripple effect on the whole resolution process, most criti- cally degeneration of asset value. This concern was reiterated by the Supreme Court in the SBI case wherein it was observed:

“One of the salutary objects of the Code, 2016 is to protect the assets of the corporate entity in a timely manner and take 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.”

17. Another issue is the steep haircuts. It was observed that haircuts of up to 95% seen were seen in the process. The result is that the stakeholders recover only a pit- tance. It has also been noticed that distressed assets are often frittered away at al- most 60 % of its original value. These are some of the broader concerns that needs to be flagged. I do not intend to dwell on the nitty gritties of the law as all of you are well versed in the subject.

18. I do not intend to present this picture of gloom and leave it there. While these are problems plaguing our Tribunals, a long term and permanent solution needs to be found. The problems flagged, supra, are not irremediable. They plague most of our Tribunals which function under the aegis of some governmental agency. I will now try and offer some solutions which may be useful to address these issues in the future.

THE WAY FORWARD

19. The success or failure of largely depends on the system that administers it. Thus it is important that appointments to the posts of judicial and technical members are made from and out of domain experts and persons with proficiency in corporate law and corporate insolvency. As I have mentioned earlier, the need of the hour is horses for courses, and as the Supreme Court points out in SBI, they must be persons of high ideals & impeccable integrity, not persons who come by way of political ap- pointments.

20. It is high time, the Tribunals were brought under the aegis of the Ministry of Law. It is extremely unfortunate that this recommendation, made over 28 years ago, has remained on paper despite being reiterated by two Constitution Bench judg- ments. The Ministry of Law may consider establishing a Tribunals service, like the United Kingdom, which would be an independent body to administer the working of the Tribunal system. This would ensure that the NCLT/NCLAT is not an extended wing of the Ministry of Finance.

21. Vacancies to the posts of Judicial and Technical members must be notified sufficiently early and the appointment must necessarily be made to coincide with the retirement of the outgoing member. This would ensure that the Tribunal is not short staffed for extended periods thereby crippling its efficiency.

22. The NCLT's must realize that they are not there to rubber stamp the reports of the IRP/RP. This is a concern that has been pointed out by the Supreme Court in the SBI case. The IRP's must never get the impression that they are free from judicial oversight and that their reports are beyond scrutiny. The NCLT must take cogni- zance of the fact that their rubber stamping of reports of IRP/RP's directing payouts of notoriously large sums of money to the latter have become a public scandal. This would ensure that the IRP/RP's are held accountable to the Tribunal.

23. Infrastructural requirements must be assessed once in 3-4 months. There is no use expanding the Tribunal by adding 50 new members if they do not have Court hall to preside over, or stenographers to dictate and Court Masters to run the Court. The Government must create sufficient permanent posts, instead of resorting to ad- hoc contract appointments which have virtually paralysed tribunals like the Con- sumer Forums. Infrastructural requirements have been consistently ignored not only in NCLT but in other Tribunals. The citizens who approach these Forums are entitled to a certain quality of justice which cannot be ensured if the Tribunals are starved of adequate infrastructure.

24. One of the ways of reducing arrears is by introducing mediation in corporate insolvency. The idea was originally mooted by the Expert Committee headed by Shri T.K Viswanathan in January 2024. The Committee had noted that the Media- tion Act, 2023 may be unsuited to the IBC particularly in view of the timebound pro- cess under the Code. It had therefore recommended the introduction of a separate chapter on mediation in the Code which is however yet to materialize. Mediation is a useful tool to weed out a large number of cases thereby retaining only those cases which actually require effective adjudication by the Courts. Like our Civil Courts, the NCLT's also cannot afford to go down the same way of mounting arrears which would completely destroy the purpose of the IBC by derailing adjudication within the prescribed timelines.

25. Issues of corruption and increasing instances of a nexus between Advocates and Members of the NCLT is a cause for grave worry. It is high time that the Gov- ernment considers setting up a separate Vigilance Wing, as in the High Courts, to act as a watchdog to minimize such instances. Corruption in an adjudicatory body is the beginning of the end, and the Government must ensure a zero corruption policy if these Tribunals are to gain the policy of the public. The public must never get the im- pression that corporate justice, like all other things in business, is also available for a price.

26. Coming to the other stakeholders like the IRP/RP's, it goes without saying that they form the backbone of the CIRP. It is quite shocking that amongst the 123 RP's facing disciplinary proceedings, many complaints are on account of the RP's ignorance of the CIRP process. It is demonstrably clear that the very selection/ recognition of these persons are on questionable lines. There have been allegations of IRP/RP's being dummies in the hands of their spouse. IRP's are presumed to be experts. The nodal body must ensure that the accreditation of these IRP/RP's are pe- riodically reviewed and that only those who possess requisite skills are retained on their rolls. There cannot be political appointments or appointments based on extra- neous considerations other than merit. This is a sine qua non for the success of the IBC.

27. Coming to the other important stakeholder in the process: the CoC, it may be worthwhile to consider having a Code of Conduct on the lines of the Statement of Insolvency Practice 15 (SIP) in the United Kingdom. While the CoC is undoubtedly entitled to wide latitude while testing a plan on the basis of its commercial wisdom, a Code of Conduct would put in place certain best practices and benchmarks which would promote higher recover and equitable distribution of assets. This would pre- vent any allegation of the CoC acting in a biased manner to suit its commercial in- terests.

CONCLUSION

The IBC has usefully consolidated enactments which were formerly fragmented and scattered across several legislations. However, by the very nature of things the process involves high stakes with big players. If those concerned with the imple- mentation of the Code are fickle minded, lack insightfulness and do not demonstrate honesty in their approach to its implementation, no amount of tweaking can yield results. Transparency and accountability amongst stake holders is, therefore, the need of the hour. It is hoped that the Government would earnestly look into these suggestions and reform the existing system to strengthen the implementation of this legislation.

The author is a Judge of the Madras High Court.