An Alvarez & Marsal India report on Thursday called upon all IBC stakeholders to focus on improving efficiency to resolve cases in a time-bound manner because wherever the resolution time increased, the recovery percentages also fell sharply to 15-25 per cent.
Between FY17 and FY19, recoveries averaged only 43-50 per cent but the timeline has been stretched beyond the envisaged 180 plus 90 days. In December 2020, the Insolvency and Bankruptcy Code (IBC) completed four and half years of promulgation, the report said.
“Of the 277 cases resolved in NCLTs as of September 2020, the average time for resolution including litigation time has been 440 days. If one includes the time taken at the admission stage and post-approval of the resolution plan, it takes close to 12-36 months to close the resolution process,” it added.
As of July-end 2020, as much as 19,844 cases were pending before NCLTs, including 12,438 under the IBC. In FY20, around 480 cases were admitted every quarter, which may take six years to complete the backlog, it noted.
Until September 2020, 4,008 cases were admitted at NCLTs, of which only about 52 per cent have been closed.
The report blamed multiple litigations initiated by stakeholders during the process, administrative delays at NCLTs and inconsistencies in judgments across benches as the major driving forces for the slower resolution process.
The rate of filing of new cases far exceeded the rate of closure of ongoing cases, resulting in nearly 75 per cent of the 1,942 ongoing cases having run for more than 270 days.
The NCLT benches of Delhi and Mumbai, having the highest number of insolvency cases, have the resolution time of over 475 days, which is above the national average of 440 days, while the Kolkata and Bengaluru benches fare better averaging 339 and 352 days, respectively. The Cuttack bench is the worst in delays with averaging 613 days and Jaipur is the quickest with 288 days on average.
But if the time for appeals beyond the National Company Law Tribunal (to the National Company Law Appellate Tribunal and Supreme Court) and subsequent litigation included, the real-time for the resolution increases sharply, the report said.
The average time of resolution for the sample 23 cases, aggregating financial creditors claim of Rs 1.02 lakh crore which escalated beyond the NCLT, increased from 445 days to 751 days.
“Significantly, as the resolution time increased, the recovery percentages also fell sharply to 15-25 per cent. The average recovery observed for the resolved cases for financial creditors has been 41 per cent as of September 2020,” the report noted.
Also, another problem with the delays is that most companies at NCLTs saw revenue decline. For instance, Alok Industries saw its revenue fall 64 per cent, Orchid Pharma (16 per cent ), Ruchi Soya (17 per cent ), Uttam Value Steel (23 per cent ) etc.