National company Law tribunal :

The Central Government has constituted National Company Law Tribunal (NCLT) under section 408 of the Companies Act, 2013.

The National Company Law Tribunal NCLT is a quasi-judicial body, exercising equitable jurisdiction, which was earlier being exercised by the High Court or the Central Government. The Tribunal has powers to regulate its own procedures.

The establishment of the National Company Law Tribunal (NCLT) consolidates the corporate jurisdiction of the following authorities:

1.        Company Law Board

2.        Board for Industrial and Financial Reconstruction.

3.        The Appellate Authority for Industrial and Financial Reconstruction

4.        Jurisdiction and powers relating to winding up restructuring and other such provisions, vested in the High Courts.

In the first phase the Ministry of Corporate Affairs have set up eleven Benches, one Principal Bench at New Delhi. These Benches will be headed by the President and 16 Judicial Members and 09 Technical Members at different locations.

National Company Law Appellate Tribunal (NCLAT):

It was constituted under Section 410 of the Companies Act, 2013 for hearing appeals against the orders of  National company Law tribunal .

o   NCLAT is also the Appellate Tribunal for hearing appeals against the orders passed by NCLT(s) under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC).

o   NCLAT is also the Appellate Tribunal for hearing appeals against the orders passed by Insolvency and Bankruptcy Board of India under Section 202 and Section 211 of IBC.

§  NCLAT is also the Appellate Tribunal to hear and dispose of appeals against any direction issued or decision made or order passed by the Competition Commission of India (CCI).

Competition Commission of India (CCI) :

Competition Commission of India (CCI) is a statutory body of the Government of India responsible for enforcing the Competition Act, 2002, it was duly constituted in March 2009.

§  The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was repealed and replaced by the Competition Act, 2002, on the recommendations of Raghavan committee.

§  Competition Commission of India aims to establish a robust competitive environment.

o   Through proactive engagement with all stakeholders, including consumers, industry, government and international jurisdictions.

o   By being a knowledge intensive organization with high competence level.

o   Through professionalism, transparency, resolve and wisdom in enforcement.

Competition Act, 2002

§  The Competition Act was passed in 2002 and has been amended by the Competition (Amendment) Act, 2007. It follows the philosophy of modern competition laws.

o   The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and M&A), which causes or likely to cause an appreciable adverse effect on competition within India.

o   In accordance with the provisions of the Amendment Act, the Competition Commission of India and the Competition Appellate Tribunal have been established.

o   Government replaced Competition Appellate Tribunal (COMPAT) with the National Company Law Appellate Tribunal (NCLAT) in 2017.

Composition of CCI

§  According to the concerned legislations, the Commission shall consist of a Chairperson and not less than two and not more than ten other Members who shall be appointed by the Central Government.

o   The Competition Commission of India is currently functional with a Chairperson and two members.

§  The commission is a quasi-judicial body which gives opinions to statutory authorities and also deals with other cases. The Chairperson and other Members shall be whole-time Members.

§  Eligibility of members: The Chairperson and every other Member shall be a person of ability, integrity and standing and who, has been, or is qualified to be a judge of a High Court, or, has special knowledge of, and professional experience of not less than fifteen years in international trade, economics, business, commerce, law, finance, accountancy, management, industry, public affairs, administration or in any other matter which, in the opinion of the Central Government, may be useful to the Commission.

Functions and Role of CCI

§  To eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India.

§  To give opinion on competition issues on a reference received from a statutory authority established under any law and to undertake competition advocacy, create public awareness and impart training on competition issues.

§  The Competition Commission of India takes the following measures to achieve its objectives:

o   Consumer welfare: To make the markets work for the benefit and welfare of consumers.

o   Ensure fair and healthy competition in economic activities in the country for faster and inclusive growth and development of the economy.

o   Implement competition policies with an aim to effectuate the most efficient utilization of economic resources.

o   Develop and nurture effective relations and interactions with sectoral regulators to ensure smooth alignment of sectoral regulatory laws in tandem with the competition law.

o   Effectively carry out competition advocacy and spread the information on benefits of competition among all stakeholders to establish and nurture competition culture in Indian economy.

§  The Competition Commission is India’s competition regulator, and an antitrust watchdog for smaller organizations that are unable to defend themselves against large corporations.

§  CCI has the authority to notify organizations that sell to India if it feels they may be negatively influencing competition in India’s domestic market.

§  The Competition Act guarantees that no enterprise abuses their 'dominant position' in a market through the control of supply, manipulating purchase prices, or adopting practices that deny market access to other competing firms.

§  A foreign company seeking entry into India through an acquisition or merger will have to abide by the country’s competition laws.

o   Assets and turnover above a certain monetary value will bring the group under the purview of the Competition Commission of India (CCI).

Judgements of CCI

§  CCI imposed a fine of ₹63.07 billion (US$910 million) on 11 cement companies for cartelisation in June 2012. It claimed that cement companies met regularly to fix prices, control market share and hold back supply which earned them illegal profits.

§  CCI imposed a penalty of ₹522 million (US$7.6 million) on the Board of Control for Cricket in India (BCCI) in 2013, for misusing its dominant position.

o   The CCI found that IPL team ownership agreements were unfair and discriminatory and that the terms of the IPL franchise agreements were loaded in favor of BCCI and franchises had no say in the terms of the contract.

§  CCI imposed a fine of ₹10 million upon Google in 2014 for failure to comply with the directions given by the Director General (DG) seeking information and documents.

§  CCI imposed a fine of ₹258 crores upon Three Airlines in 2015.

o   Competition Commission of India (CCI) had penalized the three airlines for cartelisation in determining the fuel surcharge on air cargo.

§  CCI ordered a probe into the functioning of Cellular Operators Association of India (COAI) following a complaint filed by Reliance Jio against the cartelization by its rivals Bharti Airtel, Vodafone India and Idea cellular.

Insolvency and Bankruptcy Code (Amendment) Bill, 2019

The government introduced the Insolvency and Bankruptcy Code (Amendment) Bill, 2019, which was passed by both the houses, seeking to restrict the duration of the resolution process and ensure the primacy of financial creditors in case of recoveries. The resolution process is proposed to be limited to 330 days, including time for litigation. The bill seeks to remove ambiguities that had arisen due to an order by the National Company Law Appellate Tribunal on Essar Steel’s insolvency resolution. It is set to help classes of creditors such as homebuyers who are represented on committees of creditors by a single authorised representative. Key clarifications in the bill will put the committee of creditors in control of the distribution of proceeds from a successful resolution plan under the IBC. The amendments clarify that unsecured financial creditors and operational creditors need not be treated on par with secured financial creditors for a resolution to be considered fair and equitable.

The Government of India implemented the Insolvency and Bankruptcy Code (IBC) to consolidate all laws related to insolvency and bankruptcy and to tackle Non-Performing Assets (NPA), a problem that has been pulling the Indian economy down for years. The Union cabinet’s approval of amendments to the Insolvency and Bankruptcy Code (IBC) to enhance its efficacy could bring relief to banks, foreign investors and others worried about the impact that quasi-judicial interpretations of the code’s grey areas might have on the country’s credit systems.

About the IBC:

• The code applies to companies and individuals. It provides for a time-bound process to resolve insolvency. When a default in repayment occurs, creditors gain control over debtor’s assets and must take decisions to resolve insolvency.
• The Code also consolidates provisions of the current legislative framework to form a common forum for debtors and creditors of all classes to resolve insolvency.

The Code creates various institutions to facilitate resolution of insolvency. These are as follows:

Insolvency Professionals: A specialised cadre of licensed professionals is proposed to be created. These professionals will administer the resolution process, manage the assets of the debtor, and provide information for creditors to assist them in decision making.

Insolvency Professional Agencies: The insolvency professionals will be registered with insolvency professional agencies. The agencies conduct examinations to certify the insolvency professionals and enforce a code of conduct for their performance.

Information Utilities: Creditors will report financial information of the debt owed to them by the debtor. Such information will include records of debt, liabilities and defaults.

Adjudicating authorities: The proceedings of the resolution process will be adjudicated by the National Companies Law Tribunal (NCLT), for companies; and the Debt Recovery Tribunal (DRT), for individuals. The duties of the authorities will include approval to initiate the resolution process, appoint the insolvency professional, and approve the final decision of creditors.

Insolvency and Bankruptcy Board: The Board will regulate insolvency professionals, insolvency professional agencies and information utilities set up under the Code.  The Board will consist of representatives of Reserve Bank of India, and the Ministries of Finance, Corporate Affairs and Law.

Salient features of the Insolvency and Bankruptcy Code:

• The Insolvency and Bankruptcy Code 2016 is a comprehensive law and covers all individuals, companies, Limited Liability Partnerships (LLPs) and partnership firms.
• The adjudicating authority is National Company Law Tribunal (NCLT) for companies and LLPs and Debt Recovery Tribunal (DRT) for individuals and partnership firms.
• The insolvency resolution process can be initiated by any of the stakeholders of the firm: firm/ debtors/ creditors/ employees.
• If the adjudicating authority accepts, an Insolvency resolution professional or IP is appointed.
• The power of the management and the board of the firm is transferred to the committee of creditors (CoC). They act through the IP.
• The IP has to decide whether to revive the company (insolvency resolution) or liquidate it (liquidation).
• If they decide to revive, they have to find someone willing to buy the firm.
• The creditors also have to accept a significant reduction in debt. The reduction is known as a haircut.
• They invite open bids from the interested parties to buy the firm.
• They choose the party with the best resolution plan, that is acceptable to the majority of the creditors (75 % in CoC), to take over the management of the firm.
• 

IBC Amendment Bill, 2019:

• The Bill amends the Insolvency and Bankruptcy Code, 2016.
• The Code provides a time-bound process for resolving insolvency in companies and among individuals. Insolvency is a situation where individuals or companies are unable to repay their outstanding debt.
• Under the Code, a financial creditor may file an application before the National Company Law Tribunal (NCLT) for initiating the insolvency resolution process. The NCLT must find the existence of default within 14 days. Thereafter, a Committee of Creditors (CoC) consisting of financial creditors will be constituted for taking decisions regarding insolvency resolution. The CoC may either decide to restructure the debtor’s debt by preparing a resolution plan or liquidate the debtor’s assets.
• The CoC will appoint a resolution professional who will present a resolution plan to the CoC. The CoC must approve a resolution plan, and the resolution process must be completed within 180 days. This may be extended by a period of up to 90 days if the extension is approved by NCLT.
• If the resolution plan is rejected by the CoC, the debtor will go into liquidation. The Code provides an order of priority for the distribution of assets in case of liquidation of the debtor. This order places financial creditors ahead of operational creditors (e.g., suppliers). In a 2018 Amendment, home-buyers who paid advances to a developer were to be considered as financial creditors. They would be represented by an insolvency professional appointed by NCLT.
• The Bill addresses three issues. First, it strengthens provisions related to time-limits. Second, it specifies the minimum payouts to operational creditors in any resolution plan. Third, it specifies the manner in which the representative of a group of financial creditors (such as home-buyers) should vote.
• Resolution plan: The Code provides that the resolution plan must ensure that the operational creditors receive an amount which should not be lesser than the amount they would receive in case of liquidation. The Bill amends this to provide that the amounts to be paid to the operational creditor should be the higher of: (i) amounts receivable under liquidation, and (ii) the amount receivable under a resolution plan, if such amounts were distributed under the same order of priority (as for liquidation). For example, if the default were for Rs 1,000 crore and the resolution professional recovered Rs 800 crore, the operational creditor must at least get an amount which they would have received if Rs 800 crore have been obtained through liquidation proceeds.
• Further, the Bill states that this provision would also apply to insolvency processes: (i) that have not been approved or rejected by the National Company Law Tribunal (NCLT), (ii) that have been appealed to the National Company Appellate Tribunal or Supreme Court, and (iii) where legal proceedings have been initiated in any court against the decision of the NCLT.
• Initiation of resolution process: As per the Code, the NCLT must determine the existence of default within 14 days of receiving a resolution application. Based on its finding, NCLT may accept or reject the application. The Bill states that in case the NCLT does not find the existence of default and has not passed an order within 14 days, it must record its reasons in writing.
• Time-limit for resolution process: The Code states that the insolvency resolution process must be completed within 180 days, extendable by a period of up to 90 days. The Bill adds that the resolution process must be completed within 330 days. This includes time for any extension granted and the time taken in legal proceedings in relation to the process. On the enactment of the Bill, if any case is pending for over 330 days, the Bill states it must be resolved within 90 days.
• Representative of financial creditors: The Code specifies that, in certain cases, such as when the debt is owed to a class of creditors beyond a specified number, the financial creditors will be represented on the committee of creditors by an authorised representative. These representatives will vote on behalf of the financial creditors as per instructions received from them. The Bill states that such representative will vote on the basis of the decision taken by a majority of the voting share of the creditors that they represent.

Success of IBC so far:

• Due to the institution of IBC, we have seen that many business entities are paying up front before being declared insolvent. The success of the act lies in the fact that many cases have been resolved even before it was referred to NCLT.
• 4452 cases were dismissed at the pre-admission stage. Hence, it shows the effectiveness of IBC.
• Presently, there are 1332 cases before NCLT.
• Realization by creditors around Rs 80,000cr in resolution cases.
• Banks recovered Rs 5.28 lakh crore in 2017-18, compared to just Rs 38500 cr in 2016-17.
• The maximum amount recovered was Rs 4, 92,500 cr from 21 companies.
• 12 big cases are likely to be resolved this year, and the realization in these cases is expected to be around Rs 70000 Cr

Way forward:

• There is need for setting up more tribunals in different parts of the country to handle the greater-than-expected volume of cases.
• IBC must consider that there are distinct advantages if the existing management is allowed to keep running the company such as knowledge, information and expertise.
• India is more concerned with the recovery of NPA, not with the running of units, thus the first priority is to save the banking system.
• Thus the banks also must push policy makers towards this move because they’re unlikely to get more if the case comes before the NCLT.
• Proactive training/onboarding of judges, lawyers, and other intermediaries will be necessary for effective implementation of the code.
• Technological infrastructure needs to be strengthened to avoid any kind of data loss and to maintain confidentiality. There is a requirement of enhanced IU infrastructure.

Conclusion:

The Supreme Court’s ruling in January, is a welcome one that should circumvent efforts by vested interests to try and stymie the revival of debt-laden companies, and will go a long way in enhancing India’s stature as a good place to do business in.

IBC as a structural reform has demonstrable impact, which is reflected in behavioural change among debtors, creditors and other stakeholders, it is the IBC or the insolvency law which has trumped even the GST.

Jinesh IAS Mains Question

In spite of clarifications on Insolvency and Bankruptcy Code by the Supreme Court of India, many creditor companies seek to bypass the IBC process. Comment.