Why in news?
The National Company Law Appellate Tribunal recently upheld an order of the National Company Law Tribunal regarding the distribution of funds under a corporate resolution plan. A consortium of dissenting banks had challenged the distribution mechanism approved by the Committee of Creditors, but the appellate tribunal dismissed their appeal and reaffirmed that the approved plan was fair and lawful.
Background
The NCLAT is a specialised appellate body constituted under Section 410 of the Companies Act 2013. It hears appeals against decisions of the National Company Law Tribunal (NCLT), the Insolvency and Bankruptcy Board of India (IBBI), and the Competition Commission of India (CCI). By design, the tribunal provides a speedy remedy for corporate litigants, reducing the burden on higher courts.
Composition and jurisdiction
- Members: The tribunal is headed by a Chairperson, who is typically a retired Supreme Court judge or Chief Justice of a High Court. There are up to 11 Judicial Members and Technical Members with expertise in law, finance and management. Members serve for five years or until the age of 67 (for judicial members) or 65 (for technical members).
- Scope of appeals: NCLAT hears appeals from orders passed by the NCLT under the Companies Act, the Insolvency and Bankruptcy Code (IBC), and Section 53 of the Competition Act. Its decisions can be challenged before the Supreme Court only on points of law.
- Objective: To provide an efficient and specialised forum for resolving corporate disputes, thereby improving the ease of doing business in India.
Recent case
In the case that drew media attention, five banks—Indian Bank, UCO Bank, Bank of Baroda, ICICI Bank and Union Bank of India—challenged the distribution of funds under a resolution plan for OCL Iron and Steel. They argued that dissenting lenders such as State Bank of India and Punjab National Bank received a disproportionate share. A two‑member NCLAT bench led by Justice Ashok Bhushan held that the distribution was in line with the Insolvency and Bankruptcy Code and had been approved by the Committee of Creditors and the NCLT. The tribunal emphasised that a monitoring committee cannot alter an approved distribution mechanism and that dissenting creditors must abide by the collective decision of the creditors’ committee.
Significance
- Certainty in insolvency proceedings: By upholding the approved distribution, the NCLAT reinforced the primacy of the Committee of Creditors and provided clarity for future resolutions.
- Reducing litigation: Specialised appellate tribunals like the NCLAT expedite resolution of corporate disputes, freeing high courts and the Supreme Court to focus on other matters.
- Investor confidence: Predictable outcomes in insolvency cases encourage investors to participate in stressed asset markets and facilitate quicker turnaround of distressed firms.
