SC takes suo motu cognisance of delay in approval of resolution plans by NCLT

# SC Flags NCLT Delays in Resolution Plans

By Vikram Chatterjee, Senior Legal Correspondent, The Financial Examiner
April 30, 2026

On Thursday, the Supreme Court of India took *suo motu* cognisance of severe procedural delays by the National Company Law Tribunal (NCLT) in approving corporate insolvency resolution plans. Aiming to rescue the Insolvency and Bankruptcy Code (IBC) from bureaucratic paralysis, the apex court in New Delhi initiated this action to investigate the immense backlog currently eroding billions in distressed asset value. By demanding infrastructural overhauls and strict judicial accountability, the Court seeks to restore the crucial statutory timelines that are essential for India’s macroeconomic recovery and creditor protection. [Source: Hindustan Times].

## The Breaking Point in Insolvency Proceedings

Enacted in 2016, the Insolvency and Bankruptcy Code was heralded as a watershed economic reform. It fundamentally shifted the Indian restructuring landscape from a sluggish “debtor-in-possession” framework to a dynamic “creditor-in-control” model. The cornerstone of this legislation was speed. Initially designed with a strict 180-day deadline, later amended to a maximum of 330 days including all legal challenges, the IBC was meant to ensure quick market exits or rapid corporate revivals.

However, as the legislation approaches its ten-year milestone in 2026, the reality on the ground has painted a drastically different picture. The NCLT, functioning as the primary adjudicatory body for these cases, has devolved into a bottleneck. According to recent insolvency tracking data, the average time taken to conclude a Corporate Insolvency Resolution Process (CIRP) has routinely breached the 600-day mark.

**Table: Statutory vs. Actual Insolvency Timelines in India**

| Phase of Insolvency | Statutory Mandate | Current Average (Est. 2025-26) | Consequence of Delay |
| :— | :— | :— | :— |
| Case Admission | 14 Days | 120+ Days | Asset deterioration begins |
| CoC Formation | 30 Days | 45-60 Days | Administrative stagnation |
| Final Resolution | 330 Days (Max) | 650+ Days | Severe value erosion, ballooning debt |

The Supreme Court has consistently ruled that the NCLT must not second-guess the “commercial wisdom” of the Committee of Creditors (CoC). Once a resolution plan is approved by the required majority of creditors, the NCLT’s role under Section 31 of the IBC is strictly limited to ensuring the plan complies with the law. Yet, tribunals have repeatedly spent months, sometimes years, hearing frivolous objections before passing a final approval order. [Source: Hindustan Times | Additional: Supreme Court Precedents on IBC].

## Why the Supreme Court Stepped In

The decision to take *suo motu* (on its own motion) cognisance is a rare and powerful judicial tool, usually reserved for matters of grave public or constitutional interest. The Supreme Court’s intervention on Thursday signifies that the delays at the NCLT are no longer viewed merely as an administrative hurdle, but as a systemic crisis threatening the financial stability of the banking sector.

The apex court observed that the core objective of the IBC—value maximization of corporate assets—is being entirely defeated. When a distressed company is left in a state of suspended animation, its machinery rusts, its specialized workforce departs, and its market share vanishes. By the time the NCLT finally approves a resolution plan, the successful resolution applicant often inherits a hollowed-out shell, leading to renegotiations, further litigation, or outright withdrawal of the rescue bid.

The Court noted with concern that delays are directly translating to higher “haircuts” (losses) for financial creditors, primarily public sector banks holding taxpayers’ money. This unchecked erosion of national wealth triggered the Chief Justice-led bench to initiate a sweeping review of NCLT operations.

## Structural Bottlenecks at the Tribunals

To understand the crisis at the NCLT, one must look at the structural and infrastructural deficits plaguing the institution. The tribunal network has been chronically understaffed. Operating with frequent vacancies in both judicial and technical member positions, the existing benches are drowning under a tsunami of cases.

**Key operational hurdles include:**
* **Massive Vacancies:** Extended delays by the executive in appointing qualified members to the NCLT and the appellate tribunal (NCLAT).
* **Infrastructure Deficits:** A lack of robust digital infrastructure to handle voluminous corporate filings, leading to administrative drag.
* **Interlocutory Applications (IAs):** Defaulting promoters exploiting the judicial process by filing endless interim applications to stall proceedings and maintain de facto control over assets.
* **Complex Group Insolvencies:** An increasing number of cases involve interconnected corporate groups or cross-border assets, requiring specialized expertise and time that generic benches simply do not possess.

The Supreme Court’s *suo motu* action is expected to heavily scrutinize these operational failures, likely resulting in binding directives to the Ministry of Corporate Affairs to expedite appointments and upgrade tribunal infrastructure. [Source: Hindustan Times | Additional: Ministry of Corporate Affairs Public Disclosures].

## The Economic Cost of Delayed Approvals

The ripple effects of NCLT delays extend far beyond the immediate parties involved in a bankruptcy case. For India’s broader economy, an efficient insolvency regime is critical for capital recycling. When capital is trapped in “zombie companies” for years, banks become risk-averse, leading to a contraction in new credit flow to healthy, expanding businesses.

Foreign Direct Investment (FDI) in India’s distressed asset market is highly sensitive to timeline predictability. Global special situations funds and private equity investors, who initially flocked to India following the IBC’s enactment, have expressed growing disillusionment.

“Capital is inherently impatient,” explains Dr. Ananya Desai, Head of Restructuring and Insolvency Policy at FinLaw Associates. “Global investors price risk based on the time value of money. If a distressed asset acquisition in India is modeled to take nine months but ends up dragging on for three years due to NCLT bottlenecks, the internal rate of return plummets. Investors simply move their capital to more predictable jurisdictions.”

Furthermore, the delay often pushes companies that could have been resolved into mandatory liquidation. Liquidation yields a fraction of the enterprise value compared to a successful resolution, inflicting catastrophic losses on operational creditors (often micro, small, and medium enterprises) and resulting in massive job losses.

## Expert Perspectives on the Judicial Push

Legal and financial experts have widely lauded the Supreme Court’s proactive stance. The consensus within the legal fraternity is that the IBC was at risk of mirroring the fate of the defunct Sick Industrial Companies Act (SICA), which became notorious for enabling defaulting promoters to shield themselves from creditors for decades.

“The Supreme Court’s intervention is a desperately needed defibrillator for the bankruptcy framework,” notes Rohan Mehta, Chief Economist at Capital Insights. “When a resolution plan, vetted and approved by a 90% majority of sophisticated financial creditors, sits pending before a tribunal for an arbitrary length of time, the statutory mandate becomes a mockery. The apex court is drawing a red line today.”

Experts point out that the NCLT’s tendency to entertain equitable considerations—trying to ensure every minor stakeholder is perfectly satisfied—violates the fundamental premise of the IBC, which relies on the strict, commercially driven majoritarian decisions of the CoC. By stepping in, the Supreme Court is expected to reiterate that the NCLT’s jurisdiction is limited to a procedural compliance check, not a substantive review of the business deal.

## Proposed Reforms and Potential Solutions

As the Supreme Court begins hearing this *suo motu* petition, several sweeping directives are likely on the horizon to surgically fix the tribunal system. Legal analysts project that the apex court may implement a multi-pronged reform strategy:

**1. Mandating Timelines for the Executive:**
The Court may order the central government to maintain a “zero-vacancy” policy at the NCLT, requiring the selection process for new judges to begin six months before an incumbent’s retirement.

**2. Specialized Mega-Insolvency Benches:**
To prevent highly complex cases (such as those in telecom, aviation, or large-scale real estate) from clogging regular judicial dockets, the creation of dedicated national benches to exclusively handle cases with debt exceeding a certain threshold (e.g., ₹5,000 crore) might be mandated.

**3. Punitive Costs for Frivolous Litigation:**
To deter erstwhile promoters from weaponizing the legal system, the Court is expected to direct NCLT benches to impose heavy exemplary costs on parties filing baseless interlocutory applications designed solely to derail the resolution timeline.

**4. AI and Digitization Integration:**
Modernizing case management through AI-assisted triaging. Routine procedural approvals could be fast-tracked using digital frameworks, allowing judicial members to focus purely on substantive legal disputes.

## Conclusion and Future Outlook

The Supreme Court’s *suo motu* cognisance marks a pivotal moment in the evolution of India’s corporate jurisprudence. By elevating the issue of NCLT delays to a matter of national economic urgency, the apex court has sent an unequivocal message to both the executive branch and the tribunals themselves: the spirit of the Insolvency and Bankruptcy Code must not be diluted by administrative apathy.

As the hearings progress in the coming weeks, stakeholders across the financial spectrum—from central bankers to global asset managers—will be watching closely. A successful judicial intervention could streamline the resolution process, unlocking trillions of rupees trapped in non-performing assets. Ultimately, restoring the strict timelines of the IBC is not just about enforcing the law; it is about preserving the fundamental economic engine of the nation, ensuring that capital is swiftly reallocated, jobs are saved, and creditor confidence remains resolute.