The investigation and resolution of corporate disputes as well as the detection of fraud is the job of a few designated agencies in India. One year after the pandemic arrived and caused unprecedented economic havoc, there is widespread belief that corporate insolvency cases as well as instances of large economic frauds may have multiplied. But the designated agencies tasked with tackling insolvency and frauds – the National Company Law Tribunal (NCLT) and the Serious Frauds Investigation Office (SFIO) – are understaffed and lack required powers. Both the bodies are administered by the Ministry of Corporate Affairs.
Take the case of NCLT, which is the sole agency for appeal for cases filed under the Insolvency and Bankruptcy Code (IBC). One year back, the government had placed a moratorium on companies filing appeals under IBC because of the pandemic and resultant increase in corporate distress. But this moratorium has ended just last week. And experts now predict a flood of such cases coming before the tribunal due to piling of such cases during the moratorium and also because of increase in corporate distress. But here’s the catch: over 21,000 cases were already pending with the NCLT as on December 21, 2020.
Now, a parliamentary standing committee has pointed out that the tribunal is faced with severe staff crunch, does not even have a permanent president and at least 20 of the 62 member positions lie vacant. Out of 320 regular staff members, only 42 positions, or about one in eight, have been filled. The situation at the appellate tribunal, the NCLAT, is not much different since only 38 of the 59 sanctioned staff positions have been filled. With such crippling shortage of staff, how will NCLT be able to handle even the huge number of pending cases, forget about the expected rush of new cases?
A counsel who has been arguing cases at NCLT pointed out that the tribunal is already “flooded” with cases. “Daily, each court under NCLT lists 40-50 matters but not even a third of these is taken up due to paucity of time. Every month, each case is re-notified twice or thrice. In any case, if the case pertains to revival of a company, it gets over in 2-3 hearings but if, for example, the case is about insolvency, this drags on….the government must fill vacant positions fast as we expect a fresh deluge of cases,” the counsel said, declining to be identified.
In January this year, the President of the NCLT and AT Bar Association, Virender Ganda, had written to the Finance Minister, seeking reappointment of six members of the tribunal who will be shortly completing their five-year tenure. Another counsel said there would be “chaos” if the vacancies in the tribunal were not filled on an urgent basis and the members who had completed their term were also relieved.
The situation at another important body, the SFIO, is even more complicated. Not only does SFIO suffer from severe staff crunch (nearly every third staff post lies vacant), it lacks the necessary powers to prosecute large economic offences though it was set up to do precisely that. The Ministry of Corporate Affairs has informed the parliamentary panel that till date, not a single non-compoundable case under the SFIO has reached prosecution. Another startling factor is this: the average time taken for even compoundable cases to reach the prosecution stage is 8-10 years.
“The committee, while recognising that SFIO functions within the purview of the Companies Act, finds that its initial objective of single handedly tackling complex corporate frauds remains a far cry. With multiple law enforcement agencies conducting investigations into the same financial crime, resulting in litigation. The Committee recommends the SFIO may be armed with sufficient teeth to exclusively investigate and prosecute cases relating to complex corporate frauds that have a huge impact on the economy and various stakeholders,” the Standing Committee on Finance said in its 27th report.
On Monday, Bar and Bench quoted the Chief Justice of the Madras High Court, Sanjib Banerjee, saying “We have an SFIO, which does excellent work, but subject to orders of political masters… We have a CBI, which is not anything more than a caged parrot… What is the brief of the ED? Some of the agencies… have excellent personnel.”
The Court was hearing a plea raising concern that the Economics Offences Wing (EOW), Tamil Nadu, is not manned by officers sufficiently trained to handle the Franklin Templeton case when the hearing briefly veered to a discussion on the capabilities of investigation agencies such as the Serious Fraud Investigation Office (SFIO) and the Central Bureau of Investigation (CBI).
Meanwhile, the third important body which falls under the administrative control of the Ministry of Corporate Affairs, the Competition Commission of India, also suffers from large case pendency. The parliamentary panel found that in 2020-21, nearly every second case was pending; nearly every third post in the commission is vacant and CCI is unable to build up domain expertise in various economic sectors.
The panel has asked the ministry to benchmark CCI against competition authorities in other countries to evaluate whether it is adequately equipped and has enough resources to discharge its functions.