Proposal to Expand NCLAT Strength – Explained for Investors

NCLAT on insolvency process: 'Resolution plan withdrawal after approval from CoC frustrates CIRP exercise' | Business News - The Indian Express


The National Company Law Appellate Tribunal (NCLAT) is in charge of hearing appeals against decisions made by India’s competition and insolvency regulators. To handle more cases more quickly, the government is thinking about increasing the number of judges on NCLAT from 12 to 20. This could have an effect on many businesses and industries.

Analysis of this news for a layman:

The National Company Law Appellate Tribunal is what NCLAT stands for. An appeal against a decision made by the National Company Law Tribunal (NCLT) or the Competition Commission of India (CCI) is heard by this court. NCLAT deals with cases like corporate insolvency, mergers and acquisitions, and issues related to unfair competition.

The government wants to raise the total number of members at NCLAT, including the Chairperson, from the 12 that are currently allowed to 20. With this extra space, NCLAT would be able to hear and decide on appeals more quickly. For India’s growing economy to attract investments and keep industries running smoothly, case backlogs need to be cleared faster.

Original Analysis:

Increasing the strength of NCLAT by more than 60% shows that the government wants to make it easier for companies to settle disagreements. As the Insolvency and Bankruptcy Code slowly becomes more stable and the Competition Commission (CCI) steps up its enforcement of competition laws, the number of cases being heard at NCLAT is likely to rise quickly. The COVID-19 pandemic would have made backlogs even worse.

Increasing NCLAT’s capabilities before delays get worse shows that it has learned from its mistakes. But just adding more members might not be enough if problems with the system aren’t fixed. Cases that are getting a lot of attention often reveal deep-seated issues with rules, how they are applied, and how they are decided. We need to look at these things again to find a good balance between the public interest and the needs of businesses for clear rules.

Along with adding more members to NCLAT, the government needs to make sure that the people they choose have the right skills, are honest, and can correctly interpret the law. To get the best people, the qualifications and selection process would need to be improved. It is also very important to include NCLAT in efforts to make doing business easier in general.

Impact on Retail Investors:

An effective NCLAT that handles appeals more quickly can have a number of positive effects on the returns of small investors.

To begin, faster resolution of insolvency cases would help companies get back on track with their growth plans or maximise the value of assets that are sold. This protects the interests of minority shareholders.

Second, merger and acquisition approvals with due dates keep consolidation activities from taking too long, which makes sure investors get the most out of synergies, economies of scale, and other benefits.

Also, the CCI’s effective enforcement of competition laws and the NCLAT’s prompt handling of appeals ensure market competition and new products, which are good for consumers and small investors.

But increasing the NCLAT’s power alone won’t help small investors if there are still problems with the system, like NCLT benches that are too busy, litigation delays, and so on. Because of this, expectations need to be fair. Investors should keep an eye on the actual case disposal rates over the next few years.

Impact on Industries:

An expanded NCLAT can have many positive effects on different industries.

Faster resolution of appeals will help debt resolutions or liquidations go more quickly in stressed industries like telecom, steel, infrastructure, and others that have a lot of bankruptcies. This will help these industries get back on track faster, protect businesses that can still make money, and move capital to more productive areas.

Pharma, manufacturing, and tech industries that are doing more mergers and acquisitions will also benefit from faster appeal decisions, which will make deals more certain.

E-commerce, digital payments, and entertainment are some of the areas where CCI has increased its scrutiny of actions that hurt competition. These areas would like NCLAT to make decisions on appeals more quickly so that regulations are clear.

Overall, quick decisions on appeals make India’s frameworks for insolvency, mergers and acquisitions, and competition law more trustworthy and clear. This makes investors more confident in the business environment in the United States.

But just expanding NCLAT might speed up case processing for a short time. To keep the efficiency gains, though, systemic changes must be made to how the tribunals work. Industries would keep an eye on the actual rate of appeals being resolved.

Long Term Benefits & Negatives:

Long-term benefits of expanding the NCLAT include faster case resolutions that give businesses more certainty, better enforcement of regulations, more balanced market growth, and higher investor confidence.

If appeal decisions were made faster, courts like the NCLT would have to improve the quality of first-level decisions. Regulations of competition would get stricter, which would stop market dominance. Because cases are getting more complicated, having more technically qualified NCLAT members would make appellate review better.

Increasing the number of judges may temporarily speed up the process of handling cases, but to keep things running smoothly, more changes need to be made, like integrating digital systems across all courts, setting up specialised benches, discouraging pointless lawsuits, regularly updating laws, and so on.

But there are risks if the people appointed as members are not competent or honest. Conflicts of interest could lead to bad decisions, which would make NCLAT less useful. Lack of clarity in the selection process for senior designates also hurts credibility.

As the economy gets better, more appeals are likely to come in. But if the number of cases goes through the roof, it might be hard to make NCLAT stronger again. Creating new places to settle some kinds of disagreements might help make things easier in the future.

Short Term Benefits & Negatives:

In the short term, a bigger NCLAT would speed up appeals, which would help settle bankruptcies more quickly, give companies more confidence in mergers, and make regulations clear across all industries by reviewing competition law orders.

Businesses can save a lot of money by avoiding long court cases. India is a better place to invest because cases are resolved faster. If insolvencies were resolved more quickly, capital would move faster to productive sectors.

But it would really take more than a year to hire and train eight new NCLAT members. The staff would also need to be improved. Getting important people on board will remain hard unless selection processes get a lot better.

Also, benefits can only be gained if other forums, such as the NCLT, also increase their capacity. If lower courts become ineffective because of too many cases, there may not be many short-term gains at the appellate level because backlogs will just move.

There is also a chance that rushed appointments will make members less qualified, which could lead to inconsistent appeal decisions. Since laws change quickly after Covid, members would need to get the right training. It would also take time to adopt the necessary digital systems.

Companies will benefit from this:

Companies that could gain the most from an expanded NCLAT include:

  1. Reliance Industries (RIL): RIL’s many ongoing mergers and acquisitions are making more sense now that appeals are being heard faster. Investors benefit from smooth integrations that make it faster to find synergies between telecom, retail, and digital services.
  2. Tata Motors: Supply chains will be more stable if insolvency cases involving auto part suppliers are settled more quickly. This protects Tata from problems with production.
  3. Adani Enterprises: Adani is securing new energy bets by buying other companies. Quick decisions on appeals keep value from dropping. Shareholders benefit when companies make quick decisions that unlock synergies faster.
  4. Vedanta: Quick decisions on appeals keep insolvency proceedings stable in group companies like Twin-Star. This lets the people in charge focus on growing the mining assets.
  5. Jio and Airtel: As big players in the digital economy face more and more scrutiny from the CCI over their market dominance, getting timely regulatory clarity through NCLAT appeals lets investors make smart choices.

Companies that will lose out on this:

But an effective NCLAT that handles appeals more quickly might hurt some businesses that take advantage of legal delays:

  1. Essar Steel: Because they have been able to take advantage of long, winding appeals in the past, Essar will find it harder to use litigation to delay resolutions in the future.
  2. Jet Airways and Vodafone Idea: Faster appeal decisions will stop companies that are bankrupt from using multiple appeals to keep court orders for debt resolution from happening.
  3. Google and Facebook: Global tech giants that are often questioned by the CCI for allegedly taking actions that hurt competition will now have fewer ways to keep unfavourable decisions from being made by appealing over and over again.
  4. Zed Sony: Quick decisions on appeals will mean that merging media assets will have to be approved more quickly to avoid monopolies, which can slow down deals.
  5. Ola and Uber: As the CCI pays more attention to actions that hurt competition, appeals will be decided more quickly, giving ride-hailing giants less room to manoeuvre.

Additional Insights:

The government should find a balance between increasing NCLAT’s capabilities and making changes that make decisions faster, clearer, and more consistent. It is very important to choose members based on their qualifications. It’s also important to make sure that digital systems work well with other platforms. This is a much-needed reform, but the rates at which appeals are actually heard need to be tracked.


Increasing NCLAT’s power shows that the government wants to improve corporate dispute resolution systems, which are important for building trust among investors. But appointing qualified members through strong processes is still necessary to get the benefits that were meant.Expanding NCLAT strength demonstrates the government’s focus on strengthening corporate dispute resolution frameworks crucial for investor trust. But appointing competent members through robust processes remains key to realizing intended benefits. Reforms must run deeper than just raising member count for sustainable gains. Investors stand to gain from timely decisions if expanded capacity is matched with higher adjudication quality.


Pattanayak, B. (2023, December 5). Proposal Afoot to Expand NCLAT Strength to 20. The Economic Times.

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