Currently, benches of the National Company Law Tribunal handle both merger and bankruptcy cases. Union finance minister Nirmala Sitharaman on Tuesday proposed new specialised benches in the FY25 budget speech to ease the burden on the tribunal. This could reduce the time taken to process merger cases to three to four months from eight-12 months, the experts said.
Companies planning a merger approach the NCLT with the “scheme of arrangement” and the process takes at least eight months. It involves many steps, including creditor meetings, regulatory approvals, and confirmations from authorities such as the Reserve Bank of India and the Securities and Exchange Board of India.
Experts said the tribunal was originally established for company law cases but has now become overburdened with Insolvency and Bankruptcy Code (IBC) cases.
Dhiraj Mehtre, a partner at Khaitan Legal Associates, said that the NCLT may not always be able to schedule a hearing, or, even when it does get listed, may not be able to take it up because of the burden of cases, which increases the disposal time.
Clearing the backlog
Adding benches to the tribunal will certainly help to expedite cases, especially those involving company law, which have taken a back seat due to time-bound insolvency matters taking precedence, said Manisha Chaudhary, managing partner of UKCA and Partners LLP.
“With an increase in the benches, a properly filed scheme should now not take more than six months to be disposed of,” Chaudhary added.
Other experts said the number of NCLT benches is inadequate to handle the volume of cases involving both IBC and the Companies Act. There are 16 benches of the NCLT set up in various cities across the country.
Sanket Jain, a partner at Pioneer Legal, compared the process of clearing merger applications by the NCLT to a single-window ticketing system with a backlog.
“The process itself is not complex, but due to the high volume of cases and the limited capacity of the tribunals, it is not efficient,” Jain said.
He suggested that increasing the number of benches could effectively increase the number of processing windows, potentially reducing the backlog.
“More benches would help expedite the process. Additionally, the tribunal could speed up the resolution of applications with no objections from stakeholders. A quicker process could enhance investor confidence and benefit the economy,” Jain added.
However, the experts also pointed out to delays by the stock exchanges, regulators such as Sebi, and government authorities including regional directors in the Ministry of Corporate Affairs and the Registrar of Companies in processing schemes of arrangement.
Siddharth Mody, a partner at law firm JSA, said even if the number of NCLT benches is increased, it may not address the issue of the time required for regulators and authorities to give their approval.
He said the approval process depends on the bandwidth of government departments, regulators and authorities, and increasing the number of benches may not address this particular issue. However, additional benches will at least reduce the overall time taken to process merger applications, he said.
A lawyer speaking on condition of anonymity mentioned how a client had to wait for three years for approval from the regional director at the RoC for a merger between a holding and subsidiary company that had zero creditors and no business. The regional director kept postponing dates, citing the pandemic, and then could not find the file. Eventually, the application had to be resubmitted.
Prolonged delays
“It is difficult to explain to clients about such delays,” the lawyer said.
“The feeling of being in suspended animation for such a long period makes customers, suppliers, employees and stakeholders very uncomfortable. There is a dire need to compress this process, perhaps through weekly meetings or calls between the stock exchange and Sebi,” said Ketan Dalal, managing director of Katalyst Advisors.
He added that the lengthy processes were detrimental for merger schemes with a strategic initiative in mind. An eight-12-month process had the potential to kill the initiative, which would be detrimental to all stakeholders.
“The initial application admission stage is a major bottleneck and needs to be expedited since delays in mergers and demergers have adverse commercial implications and do not help the ease of doing business,” Dalal said.
Experts said certain regulators were allowed to grant “deemed approval” after the passage of the stipulated time. However, this is not the preferred practice, and does not apply to all regulators.
Chaudhary of UKCA and Partners suggested that the NCLT could give stricter deadlines to regulators who do not have a fixed timeline to respond.
“Any authority or regulator who does not file in time (as provided by the NCLT) can be considered to have given a deemed approval as they get significant notices during the sanctioning of a scheme,” she said.
Some legal experts suggested there should be a one-stop shop for clearances of merger cases, which would save companies from having to approach multiple entities for approvals and would streamline and speed up the process.
Shruti Khanijow, a partner at Shardul Amarchand Mangaldas, said the process had many stakeholders and would continue to depend on the time taken for approvals, resolution of objections to the merger, and fulfilment of conditions imposed by the NCLT.
Introducing a single portal to conduct the process and obtain approvals is a possible solution to streamline it. This will bring in transparency and expediency, including for approvals/objections by regulators and statutory authorities, and thus expectedly weed out many technical delays.
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