NCLT Delays and the Push for More Benches — A CA Student's Guide to Insolvency Bottlenecks

If you have been following business news lately, you may have noticed a recurring concern: India's National Company Law Tribunal (NCLT) is overwhelmed. A Parliamentary Standing Committee has flagged the issue and called for additional NCLT benches, stricter timelines, and systemic reforms to make the Insolvency and Bankruptcy Code (IBC) work as originally intended.

For CA students — especially those preparing for Corporate and Economic Laws or Strategic Financial Management — this is not just a news item. It is a live case study in how legal delays translate into measurable financial losses. Let us unpack it.

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What Is CIRP and Why Does Timing Matter?

The Corporate Insolvency Resolution Process (CIRP) is the formal mechanism under the IBC through which creditors attempt to revive or resolve a financially distressed company. The law envisages a time-bound process — please verify current statutory timelines in the latest ICAI study material, as these are subject to amendment.

The economic logic is straightforward:

  • A running business has going-concern value — employees, customer relationships, brand equity, and operational assets working together.
  • The moment insolvency proceedings begin, uncertainty sets in. Suppliers become cautious, customers drift away, and skilled employees may leave.
  • Every additional month of delay means that going-concern value bleeds away, leaving resolution applicants with a diminished asset.

Think of it like a melting ice block. The longer you wait to use it, the less you have.

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The Parliamentary Panel's Core Concern

The Parliamentary Committee's observations essentially echo what practitioners have been saying for years:

  • Too few benches relative to the volume of cases filed.
  • Vacant judicial positions causing adjournments and scheduling gaps.
  • Procedural complexity leading to litigation within litigation — where every order is challenged, adding months to the clock.
  • Cases stretching well beyond intended timelines, defeating the very purpose of a time-bound code.

The demand for more benches is not merely administrative. It has a direct financial consequence for every stakeholder — financial creditors, operational creditors, employees, and the corporate debtor itself.

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How Delays Erode Resolution Values — The Accounting Perspective

This is where your CA knowledge becomes genuinely useful. Let us trace the financial impact step by step.

1. Asset Deterioration

When a company sits in CIRP for an extended period without active management fully in control, physical assets — machinery, inventory, property — depreciate faster than normal. Deferred maintenance is common. What was worth ₹100 crore on Day 1 of insolvency may genuinely be worth ₹70 crore eighteen months later — not because of market movements, but because of neglect.

2. Working Capital Squeeze

During prolonged CIRP, the Interim Resolution Professional (IRP) or Resolution Professional (RP) must fund day-to-day operations as Insolvency Resolution Process Costs (IRPC). These costs rank above all other creditors in priority. If the process drags on, IRPC balloons — directly reducing what remains for financial creditors.

3. Haircuts Grow Larger

Data from IBC resolutions consistently shows that prolonged cases result in steeper haircuts — the gap between the admitted claims of creditors and what they actually recover. A delayed resolution is almost never a better resolution.

4. Opportunity Cost of Capital

Financial creditors — typically banks — have their capital locked in a non-performing account. That blocked capital cannot be redeployed productively. This cost is real, even if it does not appear as a line item on any invoice.

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What Forensic Accountants Uncover in Prolonged CIRPs

Forensic accountants play a crucial role during CIRP, and their findings become even more significant when a case drags on.

Transaction Audit

Under the IBC, the RP is required to examine transactions made before insolvency. Forensic teams look for:

  • Preferential transactions — payments made to certain creditors over others in the suspect period.
  • Undervalued transactions — assets sold below fair value before insolvency.
  • Fraudulent trading — running the business with intent to defraud creditors.
  • Extortionate credit transactions — borrowings on unconscionable terms.

In prolonged CIRPs, the trail grows colder. Digital records may be incomplete, key personnel may have left, and reconstructing financial history becomes more expensive and less reliable.

Going-Concern Assessment

Forensic accountants also help the RP determine whether the business can genuinely be revived as a going concern or whether liquidation is the realistic outcome. A delay-induced erosion of value can tip a borderline case from resolution to liquidation — a far worse outcome for all creditors.

Related-Party Mapping

In many large CIRP cases, forensic teams uncover complex webs of related-party transactions that siphoned value out of the corporate debtor before insolvency was admitted. Tracing these transactions requires meticulous forensic work — and time pressure (or the lack of proper judicial oversight) can compromise its quality.

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What This Means for Your CA Studies

For CA Final students studying Strategic Financial Management and Corporate Laws:

  • Understand the interplay between legal timelines and financial value — it is a favourite area for scenario-based questions.
  • Know the priority waterfall for distribution of liquidation proceeds (verify exact order in latest ICAI material).
  • Appreciate that forensic accounting is not just an audit extension — it is a decision-support function in distress situations.

For CA Intermediate students in Auditing and Law:

  • The IBC framework is examinable — timelines, roles of RP/IRP, and creditor categories are important.
  • Forensic accounting concepts, including types of suspect transactions, are part of your audit knowledge base.

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The Bigger Picture — IBC Efficiency and Economic Health

A well-functioning insolvency system does more than rescue individual companies. It sends a signal to lenders that credit can be recovered within a reasonable period, which in turn affects the willingness to lend and the cost of borrowing across the economy. When NCLT delays become structural, that signal weakens.

The Parliamentary panel's call for reform is therefore not merely procedural housekeeping. It is about keeping the credit ecosystem healthy — something every CA professional should understand and be able to explain.

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FAQs

Q1. Is the IBC timeline for CIRP completion fixed by the statute? The IBC specifies a timeline for CIRP completion, with provisions for extension in certain circumstances. However, exact current limits and extension conditions should be verified in the latest ICAI study material or official IBC text, as amendments are frequent.

Q2. What is the difference between a preferential transaction and a fraudulent transaction under the IBC? A preferential transaction gives one creditor an unfair advantage over others in the period before insolvency — intent is not required to prove it. A fraudulent transaction involves deliberate deception to defraud creditors — intent is central. Both can be challenged by the RP and set aside by the NCLT.

Q3. Do forensic accountants work directly under the Resolution Professional? Yes. The RP typically engages forensic professionals as part of the team to conduct the transaction audit mandated under the IBC. Their findings can support NCLT applications to reverse suspect transactions and recover value for creditors.

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Staying on top of evolving areas like IBC and forensic accounting requires structured, consistent study. Use the free day-by-day study planner at https://caparveensharma.com/free-planner?src=article to build a revision schedule that covers these topics without last-minute panic. For hands-on case-scenario practice — the kind that actually appears in CA exams — explore the full course library at https://caparveensharma.com, where CA Parveen Sharma's 36 years of teaching experience are distilled into focused, exam-ready sessions.