Supreme Court Flags NCLT Delays in Approving Resolution Plans: Why This Could Reshape India’s Insolvency System

In a significant intervention with far-reaching implications for India’s corporate insolvency ecosystem, the Supreme Court of India has expressed serious concern over delays by the National Company Law Tribunal (NCLT) in approving resolution plans under the Insolvency and Bankruptcy Code (IBC). The apex court has now sought nationwide data from the NCLT and the Insolvency and Bankruptcy Board of India (IBBI) regarding pending resolution plans, their duration of pendency, and reasons for delay.

The move is being viewed as one of the strongest judicial signals yet that India’s insolvency framework, once celebrated for speedy corporate rescue mechanisms, is facing institutional bottlenecks.

Why the Supreme Court Intervened

The issue arose during hearings in a case involving AVJ Developers (India) Pvt. Ltd. In that matter, a resolution plan approved by the Committee of Creditors (CoC) was reportedly awaiting approval before the adjudicating authority for nearly two years. The Supreme Court bench comprising Justice JB Pardiwala and Justice KV Viswanathan termed the delay “very unfortunate” and noted that such inaction defeats the time-bound purpose of the IBC.

The judges observed that once lenders approve a viable rescue plan, prolonged delay in formal approval can destroy value, increase uncertainty, and weaken confidence in the insolvency regime.

What the Court Has Asked For

The Supreme Court directed the NCLT Principal Bench in New Delhi and the IBBI to provide comprehensive nationwide data. This includes:

• Number of pending applications seeking approval of resolution plans
• How long such applications have remained pending
• Reasons for non-adjudication
• Status across multiple benches, not just Delhi

The court granted two weeks for submission of the data and indicated that it would decide future corrective measures after reviewing the report.

This suggests the matter may not remain confined to one case but could evolve into a broader institutional reform exercise.

Why Resolution Plan Delays Matter

The IBC was enacted in 2016 to resolve distressed companies within fixed timelines. Before the IBC, debt recovery in India often took years, causing banks to accumulate bad loans while companies deteriorated operationally.

The key strength of the IBC model was speed. Creditors decide whether to liquidate or rescue a company, and tribunals provide legal oversight. However, if approvals get delayed after creditors have already voted, the commercial purpose of the system gets undermined.

Every month of delay can cause:

• Erosion of asset value
• Job losses
• Delayed payments to creditors and homebuyers
• Increased litigation
• Reduced investor appetite for stressed assets
• Lower recovery for banks and financial institutions

That is why the Supreme Court’s intervention is being seen as critical.

The Larger Structural Problem

Over the last few years, legal experts and market participants have repeatedly flagged capacity issues in NCLT benches. These include:

• Vacancies in judicial and technical member positions
• Rising caseloads
• Complex multi-party insolvency disputes
• Frequent appeals to higher courts
• Procedural adjournments
• Limited infrastructure in some benches

As a result, many insolvency cases have exceeded statutory timelines. The latest court order suggests that even after creditors finish their commercial decision-making, final judicial approvals may still remain stuck.

Impact on Banks and Investors

Banks are among the biggest stakeholders in insolvency proceedings because many distressed companies owe large sums to lenders. If resolution plans remain pending, banks cannot fully recover dues or redeploy capital productively.

For investors such as asset reconstruction companies, private equity funds, and turnaround specialists, predictability is essential. They bid for stressed assets based on timelines, valuation assumptions, and legal certainty. Delays can reduce returns and discourage participation in future auctions.

This can have wider economic consequences because a strong insolvency system helps recycle capital into productive sectors.

Homebuyers and Operational Creditors Also Affected

Many insolvency matters involve real estate companies where homebuyers are key creditors. Delays in approval can postpone possession, refunds, and project completion.

Operational creditors such as vendors, contractors, and employees are also impacted when companies remain trapped in prolonged proceedings.

Thus, tribunal delays are not merely technical legal issues—they affect ordinary citizens, jobs, and economic activity.

What Reforms Could Follow

After reviewing the data, the Supreme Court may consider recommending or directing steps such as:

• Fast-track disposal of approved resolution plans
• Time limits for post-CoC approval stages
• Greater staffing at NCLT benches
• Digital case management systems
• Priority hearing for mature insolvency cases
• Periodic disclosure of pendency statistics
• Better coordination between IBBI and tribunals

Even administrative reforms without legislative changes could significantly improve outcomes.

Why This Moment Is Important

India’s insolvency framework was once hailed globally as a transformational reform. It improved credit discipline, empowered lenders, and offered a structured path for corporate rescue. However, systems need continuous strengthening.

The Supreme Court’s demand for nationwide data signals a shift from anecdotal complaints to evidence-based scrutiny. If the exercise leads to accountability and capacity expansion, it could mark the next phase of IBC reform.

Conclusion

The Supreme Court’s sharp remarks on NCLT delays are more than courtroom observations—they are a warning that institutional delay can dilute one of India’s most important economic reforms. By demanding detailed national data, the court has opened the door to systemic corrections that could improve recovery rates, investor confidence, and speed of corporate resolution.

If acted upon decisively, this intervention may help restore the original spirit of the Insolvency and Bankruptcy Code: swift resolution, preservation of value, and economic efficiency.