What is NCLT? Complete Banking Guide

1What is NCLT (in Banking)?

In simple words: think of NCLT as a specialised "company court" where a bank says, "this company owes us money and hasn't paid — please either help recover it through a structured resolution, or wind the company down and repay creditors from whatever is left."

2When is an Account / Borrower Eligible for NCLT?

Not every overdue loan can be dragged to NCLT. A few conditions generally need to be met:

• The borrower must be a corporate entity — a company or LLP. NCLT (under IBC) does not directly handle proprietorships or individual retail loan defaults; those follow other routes such as DRT or Lok Adalat, though personal guarantors to corporate loans can also be pulled into IBC proceedings.
• There must be a clear default — a debt that is due and has not been paid. The 2026 amendments to the IBC tightened this further, requiring proof of both the underlying debt and the actual default, with an Information Utility (IU) default record now treated as strong, admissible evidence.
• Minimum default threshold — the amount in default must meet the minimum threshold prescribed by the Government for filing a case under Section 7 or Section 9 of the IBC (currently ₹1 crore for most creditors, with a separate lower threshold for real-estate homebuyers grouped together).
• The account is usually already classified as an NPA — while technically a creditor can approach NCLT once a default has occurred, in practice most bank-led filings happen after the loan has already slipped into the Non-Performing Asset category (90+ days overdue) and other recovery efforts have not worked.

3When Does It Come Into Action?

A bank doesn't rush to NCLT the moment a payment is missed. NCLT typically comes into play at these trigger points:

• After internal recovery efforts fail — reminders, restructuring offers, one-time settlement (OTS) talks, or SARFAESI notices haven't resolved the default.
• Board or Committee decision — the bank's internal recovery/NPA management committee formally decides to refer the account, often in consultation with other lenders if the exposure is shared (a consortium).
• Regulatory push — under RBI's stressed-asset and Prompt Corrective Action (PCA) framework, banks are expected to act on large, aging NPAs within defined timelines rather than let them linger indefinitely.
• Self-filing by the company — sometimes the company itself (or its board) files under Section 10, admitting inability to pay and seeking an orderly resolution.
• Operational creditors' claims — even a supplier or vendor owed money by the company can trigger the process under Section 9, which can indirectly affect the bank's exposure too.

4The NCLT Process — Explained Step-by-Step

Here's the entire journey from default to resolution, in plain language:

In everyday language:

1. Missed payments pile up and the loan becomes an NPA.
2. The bank (or another creditor) files a case at NCLT, showing proof that money is owed and hasn't been paid.
3. NCLT checks the paperwork and either admits the case or rejects it.
4. Once admitted, the company's management effectively steps back. A court-appointed professional (the IRP, later the Resolution Professional) runs day-to-day affairs and a moratorium stops any other lawsuits or asset sales.
5. All lenders together (the CoC) decide what to do — accept a buyer's plan to revive the company, or send it to liquidation if nobody offers a workable plan.
6. NCLT gives the final approval to whichever route is chosen, and the order is implemented.

5Who Heads the NCLT?

NCLT is headed by a President (a serving or retired High Court judge), assisted by Judicial Members and Technical Members across benches set up in several cities including New Delhi (Principal Bench), Mumbai, Chennai, Kolkata, Ahmedabad, Bengaluru, Hyderabad, and Chandigarh, among others. Each bench functions somewhat like a court, hearing the cases filed within its territorial jurisdiction.

Appeals against NCLT orders go to the National Company Law Appellate Tribunal (NCLAT), and from there, to the Supreme Court of India on a point of law.

6Who Gives the Decision?

A case is not decided by one person alone. It is heard and decided by a bench — usually made up of one Judicial Member and one Technical Member — who review the facts, hear both sides, and pass a reasoned order. This order could be:

• Admission or rejection of the insolvency application
• Approval of a resolution plan
• An order for liquidation
• Rulings on disputes that arise during the process (e.g., eligibility of a bidder, treatment of a claim)

If either side disagrees with the bench's decision, they can appeal to the NCLAT within the prescribed limitation period.

7NCLT vs SARFAESI vs DRT — Quick Comparison

Banks often try SARFAESI or DRT first for secured, smaller-value accounts, and reserve the NCLT/IBC route for larger corporate exposures — especially where a genuine business revival, and not just asset sale, is possible.

8Why NCLT is in the News in 2026

NCLT has become a hot topic for Indian bankers and borrowers alike this year, for a few reasons:

• Resolutions slowed sharply in early 2026 — insolvency approvals fell to a multi-quarter low, largely blamed on a vacant NCLT President post and bench shortages, before Justice Anupinder Singh Grewal took over as President in mid-2026.
• The number of NCLT-approved resolution plans dipped in FY26 compared with FY25, while recoveries against admitted creditor claims also fell — pushing the government and IBBI to propose more benches to clear the backlog.
• Amendments to the IBC in 2026 now require clearer proof of debt and default before NCLT admits a case, with Information Utility records treated as strong evidence — a change meant to speed up admissions and reduce litigation delays.
• Even as insolvency-case volumes make headlines, Indian banks' overall gross NPA ratio has fallen to a multi-decade low, reflecting the combined effect of the IBC, SARFAESI, and stronger underwriting since the 2015–16 Asset Quality Review.

In short: NPAs as a share of bank loans are near historic lows, but the machinery that resolves the toughest, largest cases — NCLT — is itself under the spotlight for capacity and speed.

9Frequently Asked Questions

Can a small business loan go to NCLT?

Only if the borrower is a corporate entity and the default meets the minimum threshold prescribed under the IBC. Smaller proprietorship or individual defaults are generally handled through other channels.

Does going to NCLT mean the company shuts down?

Not necessarily. The primary goal of the IBC process is resolution — finding a buyer or investor to revive the company. Liquidation is the fallback option when no viable resolution plan is approved.

How long does the NCLT process take?

The law envisages resolution within 330 days including litigation time, though in practice many large or contested cases take considerably longer due to appeals and bench workload.

What happens to the bank's money during the process?

The bank, as a financial creditor, becomes part of the Committee of Creditors and gets repaid as per the approved resolution plan or the liquidation waterfall — often at a haircut compared to the original dues.

10What is a "Haircut"? (Meaning & Concept)

In plain words: if a company owes a bank ₹100 crore, but the bank finally recovers only ₹60 crore under an approved resolution plan, the bank has taken a 40% haircut on that account.

Simple example

Why does a haircut happen?

• The stressed asset has lost value — by the time a case reaches NCLT, the company's plants, brand, and cash flows are usually worth far less than the original loan amount.
• Resolution vs. liquidation trade-off — the CoC often accepts a haircut because a resolution plan (even at a discount) usually recovers more than liquidation would, where recoveries can be even smaller after paying process costs.
• Multiple creditors, one pool of value — secured financial creditors, unsecured creditors, and operational creditors all draw from the same recovered value, distributed as per the priority "waterfall" under Section 53 of the IBC.
• Delays increase the haircut — the longer a case drags on in NCLT (due to litigation or bench backlogs), the more asset value typically erodes, which can push haircuts higher.

Haircuts aren't unique to NCLT — banks also take haircuts under one-time settlements (OTS), asset sales to Asset Reconstruction Companies (ARCs), and restructuring deals. But NCLT-driven haircuts on large corporate accounts tend to get the most public and regulatory attention because of the sums involved.

11Related Reading on AskBanker.in

NCLT is just one part of the bigger NPA and recovery story. Explore more:

Also see: Bank Directory, EMI & Loan Calculators, and Banking News.