Scope of Mediation in Insolvency Proceedings

INTRODUCTION–

The Insolvency and Bankruptcy Code, 2016 (IBC), has established itself  as a landmark legislation in India’s commercial and financial landscape, focusing on the  resolution of stressed assets in a time-bound and efficient manner. Its primary objectives  include maximizing asset value, balancing stakeholder interests, and ensuring the revival or  liquidation of distressed entities in an orderly fashion. Despite its transformative impact, the  implementation of the IBC has faced challenges, particularly in the form of delays caused by  extensive litigation. These delays, exacerbated by the involvement of multiple stakeholders  with competing claims, threaten the effectiveness of the resolution process and undermine the  Code’s intent to deliver expeditious outcomes.  

One of the most significant contributors to these delays is the adversarial nature of disputes  that arise during the Corporate Insolvency Resolution Process (CIRP). Stakeholders often  resort to litigation for issues such as claims verification, distribution of proceeds, or  procedural disputes. These conflicts, which require resolution at various stages of the  insolvency process, frequently result in prolonged proceedings and increased costs. Against  this backdrop, mediation has emerged as a powerful alternative that aligns with the IBC’s  goals of efficient and collaborative dispute resolution.  

Mediation offers a structured yet flexible mechanism for resolving disputes by fostering  negotiation and consensus among parties. Unlike litigation, it is non-adversarial, confidential,  and designed to preserve relationships while focusing on achieving mutually acceptable  solutions. Recognizing its potential, the Expert Committee on mediation under the IBC has  recommended the integration of mediation within the insolvency framework, tailoring it to  address the unique complexities of insolvency proceedings.  

The proposed framework emphasizes the creation of a specialized pool of mediators,  including legal experts, insolvency professionals, and technical specialists in valuation and  accounting. This pool would ensure that mediations are conducted by individuals with a deep  understanding of the intricate financial and legal issues characteristic of insolvency cases.  Furthermore, the committee suggests the recognition of mediated settlement agreements  (MSAs) by the National Company Law Tribunal (NCLT), granting them legal sanctity  equivalent to judicial orders. This measure is expected to enhance the credibility of mediation  as a resolution tool while instilling confidence among stakeholders.  

To ensure that mediation complements rather than delays the insolvency process, the  framework envisions strict timelines for conducting mediation alongside statutory deadlines.  Additionally, the committee has proposed the use of technology to facilitate online mediation,  making the process more accessible and efficient. This approach aligns with the modern-day  requirements of digital connectivity and can be particularly beneficial in cases involving  geographically dispersed stakeholders. Importantly, the cost of mediation would be excluded from CIRP expenses, ensuring that it does not impose additional financial burdens on  distressed entities.  

The integration of mediation into the IBC has the potential to address several pain points  within the current system. By resolving disputes amicably and efficiently, it can reduce the  reliance on litigation, expedite the resolution process, and preserve value for all stakeholders.  As the IBC continues to evolve, the incorporation of mediation represents a forward-looking  step toward enhancing the Code’s effectiveness and ensuring its alignment with the dynamic  needs of India’s commercial ecosystem.  

INTERNATIONAL ASPECT OF MEDIATION ACROSS THE GLOBE–

Mediation has  emerged as a transformative mechanism in the realm of insolvency laws, reflecting a global  shift from rigid adjudication processes to more flexible, collaborative frameworks. While  traditional insolvency laws prioritize the equitable distribution of assets and timely  liquidation, mediation, as an Alternative Dispute Resolution (ADR) tool, offers innovative  solutions that align with the evolving needs of stakeholders. Its international development  underscores its adaptability and effectiveness, particularly in insolvency disputes, where  preserving relationships and achieving time-efficient resolutions are crucial.  

In jurisdictions such as the United States, mediation in insolvency has become deeply  embedded in legislative and procedural frameworks. Initiated in the 1980s, mediation gained  prominence through landmark cases like Greyhound Lines Inc., where a three-stage  mediation process resolved numerous creditor claims effectively. The introduction of the  Alternative Dispute Resolution Act of 1998 institutionalized ADR, mandating its application  in bankruptcy proceedings. By 2011, mediation had resolved a significant proportion of  reorganization cases, demonstrating its capacity to expedite dispute resolution while  minimizing litigation costs. This model emphasizes mediation’s ability to reconcile  competing interests and preserve business continuity.  

Similarly, in Europe, mediation plays a pivotal role in insolvency processes. Member states  of the European Union have integrated mediation into their pre-insolvency and insolvency  frameworks to facilitate debtor rehabilitation. For instance, France employs ad hoc mandates  and conciliation procedures, while Germany’s insolvency plan procedure (Insolvenzplan)  encourages negotiated resolutions between debtors and creditors. Italy’s hybrid models, such  as the Recovery Plan and Debt Restructuring Agreements, exemplify the versatility of  mediation. These frameworks underscore mediation’s value in fostering consensus among  creditors, preserving enterprise value, and mitigating the socio-economic impacts of  insolvency.  

In India, the potential of mediation in insolvency disputes is increasingly recognized,  although its integration into the Insolvency and Bankruptcy Code (IBC), 2016, remains  limited. The IBC currently emphasizes formal adjudication mechanisms, overseen by the  National Company Law Tribunal (NCLT), to ensure swift resolution and recovery of 

distressed assets. However, challenges such as protracted timelines and mounting case  backlogs indicate a pressing need for supplementary mechanisms like mediation. Inspired by  international practices, India can incorporate mediation at pre-insolvency stages or during  Corporate Insolvency Resolution Processes (CIRP) to alleviate judicial burden and enhance  resolution efficiency.  

Legislative precedents in India, such as Section 442 of the Companies Act, 2013, and Section  12A of the Commercial Courts Act, 2015, already demonstrate a policy shift towards ADR.  The inclusion of mediation in insolvency disputes would complement the IBC’s objectives by  enabling cost-effective, confidential, and collaborative solutions. Lessons from international  jurisdictions suggest that formal recognition of mediation within the IBC framework could  bridge the gap between adjudication and negotiation, providing stakeholders with versatile  options for resolution.  

As global economies continue to adapt to financial uncertainties, mediation stands out as a  crucial instrument for transforming insolvency laws. By embracing mediation, particularly in  complex insolvency cases, jurisdictions can foster a business rescue culture, preserve  economic stability, and deliver equitable outcomes for creditors and debtors alike. For India,  incorporating mediation into the IBC represents not only a step towards aligning with  international best practices but also an opportunity to modernize its insolvency framework to  better serve the needs of its stakeholders.  

EVOLUTION OF MEDIATION IN INDIA’S INSOLVENCY AND BANKRUPTCY  LAWS-The evolution of mediation within the framework of India’s insolvency and  bankruptcy laws reflects a gradual yet significant shift toward embracing alternative dispute  resolution (ADR) mechanisms. While the Insolvency and Bankruptcy Code, 2016 (IBC), was  introduced as a revolutionary statute for resolving distressed assets and corporate  insolvencies, it initially focused predominantly on adjudicative methods through the National  Company Law Tribunal (NCLT). However, the mounting burden on tribunals and protracted  litigation timelines have underscored the need for more efficient dispute resolution  frameworks, propelling mediation to the forefront of insolvency discourse.  

Historically, India’s legal system has recognized mediation in other domains, such as  industrial disputes under the Industrial Disputes Act, 1947, and civil cases through the Code  of Civil Procedure, 1908, following its amendment in 1999. This evolution laid the  groundwork for integrating mediation into commercial and insolvency disputes. More  recently, the enactment of the Mediation Act, 2023, has institutionalized mediation by  introducing Mediated Settlement Agreements (MSAs) and providing a structured framework  for enforcing such agreements. While the Mediation Act does not explicitly address  insolvency disputes, its principles offer a foundation for developing a bespoke mediation  framework under the IBC. 

The evolution of mediation in the insolvency domain has gained traction through  recommendations from expert committees. These committees have highlighted the potential  of mediation to resolve disputes at various stages of the Corporate Insolvency Resolution  Process (CIRP), such as during pre-admission negotiations or inter-creditor conflicts.  Recognizing the unique challenges posed by insolvency cases, including multi-party disputes  and complex financial stakes, the recommendations advocate for a specialized pool of  mediators trained in insolvency law, finance, and valuation. This approach aims to address  the technical nuances of insolvency disputes while maintaining the confidentiality and  flexibility that mediation offers.  

One notable advancement is the proposal to align mediation timelines with the statutory  deadlines of the IBC to prevent delays. Additionally, the institutionalization of online  mediation platforms is being explored to facilitate quicker resolutions, particularly in cases  involving stakeholders across different jurisdictions. These innovations reflect a forward thinking approach to integrating mediation into India’s insolvency regime while maintaining  the core objectives of the IBC—speedy resolution, value maximization, and equitable  treatment of stakeholders.  

The emphasis on mediation has also been spurred by the pressing need to reduce the judicial  backlog and enhance stakeholder confidence in the resolution process. By incorporating  mediation as a formal component of the IBC, India can transition from a litigation-heavy  model to a more collaborative and efficient dispute resolution mechanism. The evolution of  mediation in this context represents a critical step in modernizing the IBC, aligning it with  contemporary dispute resolution practices, and ensuring its continued relevance in addressing  the dynamic challenges of the Indian insolvency landscape  

Literature Review on Books Exploring Mediation in IBC Laws  

The subject of mediation within the ambit of Insolvency and Bankruptcy Code (IBC) laws  has garnered scholarly attention due to its transformative potential in dispute resolution. Here  is a curate review of notable works that delve into this intersection, shedding light on their  unique contributions.  

1. “Mediation in Insolvency Matters” by Rajiv Mani  

This book is a seminal work that examines the nuanced role of mediation in insolvency  disputes. Mani eloquently highlights the inefficiencies in the current adjudicative framework  under the IBC and juxtaposes them against the advantages of mediation. The book  extensively discusses the “common pool problem” in insolvency cases, where the limited  assets of the debtor often lead to competing claims. Mani advocates for mediation as a  pragmatic solution to preserve value and foster amicable settlements among stakeholders.  The case studies from Indian and global contexts enrich the text, offering practical insights  into the adoption of mediation in insolvency proceedings. 

2. “Scope of Mediation in Insolvency Proceedings” by Amir Bavani, Rishika Kumar,  and Anirban Aly Mandal  

This collaborative work stands out for its meticulous exploration of mediation as an emerging  ADR mechanism within the IBC. The authors provide a layered analysis, starting from the  historical context of mediation in India to its relevance in contemporary insolvency law.  Notably, the book critiques the rigidity of the IBC’s litigation-heavy processes and proposes a  bespoke mediation framework tailored to the Code. The emphasis on specialized mediators  and technology-driven solutions, such as online mediation, underscores the text’s forward thinking approach.  

3. “Alternative Dispute Resolution in Corporate Insolvency” by Remigijus Jokubauskas  

Though not exclusively Indian, this book offers a comparative perspective on ADR in  insolvency laws, with a detailed chapter on the Indian IBC framework. The author draws  parallels between mediation practices in India and jurisdictions like the U.S. and E.U.,  highlighting lessons that can be adapted to strengthen the IBC. Jokubauskas emphasizes  mediation’s role in decongesting tribunals while safeguarding the interests of creditors and  debtors alike.  

These scholarly works collectively underscore the indispensable role of mediation in  reshaping insolvency resolution under the IBC. Each book brings a unique lens, from  theoretical underpinnings to practical frameworks, making them essential reading for  policymakers, practitioners, and academics aiming to innovate within this domain.  

CONCLUSION:  

The incorporation of mediation into the Insolvency and Bankruptcy Code, 2016 (IBC), marks  a critical juncture in the evolution of India’s dispute resolution framework. Despite the IBC’s  success in expediting insolvency resolutions, its reliance on adjudication has often led to  delays, increased costs, and adversarial outcomes that strain stakeholder relationships.  Mediation, with its hallmark attributes of flexibility, confidentiality, and collaboration, offers  a transformative alternative that aligns with the core principles of the IBC: value  maximization, stakeholder satisfaction, and timely resolution.  

Scholars and practitioners, through works such as “Mediation in Insolvency Matters” by  Rajiv Mani and “Scope of Mediation in Insolvency Proceedings” by Amir Bavani et al., have  elucidated the potential of mediation to address complex insolvency disputes. These  contributions underscore the need for a bespoke mediation framework tailored to India’s 

unique socio-legal fabric, complete with expert mediators and enforceable mediated  settlement agreements (MSAs). As eloquently stated in legal discourse, “Disputes are not  resolved in courts; they are merely adjudicated. Resolution begins where dialogue is  fostered.”  

The recommendations by the Expert Committee to seamlessly integrate mediation into the  IBC, while preserving its statutory timelines, reflect a forward-thinking approach to modern  insolvency law. By complementing the formal adjudicatory mechanisms, mediation can act  as a bridge between rigidity and flexibility, ensuring equitable outcomes.  

As India embraces this paradigm shift that mediation’s promise lies not only in decongesting  tribunals but also in cultivating a culture of collaborative problem-solving. This evolution is  poised to redefine the future of insolvency law, making it both efficient and humane.