The Insolvency and Bankruptcy Board of India’s (IBBI) proposal to include an option of mediation for operational creditors (OCs) under the Insolvency and Bankruptcy Code (IBC), should be looked into “seriously”, as it will cut the burden of NCLTs, said Anita Shah Akella, joint secretary, ministry of corporate affairs on Tuesday.
“The (voluntary mediation) proposal needs to be looked into seriously, as about 70% of withdrawal in pre-admission stage (of corporate insolvency resolution process) is mostly by the OCs,” Akella said at the IIIPI’s 8th Foundation Day event.
“The OCs are using IBC more like a recovery mechanism…Once the voluntary mediation procedure is introduced, the OC cases will reduce to a large extent, which will consequently stop choking the NCLTs (National Company Law Tribunals),” she said.
In a discussion paper floated earlier this month, the IBBI said that the OCs would exercise the option of mediation before filing insolvency applications under the Section 9 of the IBC. This is the same provision which allows OCs to initiate CIRP against a corporate debtor (CD) over non-payment of dues.
However, if the mediation fails to reach settlement, the mediator will be asked to prepare a non-settlement report which shall be annexed with the application for initiation of CIRP before the Adjudicating Authority (AA). The mediation, as proposed, will take place as per the process prescribed under the Mediation Act, 2023.
The paper had highlighted that in most of the OC-initiated insolvency cases, the OCs are more interested in repayment of money claims rather than admission or resolution of the CD. Therefore, a large number of such cases are settled before admission. As per official data, up to June 30, as many as 21,466 cases under section 9 were disposed of before admission and only 3,818 cases were admitted.
Under IBC, once an application for initiation of CIRP is filed in the NCLT, the latter is mandated to admit the application for starting the proceedings within 14 days. However, in reality, the time taken for the admission is significantly longer, mostly due to the low strength of benches, which delays the process.
Earlier this year, an expert committee under IBBI had recommended a voluntary mediation process for OCs; and the proposed provisions are based on the suggestions of that committee. The committee had suggested that at the admission stage, should mediation be initiated or continued during the said timeline (14 days), the automatic termination of mediation mandate would be either the date of admission under the Code or 30 days, whichever is earlier.