By Himanshu Dubey

The Insolvency and Bankruptcy Code (IBC) of 2016 is a comprehensive legislation enacted in India to consolidate and amend laws relating to the reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. It aims to promote entrepreneurship, enhance the availability of credit, and balance the interests of all stakeholders.

Mediation refers to a voluntary process in which an impartial third-party mediator assists disputing parties to reach a mutually acceptable agreement. In the context of IBC, mediation can be a valuable tool for resolving disputes among stakeholders without resorting to the resolution process.

Insolvency and Bankruptcy Code (IBC) does not explicitly provide for the National Company Law Tribunal (NCLT) to refer matters to mediation. However, the IBC does not prohibit settlements and, in fact, acknowledges and encourages them in accordance with the law. The settlement of disputes under the IBC has statutory recognition under Section 12A of the
Code, which permits the withdrawal of a CIRP application after its admission. Additionally, NCLT has exercised its powers to settle disputes under the Code, as outlined in Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (“AA Rules”), which permit withdrawal of the application for corporate resolution process, on a request made by the applicant before its admission. Similarly, in the resolution process of the personal guarantor, withdrawal of insolvency application is permitted both before and after admission of the insolvency Application.

Insolvency and Bankruptcy Board of India constituted an expert committee to examine the scope of use of mediation in respect of processes under the Insolvency and Bankruptcy Code, 2016. The said committee categorically opined that incorporation of mediation into Indian insolvency regime will require specific, tailor-made mechanism to suit each insolvency
resolution process or its constituents which should be in line with the object of the Insolvency and Bankruptcy Code.

There is no gainsaying to the fact that generally mediation is a less expensive way which can lead to quicker resolutions. Mediation proceedings are private, which can protect the reputation of the parties involved. Mediation is collaborative and can help preserve business relationships. The process is flexible and can be tailored to the needs of the parties involved.

Over the years, the role of mediation within IBC proceedings has expanded, reflecting a growing recognition of its potential to resolve disputes more efficiently and amicably. As per disposal data available on the official website of the National Company Law Tribunal 23,608 matters are settled before admission and 1052 are settled after admission.

Hon’ble Supreme Court in E S Krishnamurthy & Ors. Versus Bharath Hi Tech Builders Pvt. Ltd. categorially held that settlements should be encouraged by the Adjudicating Authority and Appellate Authority, as the ultimate purpose of the IBC is to facilitate the continuance and rehabilitation of a Corporate Debtor, which leaves no doubt that the object of the IBC is
in line with the mediation, which otherwise is a faster route to the resolution.

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The role of mediation in IBC proceedings is likely to expand further as stakeholders recognize its benefits. The introduction of more structured guidelines and training programs for mediators could enhance its effectiveness. Additionally, legislative amendments to explicitly incorporate mediation within the IBC framework could further solidify its role.

Mediation is emerging as a valuable tool in the resolution of disputes under the IBC, offering a faster, more cost-effective, and less adversarial alternative to traditional litigation.

As the legal and regulatory framework continues to evolve, mediation is likely to play an increasingly prominent role in insolvency and bankruptcy proceedings in India.

(Himanshu Dubey is a Partner at S&A Law Offices)

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