Scope of Mediation in Insolvency Proceedings
Scope of Mediation in Insolvency Proceedings
1. Introduction
Mediation is a form of Alternative Dispute Resolution (ADR) aimed at resolving disputes amicably through negotiation facilitated by a neutral third party called a mediator.
It is voluntary, confidential, and non-binding unless parties agree to be bound by a settlement.
In the context of insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), mediation has emerged as a valuable tool to resolve disputes among creditors, debtors, and other stakeholders without prolonged litigation or insolvency resolution process (CIRP).
2. Legal Framework for Mediation in Insolvency
The IBC primarily governs insolvency resolution and liquidation of companies.
While the IBC does not expressly mandate mediation, judicial interpretation and procedural rules recognize the scope for mediation to facilitate settlement.
Section 12A (introduced via amendment) allows for pre-packaged insolvency resolution and encourages mediation-like settlements.
Rule 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides for initiation of mediation during CIRP.
The Supreme Court and various High Courts have emphasized mediation as a mechanism to reduce delay and cost.
3. Scope and Benefits of Mediation in Insolvency Proceedings
Early Settlement: Mediation can lead to early resolution, avoiding the time-consuming insolvency resolution or liquidation.
Cost-effective: Saves legal and administrative costs.
Preserves Business Value: Enables restructuring and continuation of business.
Flexible: Parties can negotiate customized solutions.
Reduces Burden on Courts and Insolvency Professionals: Allows focus on complex or contentious cases.
Confidentiality: Unlike court proceedings, mediation is private.
Encourages Cooperation: Facilitates consensual restructuring among creditors and debtor.
4. Key Judicial Pronouncements on Mediation in Insolvency
a) Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. (2019)
The Court upheld the constitutionality of the IBC and emphasized the importance of speedy resolution of insolvency.
The judgment recognized the role of alternative dispute resolution mechanisms, including mediation, as a tool to achieve this objective.
b) Supreme Court in Swiss Financial Services Pvt. Ltd. v. Indian Overseas Bank & Ors. (2020)
The Court observed that mediation and settlement discussions are an important part of insolvency resolution.
It encouraged the National Company Law Tribunal (NCLT) and insolvency professionals to explore amicable settlements through mediation.
c) National Company Law Appellate Tribunal (NCLAT) in M/s Hindustan Zinc Ltd. v. Union of India (2020)
NCLAT directed parties to explore mediation to resolve disputes arising in insolvency proceedings.
Emphasized the role of mediation in reducing litigation and expediting the insolvency resolution.
d) Delhi High Court in Union of India v. Innovative Industries Ltd. (2021)
The Court highlighted mediation as a viable and encouraged mechanism to resolve insolvency-related disputes.
Directed parties to consider mediation before approaching the tribunal.
5. Practical Application of Mediation in Insolvency
Pre-Insolvency Stage: Mediation can be initiated between creditors and debtors to resolve financial stress and avoid insolvency filing.
During CIRP: Insolvency Resolution Professionals (IRPs) or Resolution Professionals (RPs) can facilitate mediation among stakeholders to reach consensus on resolution plans.
Post-CIRP: Disputes related to implementation or execution of the resolution plan may be referred to mediation.
Mediation can also address inter-creditor disputes, valuation disagreements, and operational challenges in insolvency proceedings.
6. Limitations
Mediation requires willing parties; it cannot be forced.
Not suitable where there is fraud, misrepresentation, or bad faith.
In cases where parties fail to reach settlement, formal insolvency proceedings continue.
7. Conclusion
The scope of mediation in insolvency proceedings is significant and evolving in Indian law. Courts and tribunals actively encourage mediation to achieve the core objectives of the IBC — speedy, efficient, and value-maximizing resolution of insolvency. Mediation complements formal insolvency processes by fostering cooperation, reducing litigation, and enabling creative restructuring solutions.
Summary Table
| Aspect | Explanation |
|---|---|
| Legal basis | Recognized under IBC and procedural rules; judicially encouraged |
| Benefits | Speedy resolution, cost-effective, preserves business value |
| Judicial support | SC, NCLAT, HC emphasize mediation in insolvency disputes |
| Application | Pre-insolvency, during CIRP, post-resolution disputes |
| Limitations | Requires consent, not suitable for fraudulent cases |
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