Insolvency regulator working to bring mediation in insolvency cases

India’s regulator for insolvency proceedings is considering mediation to resolve cases and will publish a discussion paper for its proposal.

There were 1,852 insolvency cases as of March 2022, according to the Insolvency and Bankruptcy Board of India (IBBI). A source privy to IBBI’s discussion said mediation might address the issue of courts delaying the insolvency process. “The company law tribunals are working with half their capacity. The institution has a lot of cases on its plate and not enough manpower,” said the source.

Separately, a Bill on mediation is before India’s Parliament. “Insolvency is not an exception under this Bill. So a provision under the Insolvency and Bankruptcy Code (IBC) can be brought in the future,” he said.

The source said many creditors are suffering because of delays in insolvency cases. “Mediation as an alternative to insolvency litigation in India may guarantee more recoveries and reduce the workload of courts,” he said.

Financial creditors' realisation, as a percentage of their admitted claims, between January and March hit a record low of 10.21 per cent. In the December quarter of 2021, it was 13.41 per cent.

Details, like at what stage will mediation be allowed in insolvency cases, need to be decided. “IBBI will need to push for it and make people aware of the merits of mediation,” he said.

However, one expert said that the IBBI and the government should now focus on strengthening the National Company Law Tribunal by increasing the number of its members.

“Mediation will make no difference to the current difficulties being faced in the implementation of IBC. Its announcement will have limited or no impact,” said a partner at a top-tier law firm.

In the US, Italy, and other countries mediation is used to resolve the fate of sick companies.

India has legislation to promote mediation: the Companies Act, 2013 allows company disputes to be referred for mediation by the National Company Law Tribunal (NCLT) and Appellate Tribunal. The Commercial Courts Act, 2015 provides for pre-institution mediation in commercial disputes.

There is no provision for mediation under IBC yet though.