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New Delhi: An expert panel set up by bankruptcy rule maker, Insolvency and Bankruptcy Board of India (IBBI), has recommended voluntary mediation as a way of settling disputes that arise when creditors take over sinking businesses.
Led by former law secretary T.K. Viswanathan, the panel said in its report that mediation could be a complementary mechanism for settling disputes relating to bankruptcy resolution.
Policy makers are exploring mediation given that shareholders and lenders often end up in protracted litigation during debt resolution, which involves restructuring of businesses and inducting new investors or liquidation.
India introduced a law on mediation in 2003 but it is not mandated under the Insolvency and Bankruptcy Code (IBC). The expert panel said it has tried to balance the goals of the Code, such as time-bound reorganization of the business and maximization of value of the assets, with autonomy to parties to voluntarily opt for ‘out-of-court’ mediation process to enhance the efficiency of the resolution process.
The panel proposed to introduce mediation as an alternate dispute resolution method under IBC within existing statutory timelines, setting up an in-house mediation secretariat at the National Company Law Tribunal (NCLT) and recognition and enforcement of the mediated settlements under IBC. NCLT adjudicates on bankruptcy and company law related matters.
Experts said that mediation is proposed as a voluntary process parallel to the insolvency proceedings as laid down under the IBC. “Thus, there shall be no delays in the resolution process and depending on the stage at which mediation has been referred, the mandate of the mediator is envisioned to be limited to 30-60 days,” said Yogendra Aldak, Partner at Lakshmikumaran & Sridharan Attorneys.
Mediated settlement cannot bypass the rules of apportioning the proceeds of debt resolution. The panel also said not all scenarios under IBC are fit for mediated settlements and that questionable transactions in the pre-bankruptcy period, known as ‘avoidance transactions’, are excluded from the scope of mediation.
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Published: 15 Feb 2024, 10:26 PM IST
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