Future Of Mediation In Insolvency Proceedings

Ashutosh K. Sharma & Aliya Durafshan

28 April 2020 4:41 AM GMT

  • Future Of Mediation In Insolvency Proceedings

    Alternate Dispute Resolution method for resolving the disputes is relatively new trend in India. Mediation being one of the alternate dispute resolution methods in India is a voluntary process where the disputing people decide to mutually find a solution to their legal problem by appointing a mediator and entering a mutual understanding. The decision making power lies with the parties...

    Alternate Dispute Resolution method for resolving the disputes is relatively new trend in India. Mediation being one of the alternate dispute resolution methods in India is a voluntary process where the disputing people decide to mutually find a solution to their legal problem by appointing a mediator and entering a mutual understanding. The decision making power lies with the parties in dispute, with the mediator acting as an intermediary to bring them to an understanding. India started working to strengthen the alternative dispute resolution system way back in 90's. The 129th Law Commission of India Report (1988) recommended for the introduction of the Conciliation Court system for several litigations.


    Mediation has attained the statutory place under various Indian laws and recognised by Indian courts in its various judicial pronouncements. The Code of Civil Procedure, 1908 was amended in year 2002 and Section 89 was brought in which provides for reference of the cases pending in the courts to alternate dispute resolution. The Micro, Small and Medium Enterprises (MSME) Development Act, 2006 also provides for mandatory conciliation in case of payment dispute to MSME's. Section 32 of the Real Estate (Regulation and Development) Act, 2016 also provides for amicable settlement of disputes between the promoter and allottees through dispute settlement forum set up by associations. The Conciliators appointed under the Industrial Disputes Act, 1947 are assigned with the duty to mediate the settlement of industrial disputes with prescribed procedure. Even the Companies Act, 2013 under Section 442 along with Companies (Mediation and Conciliation) Rules, 2016 provides for reference of disputes to mediation by the Tribunal and Appellate Tribunal. Indian Parliament has opted several successful model widely used in several countries under specific laws. For example, in Italian Courts the litigants are not having the direct access to courts in civil and commercial cases if they have not undergone the mediation meetings. In line with the same The Commercial Courts, Commercial Division and Commercial Appellate Division of High Court (Amendment) Ordinance, 2018 has inserted a new provision under Section 12-A by contemplating pre-institution mediation mandatory before filing the commercial disputes with limited exception. Further, the recent amendment in the Consumer Protection Act provides for reference of the disputes to the mediation first in consumer mediation cell. The Hon'ble Supreme Court of India in its landmark judgment of Salem Advocate Bar Association, Tamil Nadu Vs. Union of India [W.P.(Civil) No.496 of 2002] has held that the courts shall explore the possibility of settlement. The Hon'ble Apex Court recently in case of MR Krishna Murthi Vs. New India Assurance Co. Ltd. [Civil Appeal No.2476-2477 of 2019], while considering a plea seeking reform in the Motor Vehicle Accident Claims system, asked the government to consider the feasibility of enacting an Indian Mediation Act to take care of various aspects of Mediation in general and issued several directions to the government.

    With respect to international disputes, India is a signatory to the Singapore Convention (United Nations Convention on Mediation) which promotes the mediation settlement under several other Indian laws.


    Several countries such as Netherlands, USA, Singapore, Hong Kong etc. had tried mediation in some of the bankruptcy cases and developed confidence in the process of mediation in insolvency cases. The Insolvency law in India is new and emerging. It has many flaws in it which are getting cured with passage of time. The main objective of the Code was to restructure and rehabilitate the companies along with balancing creditor's rights which have not been achieved in its true spirit as the Code is still being used as a debt recovery tool. The Hon'ble Apex Court has discussed and interpreted the true objective of the Code in its various judgments. Further, the timeline of completion of CIRP has always faced the difficulty due to one other reason and the proceedings keeps pending beyond a year or two in some of the cases. The Adjudicating Authority under the Code is already overburdened with the cases. India is not the first country in the world to face these problems. All these issues need to be addressed soon if the law has to achieve its objective in true spirit. As the norms related to individual insolvency had already been notified, the government may plan for several amendments in the Insolvency & Bankruptcy Code to facilitate out of court waiver of debt through mediation. The Government along with the IBBI may also consider allowing a separate set of low cost resolution professionals by relaxing the eligibility criteria. The Report of the Working Group on Individual Insolvency as published by the IBBI in August, 2017 recommended that the code should be amended to provide for time bound mediation in respect of insolvency of individuals and partnership firms. The report further recommended for recognisation of a new cadre of professional mediators and certain mediation centres to provide mediation facility. The same concept of mediation can also be brought in corporate insolvency cases. A mandatory pre-mediation or compulsory reference to mediation within the IBC framework is the need of hour.

    In the initial period, settlement of disputes was rarely allowed during the CIRP. However, afterwards several amendments were made in the Code and the provision of settlement during CIRP was incorporated in the Code. Recently, in case of V.K. Parvinder Singh Vs. Intec Capital Ltd. and Anr. [Company Appeal (AT) (Ins) No.968 of 2019] the authorised representative of the promoters filed an Appeal against the admission order passed by the AA and submitted that they are ready to settle the claims of the financial creditor. This was done prior to constitution of CoC. Since the parties in the case agreed for the Mediation, the Appellate Tribunal appointed a retired Judge to mediate between the parties. Finally, the parties settled the matter before the Mediator and the Mediator placed the report before the Appellate Tribunal. The Hon'ble Appellate Tribunal set aside the order of AA and held that the terms of settlement as recorded by the Mediator should be treated as the order and directions of this Appellate Tribunal. In recent time various disputes mostly the real estate disputes between the promoters and home buyers could have been settled through the mediation. Under current regime, the creditors are best equipped to understand the financial viability of the Corporate Debtor and therefore, competent enough to decide the best course of action.

    Mediation is the most powerful tool in present scenario and it needs to be promoted as a successful, efficient, economical and time saving method for all the stakeholders. It needs to be promoted as a mechanism in line with the judicial process for which it is most important for legislature and judiciary to practically recognise the same. The I&B Code being an emerging economic legislation, needs the amendment in way of incorporation of mediation provisions just like other mentioned legislations. In Indian context, Mediation is best possible before the formation of CoC. As mediation is an exercise to mutually find a solution, there are possibilities that more financially beneficial and healthy plans could have been arrived for the creditors. Further, it is very flexible, effective, and economical and also maintains cordial relationship between the parties. However, it is essential to remember that resolution of stressed assets is best possible if efforts are made in time-bound manner.

    Views are personal only

    (Authors are practicing Lawyers in Delhi High Court)

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