IBBI proposes mediation mechanism for operational creditors in IBC

IBBI stated that in most insolvency cases initiated by operational creditors, the creditors are more focused on the repayment of money claims than on admission or resolution of the corporate debtor

The Insolvency and Bankruptcy Board of India (IBBI) has proposed revised regulations to allow operational creditors to opt for voluntary mediation before starting insolvency proceedings against a company. The aim is to ease the burden on the judiciary and reduce delays in insolvency processes.

 

“In case of failure of mediation settlement, the mediator will prepare a non-settlement report, which shall be annexed with the application for initiation of Corporate Insolvency Resolution Process (CIRP) before the adjudicating authority (AA),” the IBBI said, adding that the proposal would reduce the burden on the authority and expedite admissions.

 

The IBBI proposal follows recommendations from an expert committee, which in a report submitted in January, had called for pre-institutional mediation as a preliminary step before filing insolvency applications.

 

The insolvency regulator has invited public comments on the proposed framework by November 24.

 

The IBBI highlighted several common issues that lead to disputes, including disagreements on the quality or performance of goods and services provided, contractual disputes, discrepancies over the amount owed, and alleged underpayments.

 

According to the IBBI, in most insolvency cases initiated by operational creditors, they are found to be more interested in repayment of claims rather than pursuing admission or resolution of the corporate debtor.

 

According to data from the AA, 21,466 cases under Section 9 — initiation of insolvency by an operational creditor — were disposed of before admission, with only 3,818 cases being admitted as on April 31.

 

“A large number of Section 9 cases were settled before admission, and the CIRP pre-admission settlement rate for operational creditors (OCs) had been higher than at any other stage. The AA is required to conduct hearings before accepting or rejecting an application, and the process often becomes time-consuming,” the IBBI said.

 

Mediation is the use of a neutral third party to facilitate the negotiated settlement of a dispute and resolve conflicts between two or more parties. This option is being considered as an effective tool to resolve disputes between the OC and the company at the earliest stage, potentially facilitating faster admission by the National Company Law Tribunal.

 

The expert committee, led by former Legal Affairs Secretary T K Vishwanathan, in its report on the “Framework for Use of Mediation under the Insolvency and Bankruptcy Code, 2016,” recommended the introduction of mediation as an alternative dispute resolution method under the Code, within existing statutory timelines and processes. It also suggested that the central government and the IBBI be given powers for make rules, regulations, and notifications for this purpose.