IBBI proposes mediation mechanism for operational creditors in IBC
New Delhi, Nov 5, 2024
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
To ease the burden on the judiciary and reduce delays in insolvency processes, the Insolvency and Bankruptcy Board of India (IBBI) has proposed revised regulations that would provide operational creditors the option to pursue voluntary mediation before initiating insolvency proceedings against a company.
“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 the corporate insolvency resolution process (CIRP) before the adjudicating authority (AA). The proposal aims to reduce the burden on the AA and thereby expedite admissions,” IBBI said.
The IBBI proposal follows a recommendation by an expert committee, which, in its report submitted in January 2024, called for pre-institutional mediation as a preliminary step before filing insolvency applications.
IBBI has invited public comments on the proposed framework by November 24.
The insolvency regulator highlighted several issues, including disagreements over the quality or performance of goods and services provided, contractual disputes, and discrepancies regarding the exact amount owed or alleged underpayment, among others.
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.
According to data from the adjudicating authority (AA), 21,466 cases under Section 9—initiation of insolvency by operational creditors—were disposed of before admission, with only 3,818 cases admitted until April 30, 2024.
“A large number of Section 9 cases were settled before admission, and the settlement rate of CIRP pre-admission for operational creditors has been higher than at any other stage. Further, the AA is required to conduct hearings before accepting or rejecting an application, and the process often becomes time-consuming,” IBBI said.
The mediation option is being considered as an effective tool to resolve disputes between the operational creditor and the company at the earliest stage and facilitate faster admission by the National Company Law Tribunal.
Mediation involves a neutral third party to facilitate the negotiated settlement of a dispute and resolve conflicts between two or more parties.
The expert committee, led by former legal affairs secretary TK 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 within the Code’s existing statutory timelines and processes. It suggested that the central government and IBBI should be granted powers for making rules, regulations, and notifications for the same.
[The Business Standard]
