Role Of Mediation In Insolvency Process
The Insolvency and Bankruptcy Code, 2016 (IBC) has transformed the insolvency
process in India by providing a time-bound and creditor-driven resolution
process. In this process, mediation plays a significant role in resolving
disputes between the debtor and the creditor. Mediation is a voluntary process
where an impartial third party facilitates the negotiation process between the
parties in dispute to arrive at a mutually acceptable solution. The role of
mediation in the insolvency process is vital for achieving effective and
efficient resolution of disputes.
Although the code has performed well over the past four years, there is still
room for improvement in the results. The time it takes to complete a CIRP has
been a matter of debate. By law, the entire process of corporate insolvency
resolution should not exceed 180 days (with 90 day extension allowed and an
additional 60 days) for a total of 330 days, but can see that his has been
exceeded in many cases due to practical issues. But on average, the time to
complete the IBC process hovered around 375 days (settlement case) and 309 days
(clearing case) in March 2020. These times can still be shortened.
Mediation is an alternative dispute resolution (ADR) mechanism that can help
resolve disputes between the debtor and the creditor before they escalate to a
full-blown legal battle. Mediation is a collaborative process, and the mediator
facilitates communication between the parties, identifies issues, and assists in
developing options for resolution. The mediator does not impose a solution but
helps the parties reach a mutually agreeable settlement.
One of the primary benefits of mediation in the insolvency process is that it
can help to preserve relationships between the debtor and the creditor. In many
cases, the debtor and the creditor may have a long-term business relationship
that could be negatively impacted by a protracted legal battle. Mediation can
help to facilitate communication between the parties and enable them to work
collaboratively to find a solution that is acceptable to all parties involved.
Another benefit of mediation is that it can help to reduce the cost of
litigation. Legal disputes can be expensive, and the insolvency process is no
exception. Mediation can provide a cost-effective alternative to litigation by
allowing the parties to work with a neutral third-party mediator to resolve
their disputes in a timely and cost-effective manner.
In the context of insolvency, mediation can help resolve disputes arising out of
claims, valuation of assets, and distribution of proceeds. The insolvency
resolution process involves various stakeholders, including the financial
creditors, operational creditors, and the debtor. Mediation can help these
stakeholders arrive at a mutually agreeable solution, which can facilitate a
faster resolution of the insolvency process.
The IBC recognizes the importance of mediation in the insolvency process and
provides for the appointment of a mediator if the parties agree to mediate the
dispute. Section 74 of the IBC provides for the appointment of a mediator by the
Adjudicating Authority to facilitate the resolution of disputes between the
parties. The mediator can be appointed at any stage of the insolvency process,
and the process of mediation can continue even after the commencement of the
The mediation process is governed by the rules prescribed under the IBC and the
Insolvency and Bankruptcy Board of India (Mediation Process and Mediators)
Regulations, 2019. The rules prescribe the qualifications and eligibility
criteria for mediators and the procedure for appointment of a mediator. The
rules also provide for the conduct of the mediation process, including the
confidentiality of the process and the role of the mediator.
If the parties reach a settlement through mediation, the terms of the settlement
must be filed with the Adjudicating Authority for approval. The settlement
agreement is binding on all parties to the mediation process, and the
Adjudicating Authority may pass an order in accordance with the terms of the
If the parties are unable to reach a settlement through mediation, the
Adjudicating Authority may proceed with the insolvency process, and the
mediation process does not affect the rights of the parties to litigate their
dispute in court.
In conclusion, mediation plays a crucial role in the insolvency process in
India. The IBC recognizes the importance of mediation and provides for the
appointment of a mediator to facilitate the resolution of disputes between the
parties. Mediation is an alternative dispute resolution mechanism that can help
save time and costs associated with a legal battle.
It can also help preserve the relationship between the parties, which may be
important in cases where the parties have a long-term business relationship. The
role of mediation in the insolvency process is vital for achieving effective and
efficient resolution of disputes.
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