Mediation in Insolvency Proceedings
Mediation is a form of Alternate Dispute Resolution in which a third neutral party attempts to assist the disputing parties in reaching an amicable settlement and a mutually acceptable agreement. It is the most uncomplicated method of dispute resolution where the third party acts as a mediator to resolve the dispute between the parties by using the means of communication and negotiation. The process of mediation is completely controlled by the parties since the mediator is only a medium to facilitate the process of reaching an amicable settlement. A mediator’s suggestions are not binding on either of the parties. Mediation as a form of Alternate Dispute Resolution has attained a statutory status under various Indian laws and has also been recognized by the courts while pronouncing judgments.
The laws relating to insolvency proceedings in the country are governed by the Insolvency & Bankruptcy Code, which has successfully helped the lenders to recover their money. Though its recovery rate is high, it has created a constant fear of persecution among the corporate, especially the small and medium enterprises (SMEs).Under normal circumstances, the time a corporate insolvency should take from start to finish is 270 days. However, in most cases, the pendency exceeds more than a year due to the huge backlog of cases which overburdens the National Company Law Tribunal and also the time consuming process of deciding whether to liquidate the company or to adopt a resolution plan.
In cases of insolvency, the first attempt should always be made for recovery, especially if the insolvency took place due to the existing market conditions. Even if the insolvency is due to mismanagement, an attempt at recovery should be made by introducing changes in the management. The Supreme Court in its recent judgments has reminded the companies of the true aim of the Insolvency & Bankruptcy Code (IBC) which is not supposed to be utilized for debt recovery only. The only way to achieve the said objective and to lower the burden of NCLT is by introducing mediation in the resolution process. As mentioned above, mediation as a form of dispute resolution has already acquired a statutory status in the Indian legal system and has been used to resolve several disputes in the country. The Ayodhya Dispute, where the Supreme Court referred mediation is the most recent example of the same. It must however be mentioned that India is not the only jurisdiction facing the issue of delays in the insolvency proceedings due to huge backlog of cases and ultimately resorting to ADR. Singapore, Hong Kong, USA, Netherlands and several other countries have done the same. The most recent example of the use of mediation in insolvency proceedings is the case of V.K. Parvinder Singh v. Intec Capital Ltd. & Anr., where the parties were ready to settle the dispute and the Appellate Tribunal appointed a retired judge as a mediator to negotiate. Consequently, the parties settled the dispute before the mediator.
Under the current circumstances, mediation is the most efficient medium and must be promoted as a successful and economically viable method for all stakeholders. Since mediation offers the flexibility to come up with fresh solutions, it can help the parties reach an agreement which is beneficial for both of them in some ways instead of taking the usual course of breaking down the assets and reconsolidating the business interests.