In a significant move towards enhancing dispute resolution mechanisms under the Insolvency and Bankruptcy Code (IBC), the Insolvency and Bankruptcy Board of India (IBBI) has released a discussion paper inviting public comments on introducing an optional mediation process for operational creditors (OCs) prior to filing insolvency applications under Section 9. This initiative is based on recommendations from the Expert Committee on the Framework for the use of Mediation under IBC, which submitted its report in January 2024 and aligns with similar recommendations made by the Indian Institute of Insolvency Professionals of ICAI (IIIPI) in September 2024.
Background and Rationale
Section 9 applications frequently involve disputes between operational creditors and corporate debtors, often over issues such as the quality of goods or services, alleged contractual non-compliance, disagreements over the exact amount owed, and counterclaims for damages. These recurring issues create substantial delays, consume judicial resources, and burden the Adjudicating Authority (AA). Data from the AA up to April 30, 2024, indicates that of the 21,466 Section 9 cases disposed before admission, only 3,818 were admitted, demonstrating a high rate of pre-admission settlements for operational creditors.
The proposal suggests that mediation may provide an efficient alternative by encouraging early resolution of disputes, thereby reducing the caseload of the AA and expediting the process for insolvency cases that require formal proceedings.
Key Aspects of the Proposal
The IBBI proposes that operational creditors have the option to undergo mediation before initiating insolvency proceedings. A mediator, as appointed under the Mediation Act, 2023, would facilitate negotiations between the operational creditor and the corporate debtor. If mediation fails, the mediator would issue a non-settlement report to accompany the operational creditor’s Section 9 application to the AA, documenting the parties' attempts to settle the matter amicably. This pre-filing mediation process aims to foster early resolution, streamline AA’s workload, and expedite the insolvency admission process.
Call for Public Comments
The IBBI is seeking feedback from stakeholders to refine the proposed regulations. Comments may be submitted on the IBBI website until November 24, 2024, by selecting the relevant options under the “Discussion paper on Mediation by Operational Creditors before filing Sec 9 application.” Stakeholders can provide general or specific feedback, including views on regulatory consistency, implementation challenges, and provisions that may need to be added or excluded.
Through this consultation, IBBI aims to implement a balanced mediation framework that both operational creditors and corporate debtors can benefit from, thereby advancing the efficiency and effectiveness of the IBC’s insolvency resolution process.
Comments