[Shashyak Roy is a 1st year student and Arima Kaushal a 3rd year student at West Bengal National University of Juridical Sciences, Kolkata]
In November 2024, the Insolvency and Bankruptcy Board of India (IBBI) released a discussion paper proposing the introduction of a voluntary pre-institution mediation mechanism for operational creditors (OCs) before they initiate proceedings under section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). According to IBBI data, as of April 2024, 21,466 cases had been filed under section 9, but only 3,818 were admitted. This suggests that a significant number of disputes were resolved before reaching the admission stage, with the pre-admission settlement rate for OCs being higher than at any other point in the insolvency process.
The proposal builds upon the recommendations of an Expert Committee constituted by the IBBI to examine the feasibility of integrating alternative dispute resolution (ADR) mechanisms into the insolvency framework. The Committee advocated for pre-institutional mediation as a preliminary step to reduce unnecessary litigation and enhance early dispute resolution. These recommendations were further reinforced by the Indian Institute of Insolvency Professionals of the Institute of Chartered Accountants of India, which, in its report titled “Key Recommendations for the Amendments in Insolvency and Bankruptcy Code, 2016” submitted on 21 September 2024, endorsed the integration of mediation to improve procedural efficiency.
The Expert Committee Report: The Mediation Act, 2023 Is Not Enough
While the Expert Committee report views the pre-institutional mediation as outside the IBC process, it envisions that the rules prescribed by the National Company Law Tribunal (NCLT) could offer OCs the option to mediate under the Mediation Act 2023. This model seems to be the basis for the discussion paper.
However, for mediation in all the other stages of insolvency, the Committee undertook a granular review of the Mediation Act, 2023, and concluded that it does not accommodate the special features of the IBC regime. First, the 2023 Act lacks specific reference to IBC nor does it align with its strict statutory timelines. Second, unlike statutes such as the Commercial Courts Act, the IBC does not refer to mediation, thereby creating procedural ambiguity.
Moreover, the Committee was especially wary of a “one-size-fits-all” framework. The rigid structure and temporal urgency of the IBC (for instance, the 14-day admission period and the 330-day resolution limit) render the general mediation provisions under the 2023 Act unsuited for insolvency disputes. Hence, the Committee recommended a phased and tailored integration of mediation into the IBC, with bespoke statutory provisions to ensure legal enforceability.
The Problem with Absolute Voluntariness
A central problem with the IBBI’s discussion paper is its reliance on voluntariness, assuming that once offered the option, parties will meaningfully choose mediation. However, a cautious nudge alone cannot generate systemic cultural change, especially in a regime where litigation is the norm and delay is often weaponized.
The Committee itself acknowledges India’s lack of a mediation culture. In contrast, jurisdictions like the United States have cultivated mediation through years of court-backed procedural innovation. The United Kingdom (UK) has made it mandatory for legal advisers to explain mediation options, coupled with strong judicial incentives and court-managed schemes.
In India, voices like Justice A.K. Sikri and Anuroop Omkar have emphasized that mediation could unlock more stakeholder-sensitive and innovative resolutions in insolvency disputes. Unlike judicially-imposed resolutions, mediation allows for non-traditional remedies, such as continuing business relationships, non-monetary settlements, and even apologies, which can be invaluable for OCs whose business health is tied to the debtor’s continuity and with good relationship with them. However, without strong institutional impetus in courts, policy, and industry organizations, voluntariness alone is not enough. Structural incentives, whether time-limited, cost penalties for rejection, or pre-admission screening, is essential to encourage mediation.
Value Destruction in CIRP
Delays under the IBC continue to be a cause of concern, frequently leading to considerable erosion of value for corporate debtors. According to a November 2024 report by ICRA, more than 71% of corporate insolvency resolution processes (CIRPs) took longer than the stipulated 270-day period, resulting in increased liquidations and average creditor recoveries of barely about 28%.
A stark illustration of the costs of such delays is the insolvency of Jet Airways. Initiated in 2019, the CIRP lasted six years with prolonged litigation and procedural hitches along the way. During this time, the assets of the airline depreciated, valuable staff left, and the brand value plummeted. By the time the Supreme Court finally directedliquidation in 2024, emphasizing the importance of maintaining statutory deadlines, much of what might have been salvaged was gone.
In this context, embedding structured mediation mechanisms early in the insolvency process offers a practical solution. By enabling faster, amicable settlements, mediation can preserve enterprise value, ease the burden on adjudicatory bodies, and offer operational creditors a way to resolve disputes without permanently damaging commercial relationships.
To ensure the meaningful integration of mediation into the IBC, the following reforms, building on the Expert Committee’s recommendations and incorporating additional proposals, are imperative before extending mediation to the post-institution stage.
First, there is a need for a codified framework within the IBC. A new chapter or scheme should be introduced within the IBC for insolvency mediation, clearly defining its scope, timelines, mediator accreditation, and enforceability of outcomes. This is especially important since the Expert Committee has noted the different framework and possible challenges for mediation at each stage of the insolvency process.
Moreover, in general, the Singapore and UK models provide useful templates. Singapore’s insolvency mediation framework is judicially embedded and structured, with courts actively encouraging mediation. The Singapore Mediation Centre (SMC) is at the forefront of facilitating insolvency disputes, ensuring confidentiality, speed and cost-effectiveness, while prioritizing business continuity. In contrast, the UK’s insolvency mediation framework is decentralized and voluntary, relying on ADR institutions such as Centre for Effective Dispute Resolution and insolvency practitioners. While UK courts strongly endorse mediation, the absence of a single uniform framework makes the system more flexible but comparatively less formalised than Singapore’s.
Second, it would be useful to consider the binding effect of mediated settlements. All Mediated Settlement Agreements (MSA) should be mandatorily confirmed by the NCLT within seven to ten days to streamline enforcement without a fresh set of proceedings. This will promote certainty, ensure accountability, and respect the consensus of all parties, as mediation requires 100% creditor approval, unlike the withdrawal under section 12a of the IBC, which needs 90% approval of the committee of creditors. This will eliminate chances of disturbing the rights of any third parties or stakeholders and prevent any challenges by dissenting parties later. Further, once confirmed, the MSA should attain finality and must be respected, with judicial intervention permitted only on narrow grounds such as fraud, impersonation, or corruption (akin to section 28(2) of the Mediation Act).
Third is the mandatory consideration of mediation. Drawing from the UK model, legal counsel should be required to certify that mediation was considered before initiating CIRP. This balances party autonomy with a commitment to inculcating a mediation culture.
Fourth is to have dedicated insolvency mediation panels. The IBBI should empanel mediators trained in insolvency jurisprudence, with domain expertise in financial and contractual disputes.
Fifth, a mediation secretariat should be created within the NCLT to coordinate, monitor and supervise insolvency mediations under the IBC.
The IBBI’s November 2024 discussion paper signals institutional willingness to innovate but the discourse on introducing mediation for post institution stages under the IBC requires urgent attention. A completely voluntary approach without any systemic push, legal coherence, or cultural reinforcement will not suffice. Mediation must be normalized, not merely offered.
Real reform is about constructing the credibility, enforceability, and structure accessibility of insolvency mediation, that is, constructing it as an effective first response, rather than a hopeful alternative. The movement from adjudication to dialogue is not going to be spontaneous. It needs to be constructed, legislated, and enforced.
– Shashyak Roy & Arima Kaushal
