ADR In Corporate Insolvency - The IBC Framework And Role Of Pre-Pack Resolution Plans
Author: LawSphereX
Category: Corporate & Insolvency
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ADR IN CORPORATE INSOLVENCY: THE IBC
FRAMEWORK AND ROLE OF PRE-PACK RESOLUTION PLANS Priyanka Ganguly, Ph.D. (Law) Research Scholar, School of Law & Jurisprudence, Shri Venkateshwara University, Gajraula, U.P. Dr. Rajvardhan, Assistant Professor, School of Law & Jurisprudence, Shri Venkateshwara University, Gajraula, U.P.
ABSTRACT
Corporate insolvency has long posed a critical challenge to the financial stability and economic growth of any jurisdiction. In India, the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC) brought about a revolutionary shift by creating a consolidated, time-bound, and creditordriven process for resolution of corporate distress. Despite the significant strides made under the IBC, the formal litigation-centric structure of insolvency proceedings often leads to value erosion, delays, and adversarial posturing among stakeholders. As a solution, Alternative Dispute Resolution (ADR) mechanisms such as negotiation, mediation, and arbitration have emerged as complementary tools that facilitate faster, more consensual resolutions in corporate insolvency.
This paper delves into the interface between ADR and the IBC, analysing how legal provisions and judicial interpretations have evolved to accommodate and promote settlement frameworks within insolvency. A special focus is given to the Pre-packaged Insolvency Resolution Process (PIRP), introduced in 2021 as a hybrid model that integrates informal workouts with formal legal sanction. The pre-pack regime, particularly for MSMEs, is designed to expedite resolution while maintaining transparency and creditor oversight. Through detailed examination of statutory provisions, regulatory developments, and landmark case laws such as Swiss Ribbons v. Union of India and Indus Biotech v. Kotak1, the paper evaluates the effectiveness, challenges, and future prospects of integrating ADR within the IBC framework.
The research further draws comparisons with global practices in the UK, US, and Netherlands to offer a holistic understanding of pre-pack mechanisms and the potential for harmonizing India’s insolvency landscape with
1 Swiss Ribbons Pvt. Ltd. and Ors. v. Union of India and Ors., (2019) 4 SCC 17.
international standards. It concludes with recommendations for legal reform, broader implementation of ADR, and institutional capacity-building to enhance the efficiency and accessibility of corporate insolvency resolution in India. Keywords: Insolvency and Bankruptcy Code (IBC), Corporate Insolvency, Alternative Dispute Resolution (ADR), Pre-packaged Insolvency Resolution Process (PIRP), Mediation in Insolvency. Introduction: Corporate insolvency is a multifaceted issue that not only affects the immediate stakeholders of a company such as creditors, employees, and shareholders but also has far-reaching implications on the financial and economic health of a country. An efficient insolvency regime is crucial to maintaining credit discipline, promoting entrepreneurship, and ensuring optimal allocation of resources in the economy.
The Indian insolvency landscape, prior to the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC), was fragmented, inconsistent, and notorious for protracted legal proceedings under multiple laws including the Sick Industrial Companies Act (SICA), Companies Act, and SARFAESI Act. The IBC unified and streamlined these disparate frameworks, bringing in a single, comprehensive mechanism for insolvency resolution and liquidation, and emphasizing time-bound outcomes and creditor-driven control. While the IBC has significantly improved insolvency resolution in India, it is not without challenges. The adjudication-heavy model has often led to litigation overload, procedural bottlenecks, and erosion of asset value due to prolonged insolvency proceedings.
Consequently, there is growing recognition that traditional court processes alone may not always yield the most efficient or value-maximizing results. In this context, Alternative Dispute Resolution (ADR) mechanisms such as mediation, conciliation, negotiation, and arbitration have become increasingly relevant. These methods offer more collaborative, flexible, and timeefficient alternatives to purely adversarial legal proceedings. Importantly, while ADR has not been formally embedded within the core structure of the IBC, its relevance is increasingly acknowledged by courts, regulators, and stakeholders as a means to supplement and support formal insolvency processes. A key innovation that formally integrates the principles of ADR into the insolvency framework is the Pre-packaged Insolvency Resolution Process (PIRP), introduced through the Insolvency and Bankruptcy (Amendment) Act, 2021.
Initially applicable to Micro, Small, and Medium Enterprises (MSMEs), the Pre-pack model reflects a hybrid approach that combines the benefits of informal restructuring facilitated through negotiation and creditor consensus with the legal sanctity and regulatory oversight of the formal IBC framework. It allows the corporate debtor to initiate the resolution process in consultation with creditors, present a base resolution plan, and secure faster outcomes while minimizing disruption to the business. This paper aims to explore the intersection of ADR and the IBC, with an emphasis on how mechanisms like settlements under Section 12A2, mediation in insolvency disputes, and the Pre-pack process are reshaping insolvency resolution in India.
It analyses relevant statutory provisions, regulatory developments, judicial precedents, and comparative international practices to assess the scope, effectiveness, and limitations of ADR in corporate insolvency. Through doctrinal analysis and case-based exploration, the paper contributes to the broader discourse on whether and how India can mainstream ADR within its insolvency ecosystem, thereby improving outcomes for all stakeholders involved. Concept of ADR in Corporate Insolvency: Alternative Dispute Resolution (ADR) refers to a range of mechanisms that enable parties to resolve disputes without resorting to traditional court proceedings. The most common forms of ADR include mediation, conciliation, negotiation, and arbitration. These processes are generally characterized by their flexibility, confidentiality, cost-effectiveness, and focus on preserving business relationships.
In the corporate insolvency context, ADR offers a nonadversarial platform for debtors and creditors to reach consensual resolutions, often before the commencement of formal insolvency proceedings or even during the Corporate Insolvency Resolution Process (CIRP). The objective is not only to minimize litigation but also to preserve the economic value of the distressed business by avoiding delays, legal costs, and deterioration of assets typically associated with prolonged litigation. Insolvency disputes often involve a complex interplay of commercial, legal, and financial interests. These may include disputes over the quantum of debt, operational claims, contractual defaults, or inter-creditor disagreements. ADR provides a forum for stakeholders to explore common ground and reach mutually acceptable solutions without the rigidity of the judicial process.
For instance, debt restructuring negotiations between financial creditors and the
2 Insolvency and Bankruptcy Code, 2016, § 12A, No. 31, Acts of Parliament, 2016 (India).
corporate debtor when done informally often follow the ADR model, helping avoid a complete breakdown of the business. Similarly, mechanisms like Section 12A of the IBC, which allows for the withdrawal of CIRP upon settlement, reflect the Code’s openness to alternative solutions rooted in consensus. Moreover, ADR can play a critical role in facilitating cross-border insolvencies, where multiple legal systems and jurisdictions are involved. The emphasis on cooperation and coordination in international insolvency frameworks, such as the UNCITRAL Model Law, underscores the importance of ADR mechanisms in resolving disputes without jurisdictional conflicts. While the IBC does not yet provide a statutory framework for mediation or arbitration within insolvency proceedings, Indian tribunals and courts have increasingly acknowledged their value.
The evolving legal landscape thus supports a more holistic approach to insolvency resolution one that prioritizes stakeholder collaboration and recognizes the role of ADR in complementing formal legal structures. ADR under the IBC Framework: A significant provision within the Insolvency and Bankruptcy Code (IBC) that facilitates the use of Alternative Dispute Resolution (ADR) mechanisms is Section 12A, which was introduced through the Insolvency and Bankruptcy (Second Amendment) Act, 2018. Prior to its insertion, once a Corporate Insolvency Resolution Process (CIRP) had been admitted by the Adjudicating Authority (usually the NCLT), there was no scope for withdrawal, even if the parties wished to settle the matter mutually.
Section 12A corrected this rigidity by allowing a corporate debtor to exit the insolvency process post-admission if 90% of the Committee of Creditors (CoC) approves such withdrawal. This provision is particularly important in cases where the dispute can be resolved through negotiation, mediation, or any informal settlement arrangement between the debtor and the creditors, thereby giving statutory recognition to outof-court dispute resolution even after the formal insolvency process has begun. The Supreme Court, in the landmark case of Swiss Ribbons Pvt. Ltd. v. Union of India (2019), upheld the constitutional validity of the IBC and specifically acknowledged the utility of Section 12A in promoting settlements. The Court observed that while the IBC is structured around a formal resolution mechanism, it does not prohibit settlement-based exits.
It emphasized that the “commercial wisdom” of the creditors, as expressed through the CoC, is paramount in determining whether such settlements should be permitted. This ruling affirmed that negotiated resolutions are not only legally permissible but are in fact consistent with the objectives of the IBC, such as value maximization and timely resolution. Further strengthening this approach, the Supreme Court in Brilliant Alloys Pvt. Ltd. v. Mr. S. Rajagopal3 clarified that Regulation 30A of the CIRP Regulations, which provides procedural timelines for withdrawal of CIRP, should be interpreted as directory and not mandatory. Regulation 30A previously limited withdrawals only to stages before the publication of the Expression of Interest (EoI), thereby curbing settlements at later stages.
The Court’s interpretation removed this barrier, making it possible for parties to withdraw insolvency proceedings even at an advanced stage, provided the CoC agrees. This judgment has been pivotal in enhancing the scope of ADR within the IBC, by keeping the door open for resolution through mutual consent, rather than forcing parties to go through the entire insolvency process unnecessarily. Mediation in Insolvency Context: While the Insolvency and Bankruptcy Code, 2016 does not explicitly provide for mediation as a formal mechanism within its framework, the practice of referring parties to mediation is increasingly gaining traction in the resolution of corporate insolvencies.
Mediation serves as a valuable ADR tool that enables stakeholders to engage in structured, interest-based negotiations, facilitated by a neutral third party, with the objective of reaching a mutually agreeable solution. In the context of insolvency, mediation can be particularly useful for resolving disputes related to claim amounts, settlements between creditors and debtors, or even disagreements among different classes of creditors. Unlike traditional adjudicatory processes, mediation fosters cooperation and helps preserve ongoing commercial relationships something that is especially critical in cases involving closely held businesses, MSMEs, or family-owned enterprises. Indian tribunals have gradually started recognizing the potential of mediation in achieving better outcomes in insolvency cases.
A notable example is the decision in SREI Infrastructure Finance (2022), where the National Company Law Tribunal (NCLT) referred the parties to mediation despite the formal admission of insolvency proceedings. The tribunal acknowledged
3 Brilliant Alloys (P.) Ltd. v. S. Rajagopal and Ors., (2022) 2 SCC 544.
that if the parties could arrive at a consensual settlement, it would not only expedite resolution but also maximize the value of assets, which is a core objective of the IBC. The NCLT emphasized that mediation could offer a more commercially viable solution than pushing the company towards liquidation, which often results in significant value destruction. Similarly, the National Company Law Appellate Tribunal (NCLAT) has, in multiple cases, encouraged parties to consider settlements and mediation, particularly in cases involving small enterprises or group companies where the stakeholders share longstanding business or personal ties. The appellate body has observed that a collaborative approach often results in speedier recovery, less disruption to business operations, and a greater likelihood of preserving the corporate debtor as a going concern.
This trend reflects a growing realization among insolvency professionals, resolution applicants, and adjudicating authorities that mediation though informal in the current legal structure can play a crucial role in aligning the interests of stakeholders and rescuing viable businesses. As the insolvency jurisprudence evolves, there is a compelling case for the formal incorporation of mediation within the IBC framework, either through future amendments or through complementary procedural guidelines. Arbitration and Insolvency: The intersection of arbitration law and insolvency law in India presents a complex and evolving legal dynamic. While both aim to offer efficient dispute resolution mechanisms, they operate on fundamentally different principles. Arbitration is a party-centric, consensual mechanism designed to resolve contractual or commercial disputes in a private forum.
In contrast, the Insolvency and Bankruptcy Code, 2016 (IBC) is a statutory, collective process aimed at resolving the distress of a corporate debtor through either resolution or liquidation in a timebound manner, with all stakeholders bound by the outcome. This divergence often leads to tensions when arbitration clauses are invoked in disputes involving financially distressed companies. The central legal provision that governs this conflict is Section 2384 of the IBC, which states that IBC shall have an overriding effect over any other law that is inconsistent with its provisions. This means that where there is a direct conflict between arbitration and insolvency proceedings, the IBC will prevail.
4 Insolvency and Bankruptcy Code, 2016, § 238, No. 31, Acts of Parliament, 2016 (India).
However, Indian courts have clarified that arbitration clauses do not become redundant merely because a party is undergoing insolvency, unless the arbitration seeks to resolve an issue that falls squarely within the scope of IBC proceedings, such as determination of default or adjudication of claims after admission of CIRP. A landmark case in this regard is the Supreme Court’s decision in Indus Biotech Pvt. Ltd. v. Kotak India Venture Fund (2021)5. In this case, the issue was whether an application under Section 76 of the IBC for initiation of insolvency proceedings could be maintained when there was a pre-existing arbitration clause in the shareholder agreement. The Supreme Court held that if the dispute is of a commercial or contractual nature, and not strictly related to a default in repayment of debt, then such a dispute is arbitrable.
In the given case, the Court found that the dispute revolved around the valuation and conversion of optionally convertible preference shares into equity, and not a straightforward default, and therefore directed the parties to resolve their dispute through arbitration. This decision underscores the principle that not all insolvency-triggering disputes are nonarbitrable, particularly when the nature of the dispute is contractual or valuation-based, rather than a clear-cut monetary default. It also reinforces that the invocation of an arbitration clause can act as a bar to admission of insolvency proceedings, provided the dispute is bona fide and falls outside the IBC’s narrow test of “default.
” This evolving jurisprudence provides greater clarity on how arbitration and insolvency can coexist in certain cases, and opens the door for stakeholders to explore arbitration as a parallel or alternative route, especially in cases where insolvency proceedings may be used tactically or prematurely. Nonetheless, once CIRP is admitted and a moratorium under Section 147 of IBC kicks in, all arbitration and legal proceedings are required to be stayed, reaffirming the IBC’s primacy in actual insolvency situations.
Pre-pack Insolvency Resolution Process (PIRP) and ADR Integration in Practice: The Pre-packaged Insolvency Resolution Process (PIRP) represents one of the most significant innovations in the Indian insolvency landscape, marking a formal attempt to incorporate Alternative Dispute Resolution (ADR) principles into the statutory framework of the Insolvency and Bankruptcy Code, 2016 (IBC). The concept of pre-packaged resolution widely
5 Indus Biotech Private Ltd. v. Kotak India Venture (Offshore) Fund and Ors., (2021) 6 SCC 436.
6 Insolvency and Bankruptcy Code, 2016, § 7, No. 31, Acts of Parliament, 2016 (India).
7 Insolvency and Bankruptcy Code, 2016, § 14, No. 31, Acts of Parliament, 2016 (India).
used in jurisdictions such as the UK and the US was introduced in India initially through the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, which came into effect on April 4, 2021, and later codified via the Insolvency and Bankruptcy Code (Amendment) Act,
2021. The primary objective was to provide a speedy, cost-effective, and minimally disruptive
resolution mechanism tailored to the needs of Micro, Small, and Medium Enterprises (MSMEs). The PIRP is applicable to corporate debtors with a default threshold between ₹10 lakh and ₹1 crore, a range that typically encompasses many financially stressed but fundamentally viable MSMEs that may not be suited for full-scale Corporate Insolvency Resolution Process (CIRP). What distinguishes the PIRP from the regular CIRP is its debtor-in-possession model, as opposed to the creditor-in-control structure under traditional insolvency. The PIRP process is initiated voluntarily by the corporate debtor with the prior approval of 66% of the Committee of Creditors (CoC). A central feature is the submission of a Base Resolution Plan (BRP) by the debtor, which can either be accepted or subjected to competitive bidding if the CoC deems it unsatisfactory or unfair to operational creditors.
Upon admission, a moratorium is imposed, and the process must be completed within 90 days, with a grace period of 30 days for final approval, making it far more expedient than regular CIRP, which can extend up to 330 days. This time-bound framework aligns closely with ADR principles, particularly those emphasizing early intervention, collaboration, and resolution efficiency. One of the most striking aspects of the PIRP is its implicit and explicit reliance on ADR mechanisms. Prior to the formal initiation of PIRP, the debtor is expected to engage in negotiations with creditors, conduct stakeholder consultations, and ensure consensus on the BRP. These elements reflect a clear preference for pre-filing settlements and informal workouts, which can be facilitated by insolvency professionals, mediators, or financial advisors.
Unlike traditional insolvency, the pre-pack process encourages debtors and creditors to resolve contentious issues upfront, thereby reducing the adversarial nature of the resolution and preserving business continuity. This approach creates a structured hybrid between informal workouts and formal legal endorsement, giving statutory recognition to the principles of ADR within the IBC ecosystem. The continuation of the existing management also promotes stability and fosters trust among stakeholders, allowing the debtor to maintain operations while restructuring under court supervision.
Although still at a nascent stage in India, early case law demonstrates the judicial system’s willingness to promote PIRP as a viable ADR-based insolvency mechanism. The case illustrates how PIRP can serve as a fallback mechanism, ensuring that the benefits of informal consensus are not lost due to procedural lapses or breakdowns in private negotiations. Similarly, in K. S. Oils Ltd. (In Liquidation), though not a PIRP case per se, the liquidator sought to utilize Section 2308 of the Companies Act, 2013 to explore a scheme of compromise or arrangement, akin to a pre-packaged restructuring. This move was endorsed by the NCLT as an opportunity to derive greater value through stakeholder consensus, even at the liquidation stage.
The case is emblematic of the judiciary’s evolving preference for ADR-based insolvency resolutions, particularly in scenarios where formal liquidation would lead to asset destruction and diminished creditor recoveries. Collectively, these developments affirm that PIRP is more than a procedural innovation it is a paradigm shift toward cooperative, resolution-oriented insolvency. It reflects a legal and institutional acknowledgement that insolvency need not always be adversarial, and that negotiated settlements when appropriately regulated can yield timelier, value-maximizing outcomes for all parties involved. Comparative Analysis: Pre-pack Models in Other Jurisdictions – UK and US Focus: The concept of pre-packaged insolvency, although relatively new in India, has a wellestablished legacy in other jurisdictions, most notably the United Kingdom (UK) and the United States (US).
Both countries have developed sophisticated frameworks that balance swift asset resolution with creditor protection, offering insightful comparisons for India’s Pre-pack Insolvency Resolution Process (PIRP). While the Indian model is tailored for MSMEs and built within a statutory structure, the UK and US approaches evolved more organically, often driven by market practice, regulatory guidance, and judicial interpretation. In the United Kingdom, the pre-pack administration is a long-standing and widely utilized restructuring tool. Governed primarily by the Insolvency Act 1986 and Statement of Insolvency Practice (SIP) 16, a pre-pack in the UK involves a company arranging the sale of its business or assets before entering into formal administration. The sale is executed immediately upon or
8 The Companies Act, 2013, § 230, No. 18, Acts of Parliament, 2013 (India).
shortly after the appointment of an administrator, thereby ensuring continuity of operations and minimization of value erosion. A key distinguishing feature of the UK model is its speed and confidentiality, which are often criticized for lack of transparency, particularly when assets are sold back to existing management (a practice called “phoenixing”). To mitigate such concerns, the UK government introduced regulations in 2021 requiring that any sale to a connected party must be reviewed by an independent evaluator. Although the UK system does not formally mandate court approval prior to execution, the administrator is required to justify the transaction under SIP 16 and provide disclosures to creditors post-sale. While less formal than India’s PIRP, the UK model operates on the implicit strength of professional ethics, creditor trust, and post-sale accountability.
In contrast, the United States offers a more structured and judicially supervised version of prepackaged insolvency through the Chapter 11 Pre-packaged Plan of Reorganization under the U. S. Bankruptcy Code. A pre-pack in the US is initiated by a debtor who negotiates and secures approval for a reorganization plan with key creditors before formally filing for bankruptcy. Once consensus is reached, the debtor files for Chapter 11 protection along with the prenegotiated plan, which significantly reduces time spent in court. The US model is heavily reliant on creditor class voting, court oversight, and disclosure norms that ensure all stakeholders are treated fairly. Moreover, since the plan is confirmed by a judge, the process ensures binding outcomes on dissenting creditors offering legal finality akin to the Indian model but with greater pre-filing flexibility.
The ability to negotiate restructuring terms outside the court, with the assurance of judicial sanction upon filing, makes the US pre-pack system both efficient and enforceable. It is particularly effective in large corporate restructurings, such as those of General Motors and Delta Airlines, where the process has been used to reorganize complex corporate debts without disrupting operations. Comparatively, India’s PIRP borrows from both systems but adapts them to its unique commercial environment. Like the US model, it mandates creditor consent (66% CoC approval) and formal plan submission before admission, ensuring transparency and creditor engagement. Like the UK model, it allows for debtor-initiated restructuring with minimal judicial intervention during negotiations. However, unlike the UK, India’s model is statutory in nature and codified, giving it stronger legal enforceability.
Further, the focus on MSMEs and the 90-day resolution period reflect an intent to protect smaller, viable businesses while reducing the burden on the insolvency courts. What makes India’s PIRP distinct is its hybrid nature combining the pre-negotiated consensus of the US, the quick asset transfer mechanism of the UK, and court oversight through the National Company Law Tribunal (NCLT) to balance creditor rights, business continuity, and due process. Nevertheless, there are lessons for India from both jurisdictions. The UK’s emphasis on transparency and post-sale scrutiny, especially in related-party transactions, is relevant given concerns about promoter-driven base resolution plans in Indian PIRPs.
Similarly, the US focus on detailed disclosure, creditor classification, and pre-filing vote solicitation can enhance the robustness of Indian pre-packs, particularly as the scope expands beyond MSMEs in the future. Additionally, the US allows for greater negotiation bandwidth pre-filing without triggering a moratorium, a feature that could help Indian companies address distress informally while still maintaining legal certainty. Challenges in Implementing Pre-pack and ADR Mechanisms in Corporate Insolvency in India: Despite the commendable introduction of the Pre-packaged Insolvency Resolution Process (PIRP) and the growing judicial support for alternative dispute resolution (ADR) methods within the Indian insolvency framework, several practical, legal, and structural challenges continue to impede the effective use of these mechanisms in corporate insolvency resolution.
A primary challenge lies in the limited statutory recognition of ADR within the IBC framework.
While Section 12A enables withdrawal of insolvency proceedings upon mutual settlement, and courts have informally encouraged mediation and negotiation, ADR processes such as mediation, arbitration, and conciliation remain underutilized due to their non-mandatory nature and lack of codified procedures under the IBC. This leads to inconsistency in application and hesitance among stakeholders, who often prefer the predictability of formal insolvency proceedings over the perceived uncertainty of informal settlements. In the context of PIRP, one of the foremost challenges is its restricted applicability to MSMEs. Although designed to rescue smaller enterprises, the current framework excludes large corporate debtors who may equally benefit from a negotiated pre-pack solution.
Additionally, stringent eligibility criteria, such as the requirement of no prior CIRP or liquidation in the last three years, limits access to PIRP even for potentially viable companies. Moreover, the requirement of 66% approval from unrelated financial creditors before filing may pose practical difficulties, especially in cases where there are fragmented creditor bases or disputes regarding claims, which delay or derail the process. Another major concern is the lack of independence and transparency in the formulation of the Base Resolution Plan (BRP). Since the plan is proposed by the debtor-in-possession, there are fears of collusion, undervaluation of assets, or preferential treatment to connected parties. This risk is heightened when there is insufficient creditor engagement during the pre-filing stage.
Although creditors may call for competing plans, they often lack the time and access to detailed financial information, rendering the process less competitive and robust than intended. The absence of regulatory oversight comparable to the UK's SIP 16 standards or the US’s mandatory disclosure regime further exacerbates these concerns. The capacity constraints of the adjudicating authorities, primarily the National Company Law Tribunal (NCLT), also impact the efficacy of pre-pack and ADR processes. Even though PIRP is designed to minimize judicial intervention, tribunal approval is still required at key stages. Delays in hearings, administrative backlogs, and procedural inefficiencies undercut the timebound nature of pre-pack resolutions, negating one of its core advantages.
Similarly, lack of institutionalized mediation centres and trained insolvency mediators further weakens the practical integration of ADR in corporate insolvency cases. From a market behaviour perspective, there remains a cultural bias against informal settlements, particularly in larger insolvency matters, where stakeholders are accustomed to court-directed processes. Creditors, especially public sector banks, tend to prefer judicial supervision for fear of post-facto scrutiny or allegations of bad faith. Institutional reluctance to adopt out-of-court settlements can thus be attributed to a lack of standardized protocols, inadequate capacity-building, and a regulatory environment that does not actively incentivize negotiated outcomes. Finally, information asymmetry and lack of early warning systems make pre-pack and ADR mechanisms less accessible.
Most pre-pack models, including those in the US and UK, are dependent on early detection of distress and timely initiation of negotiations. However, in India, companies often reach insolvency thresholds only after prolonged financial stress and litigation, leaving little scope for proactive pre-packaged solutions. The absence of publicly available restructuring databases or credit risk alerts further reduces the potential for timely intervention.
Recommendations
for Strengthening ADR and Pre-pack Mechanisms in Corporate Insolvency in India: In light of the growing recognition of Alternative Dispute Resolution (ADR) mechanisms and the introduction of the Pre-packaged Insolvency Resolution Process (PIRP) under the Indian insolvency regime, a series of policy, institutional, and legal reforms are necessary to ensure these mechanisms reach their full potential. These reforms should aim to address existing limitations, enhance stakeholder trust, and create a more robust, transparent, and efficient insolvency framework that favors negotiated outcomes and preserves enterprise value. One of the foremost recommendations is to formally integrate ADR methods particularly mediation within the Insolvency and Bankruptcy Code (IBC). Currently, mediation is encouraged through judicial discretion but lacks statutory backing.
The introduction of a dedicated chapter or provisions within the IBC recognizing structured pre-insolvency mediation, either voluntary or mandatory (especially in MSME cases), can help resolve disputes at an early stage, reduce the burden on tribunals, and preserve the economic viability of the debtor. Such mediation could be facilitated through registered insolvency professionals or accredited mediators under a regulatory framework governed by the Insolvency and Bankruptcy Board of India (IBBI). To support this recommendation, the establishment of dedicated insolvency mediation centres or panels, particularly attached to National Company Law Tribunals (NCLTs), is essential. These centers should comprise professionals trained in both insolvency law and ADR techniques, ensuring neutral and informed facilitation of negotiations.
Additionally, a standard operating protocol (SOP) should be developed to guide the mediation process, including confidentiality safeguards, timetables, reporting duties, and enforceability of mediated settlements. In the context of PIRP, a critical recommendation is to expand its applicability beyond MSMEs, enabling larger but viable corporate debtors to access the benefits of a pre-packaged resolution. A phased approach can be adopted, wherein pre-packs are gradually extended to companies in select sectors or with clearly defined financial thresholds. To mitigate potential misuse, such expansion should be accompanied by stricter oversight and disclosure norms, similar to the UK’s Statement of Insolvency Practice (SIP) 16, which mandates detailed justifications for pre-pack sales and particularly scrutinizes transactions with connected parties.
Further, there is a need to reform the mechanism for approving and evaluating Base Resolution Plans (BRPs) under PIRP. Currently, the plan is prepared by the debtor and may reflect inherent biases. To promote fairness and transparency, an independent resolution evaluator or thirdparty valuation expert should be appointed to scrutinize the BRP before it is presented to the Committee of Creditors (CoC). Additionally, creditors should be granted greater time and access to financial records to formulate and submit competing resolution plans. This would encourage a more competitive and market-driven resolution process. From a procedural standpoint, streamlining NCLT workflows and introducing fast-track benches for PIRP cases will help maintain the time-bound nature of pre-pack insolvency. Delays in adjudication erode the advantages of negotiated resolutions.
Therefore, judicial capacity-building and digitalization of case management systems must be prioritized. Moreover, regulatory clarity on the moratorium’s scope during pre-pack proceedings is required to eliminate ambiguities and ensure consistent application across tribunals. In parallel, the IBBI should work to build a repository of best practices, anonymized case studies, and performance metrics related to PIRP and ADR outcomes. This will serve as a valuable resource for professionals, policymakers, and creditors. Public awareness campaigns and creditor education, especially targeted at MSME lenders, will also help overcome the deepseated skepticism towards out-of-court restructurings and promote informed participation in ADR forums. Finally, an overarching reform would involve harmonizing India’s insolvency laws with global best practices.
Drawing inspiration from the US’s Chapter 11 pre-pack models and UK’s postsale accountability framework, India can develop a composite structure that balances pre-filing negotiation autonomy with post-filing judicial scrutiny. This hybrid approach already embedded in the Indian PIRP to some extent should be refined to ensure that informal negotiations translate seamlessly into legally binding and efficient formal resolutions. Conclusion: The integration of Alternative Dispute Resolution mechanisms within India’s corporate insolvency framework represents a vital step toward a more flexible, collaborative, and economically efficient resolution process.
While the Insolvency and Bankruptcy Code, 2016 (IBC) has significantly strengthened creditor rights and streamlined debt recovery, the evolving jurisprudence—particularly under Section 12A and in the development of the Pre-packaged Insolvency Resolution Process (PIRP) shows a growing appreciation for negotiated outcomes. Judicial pronouncements encouraging mediation, the gradual adoption of pre-pack mechanisms, and the flexibility offered in MSME contexts all highlight a shift from a purely adjudicatory approach to one that values consensus-building and preservation of enterprise value. However, to truly institutionalize ADR and pre-pack resolutions as credible alternatives within the insolvency ecosystem, further legal, procedural, and cultural reforms are essential.
Statutory recognition of mediation, expansion of PIRP to a wider class of debtors, and the creation of regulatory frameworks for transparency and accountability will be key to ensuring success. By learning from established global models and adapting them to India's unique commercial realities, the insolvency regime can be transformed into one that not only expedites resolution but also fosters long-term stakeholder trust and economic revival.