Enhancing The Resolution Framework Of The IBC Through Mediation - A Comprehensive Analysis

Author: LawSphereX

Category: Corporate & Insolvency

Published: 2026-08-23T19:40:00.069Z

Updated: 2026-08-30T07:05:18.772Z

ENHANCING THE RESOLUTION FRAMEWORK OF THE

IBC THROUGH MEDIATION: A COMPREHENSIVE

ANALYSIS

Sruthi Chandramohan, National Law University, Delhi

ABSTRACT

Mediation being one of the alternate dispute resolution methods, in its nascent stages in India has created contours of discussion to be included amongst other national legislations. The report released by the Insolvency and Bankruptcy Board in January 2024 has proposed nuances of how Mediation is viable to resolve insolvency disputes. The framework involves the legislative process of Corporate Insolvency Resolution Proceedings (hereinafter ‘CIRP’) along with the efficiency of involving mediation as an alternate to the arduous process of litigation. Pursuant to this, in order to bridge the proposed interplay, an isolated study of the Mediation Act, 2023(hereinafter ‘the act’) and the Insolvency and Bankruptcy Code, 2016 (hereinafter ‘the code’) are to be carried out.

This paper discusses the report on the basis of its extent of applicability of mediation to insolvency and other national legislations and attempts to evaluate the process of ascertaining the applicability of mediation to insolvency disputes. Further, the paper delves into Mediation’s scope in other jurisdictions as a practice for insolvency disputes and determine facets and characteristics suitable to be incorporated in India’s dispute resolution landscape.

INTRODUCTION

As means to a healthier system for investments and asset management, the IBC in India achieved its feat through transformative processes that engaged in holding accountability at right stages to improve the credit culture. While its commendable what the code has brought for India, it has significant gradation in terms of justice delivery system. 1 The code offers stipulated time for the resolution process making it time sensitive meanwhile, mediation runs parallel to litigation with features that can help resolve disputes with efficiency and precision whilst focusing on party autonomy as well. Mediation as a concept is focused on facilitation and not adjudicatory thereby, moving towards a win-win outcome.

At the advent of Mediation as a dispute resolution mechanism, the act’s purport was to approach disputes amicably to preserve business relationships while also reaching to a level of concession. While litigation is a costly affair as compared to Mediation, there needs to be a cultural shift to adopt mediation more consistently. This approach, in an effort to streamline the idea of mediation, has created momentum for its adoption in specific legislation that are considered otherwise onerous to settle. Thus, the Insolvency and Bankruptcy Board of India is keen on introducing specialized insolvency mediation framework. A. Mediation landscape and Historical Context Mediation as a concept was recognized through the Industrial Disputes Act, 1947. The act contained the conciliatory procedures followed by the officers appointed as conciliators.

Section 4 of the Act mentions the word ‘mediating’ (mediation) to resolve industrial disputes. The crystallisation of ADR took place in 1996 through Arbitration and Conciliation Act, 1996 which was an adaptation of the UNCITRAL model rules. A step to further garner support, mediation was introduced through the 1999 insertion of section 89 in the CPC2 which made civil courts mandatory to provide alternative methods to dissolve disputes. In lieu of this, the

2023 act3 gave fresh impetus for mediation as a shift from courts, leading to mediation evolving

into a viable option. The 2023 Acts’ legislative intent is to promote institutional mediation for commercial disputes and address collective developments. The initiative by the legislature was to circumvent the 1 Insolvency and Bankruptcy Board of India, Framework for the use of Mediation under the Insolvency and Bankruptcy code Report of the Expert Committee January 2024 .

2 Code of Civil Procedure, 1908, S.89.

3 Mediation Act, 2023.

conventional court processes by availing the parties an emerging option. Section 12A of the Commercial Courts Act4 strengthened mediation by implying that the parties are to exhaust the pre-litigation mediation as per the procedure and rules laid down by the central government. Precisely, most restructuring processes are involved with the public institutions, making it a cause of friction for introducing mediation for insolvency disputes. Thereby, crossing the in personam threshold. i. Mediation process for Insolvency Mediation is a party driven process and the role of a mediator is to help the parties arrive at a deliberated evaluation by providing merely a facilitative role rather than adjudicatory. Evaluative mediation is usually sector specific that entails mediators catering to the niche of the subject-matter.

Likewise, Insolvency-mediation requires the mediator to effectively delineate the merits and demerits of the case by providing a legal position. The USA has been spearheading mediation through local rules and laws that enabled ADR in all civil suits including bankruptcy. The European Union (EU) focused on creating strides based on modern approaches to addressing laws or settlements. They transitioned from liquidation to restructuring procedures to level the playing field between the stakeholders. 5 The (EU) states have also adopted a model where the debtor and creditor amicably work out a restructuring plan which is then given to the court for approval. On the fair corner of the world, the code dimensionally differs, making it creditors centric.

Thereby, incorporating mediation has to cater to the fundamental nature of the code and one of them being the timelines stipulated for the resolution process. The IBC recognises settlements as per the code through Section 12A, which allows for withdrawal of an application for CIRP post the admission6 and in parlance, Rule 8 of the Application to Adjudicating Authority Rules, 20167 have been used to by the NCLT to settle disputes prior to the amendment of section 12A. The inception of 12A or rule

8 is important for the discussion of mediation as it reflects on the growth of mediation

practices and how courts have reconciled with ADR.8 The Supreme Court reinstated the

4 Commercial Courts Act 2015, S.12A.

5 The Role of Mediation in the New EU Approach to Insolvency, available at

last accessed 08 April, 2023.

6 The Insolvency and Bankruptcy Code, 2016, s.12A.

7 Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, Rule 8.

8 Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. & Anr. (2021) 7 SCC 474.

position of section 12A under the purview that the provision is at the inception of the resolution process and by virtue of the provision, it is amenable to settlements. II. IMPLEMENTATION OF MEDIATION IN INSOLVENCY – KEY AREAS A. Status-Quo of Insolvency Mediation in India Presently, in other jurisdictions, mediation is increasingly being utilized both before and after the initiation of CIRP, specifically in cross-border insolvency disputes. This growth has been valuable in addressing conflicts arising from differing domestic laws. The 2023 Act, however, does not mention mediation in the resolution of insolvency disputes, instead, adopts a presumably broad a “one-size-fits-all” approach, which the committee9 had concluded to be insufficient for mediation. Moreover, the timelines established by various statutes differ fundamentally.

The Supreme Court’s ruling in Swiss Ribbons had emphasised on the importance of resolving insolvency matters promptly. 10 The case further highlighted that the resolution process is tailored to protect the interests of the corporate debtor while at the same time balancing the interests of multiple stakeholders- something the 2023 Act fails to fully address. The Code’s framework necessitates a thorough evaluation of stressed assets, weighing in the interests of various stakeholders, including employees, creditors, and government bodies. The process of a pre-institutional mediation is not involved in the application to institute an insolvency proceeding, and is outside the ambit of the code. The remedies under the code only account for statutory defaults, thus, the enforcements of pre institutional mediation cannot be considered a procedure through the code.

In terms of stakeholders’ interest, in rem and in personam rights are important to determine whether mediation is possible or not. The Act excludes ‘in rem rights or third-party rights from the first schedule of the Act. 11 The object of the act is to maintain the outcomes of a creditors who are significantly employed in the public sector inherently making it in rem rights. There’s an institutional issue when it comes to addressing nuances on in rem and personam rights. As stated earlier, the “one-sizefits all” approach pursued in the Act as a blanket application, does not expand in terms of its scope.

9 Committee- Mediation framework committee

10 Swiss Ribbons v. Union of India, 2019 4 SCC 17.

11 Booz Allen & Hamilton Inc v. Sbi Home Finance Ltd. & Ors,(2011) 5 SCC 532 ; Vidya Drolia & Ors v. Durga Trading Corporation, (2019) 20 SCC 406.

The power of the NCLT in referring mediation to insolvency matters is operationally different from other commercial disputes. The tribunals have to be cognizant of the timelines stipulated in the code while making a reference to mediation. The courts and the tribunals have also taken steps to set aside CIRP and include the mediated resolution agreement to its order.12 Mediation has been fruitful in addressing debtor-creditor disputes as well.13 Notably, in the case of ZKN Traders Pvt Ltd v. Kishore Shankar Signapurkar Ltd, the Supreme Court differed from the NCLAT order that set aside the order of NCLT admitting a case under section 9 of the code.14 The matter referred to mediation failed due to the Corporate Debtor’s claims involved in the case, rendering insolvency matters an uphill battle. Certain aspects of the Code have been excluded to bring more clarity; the First Schedule, Entry

2 and 5 discuss in rem rights and third-party rights as excluded from mediation. The Code is a

specialised legislation with strict timelines. On the flip side, the Act is more flexible, making it suitable for mediation across legislations. B. The Scope of the 2023 Act vis-a-vis the Code Mediation provisions come in two models; Voluntary reference and Mandatory mediation. Section 89 of CPC was inserted through an amendment which was intended to blend judicial and non-judicial dispute mechanisms to reduce the concomitant issues that come with the longdrawn litigation process. Section 5 of the Act gives the option of voluntary mediation through mediation agreements which can be instituted before filing any suit of civil or commercial nature. 15 This is supplemented by Section 12A of the Commercial Courts Act which aids in specific commercial matters that needs to be notified by the Central Government or a State Government.

When considering whether mediation provisions are included in other legislations, section 55 enables the provision to give a pre-emptive effect on mediation present in other laws. 16 Thereby, giving more leeway to the Act. Section 442 of the Companies Act, 201317 provides for the conduct of mediation and NCLT’s 12 VK Parvinder Singh v. Intec Capital Ltd & Anr, [2019] Company Appeal (AT) (Insolvency) No. 968 of 2019.

13 Sunil Kumar Dahiya v. Union of India & Ors, 2019 SCC OnLine Del 11300.

14 Znk Traders Pvt Ltd v. Kishore Shankar Signapurkar Ltd, 2021 SCC OnLine SC 3160.

15 Mediation Act 2023, S.5;

16 Mediation Act 2023, S.55(1); section 55 of the Act is an overriding provision of the law. It enumerates that the Act, in terms of the conduct of mediation, is given paramountcy over mediation provisions present in other legislations.

17 The Companies Act 2013, s. 442.

jurisdiction but this does not naturally by virtue of NCLT being the same adjudicating body, give them the power to refer parties to mediation under the code. It has been held that the power of NCLT is limited and cannot be used to overlap with the code. 18 C. Systemic integration of Mediation with the Code The code constitutes a specialized legislation aimed at reviving stressed assets through a timebound resolution processes. 19 In order to have a smooth interplay of insolvency and mediation, and to benefit the advantages of mediation in the code, the committee’s suggestion is to bring mediation to the code as a statutory dispute resolution mechanism that is cost-efficient, fast and is cognizant of the timelines of the code.

The voluntary option of mediation is well-suited for the proposed regime as it operates on the volition and autonomy of the parties, often resulting in favourable outcomes. On integrating with the procedures outlined in the Code, data indicates that mediation is particularly beneficial in cases where Operational Creditors (OCs) initiate a CIRP under Section 9 of the Code, when the application exclusively focuses on the recovery of operational debt. 20 Essar Steel case that serves of an example of how the Code reveals the reality of delays in the resolution process, which often articulates the disjunct between law and practice.

21 The focal point under the code is to gauge the cases that are fit for mediation; factors such as the nature of the conflict, the stages involved, the relationship between the parties and the complexity of the procedural issue inherently become a deciding factor. Litigation in the course of the CIRP before tribunals have been cited as one of the main reasons for delays under the Code. A report from the Bankruptcy Law Reform Committee indicates that as of 2020, 4008 cases were admitted under the Code, of which only 277 had approved resolution plans. Consequently, to balance the time spent on the CIRP, the Amendment Act of 2019 inserted provision, Section 12(3) extending the overall limit for the CIRP to 330 days. 22 D. Reference to CIRP for Mediation The CIRP stage on the whole, in a restructuring process has found to be the best suited for mediation.

The data reveals that the delays frequently arise during the admission stage. For 18 White Stock Limited v. Prajay Holdings Private Limited, Company Appeal (AT)(CH) (Ins) No. 271 of 2022 (NCLAT)

19 Arcelor Mittal v. Satish Kumar Gupta, (2019) 2 SCC 1.

20 Mediation Act 2023, S.9.

21 Essar Steel v. S. K. Gupta and Ors., (2020) 8 SCC 531; Mandatory nature of 330 days limit was removed by the Supreme Court.

22 BLRC interim report (10th February, 2015)

operational creditors seeking to resolve disputes with debtor, the pre-commencement or admission stage presents itself as an optimal method to utilize mediation. 23 For this reason, a concoction of the right mechanism to go about embarks at the pre-insolvency stage, resulting in the option of bypassing formal insolvency process. In addition, the NCLT disposal data on CIRP between the years 2017-2022 evidenced more than 23,500 applications for the initiation of the proceedings with default of around Rs. 7. 21 Crores which were resolved after filling the application but before the admission. The settlement rate during the CIRP stage has proven to be more effective resulting in around 68% of disputes being resolved out of the total cases heard.

24 The overhaul purpose of the CIRP has drifted toward ensuring the quality of the outcomes and maintaining stakeholder relationships from turning sour, which is generally the norm. An article penned by Justice A. K. Sikri, signifies the innovative potential of insolvency resolution plan that is to be achieved through mediation as opposed to the standard practice. 25 Speedy and timely resolution of the CIRP has been one of the tumultuous efforts of the Code and this segues into the case of Essar Steel which is crucial to understand at this juncture. Essar highlights the delays under the Code, lasting 800 days of challenge from the FC (financial creditors); the litigation arose between the FC and the OC which couldn’t be driven through a lean process and subsequently affected the CIRP’s overall operation, resulting in conflict between the stakeholders.

Section 8 of the Code is a requirement of pre-institution of the proceedings to notify the CD by the Creditor of the default. Further, on discussions as to why pre-institution stage is the right time to move for mediation, the reasoning rests with the fact that the pre-institution stage is not contained within the Code but is a sub-set, and that the resolution of creditors and debtors at this stage, has the potential to amicably resolve the default claims. The phased introduction of mediation is to be implemented in stages that are practical. It must be stressed that the structure of the insolvency-mediation regime was based out on key factors that the committee had discussed, which are; (1) Independent and specialized Infrastructure, (2) Mediation withing the existing timelines of the code, (3) Updating Panel of Skilled Mediators and (4) Cost efficiency. 26

23 Supra note 22.

24 IBBI FY 23-24 Q2 Report, 25 Justice A.K. Sikri and Anuroop Omkar, ‘Mediation in Corporate Insolvency: A Game Changer’BusinessWorld (14 June 2019), available at: http://www.businessworld.in/article/Mediation-In-Corporate-Insolvency-A-Game- Changer/14-06-2019-171872/

26 Supra note 1.

E. Bolstering Mediation for Insolvency disputes: The Process and Approach

While the mediation structure has been laid down by weighing in on the advantages and understanding the complexity of the legislation that is being dealt with. In a similar vein, The Code is an intricately woven legislation with details that need to be adhered to while approaching a tailormade mediation system contained within the Code. Having discussed the implementation of mediation being on the positive side for the Code, here are certain positions of mediations that need to be analysed before engaging in the discourse of its implementation. The case of Salem Bar Association led to the crystallisation of mediation through section 89 of CPC by formulating rules for a better system 27 One of the structural impediments that was witnessed in the implementation was the lack of expertise and training systems at place.

Thus, as a result, strides were made to introduce mandatory mediation in legislations, such as, the Consumer Protection Act, 2019 and the Commercial Courts Act, 2015. However, in the long haul, mandatory mediation is not per se feasible due to the lack of infrastructure present in the contemporary mediation discourse. This harks back to our previous reasoning on how mediation is to be used only for selective disputes, and by introducing mandatory mediation, it can reflect as being coerced into the process, which may not yield the best results. 28 It is imperative to engage methodologically and take into account that ADR/ mediation is a nuanced test of soft skills unlike the conventional adversarial system.

There have been multiple instances where the financial creditor and the Debtor have reached a settlement in the later stages of the CIRP, making it reasonable only if the initiative is from both ends of the spectrum. Further along the road, in a bid to achieve successful mediation for insolvency disputes, it begins with implementation of appropriately skilled experts who are well versed with the subject matter, and where the experts correspond to the CIRP timelines amid balancing the interests of the creditors and the debtor.

III. LEGAL FRAMEWORK, ISSUES AND

ANALYSIS

A. The Operation of the Proposed Framework: A Critical outlook The previous segments have covered how and why mediation is a viable tool to introduce in the insolvency regime. Positing that, for any new legal mechanism to gain traction, credibility and reliability must to be clearly elicited. This is canvassed in the context of both court-ordered

27 Salem Bar Association v. Union of India, AIR 2005 SC 3353

28 Cohen, Lester. 1991. “Mandatory mediation

A rose by any other name. ” Mediation Quarterly 9, no. 1 (Fall): 33-46 mediations and voluntary mediations facilitated through agreements, and in principle, applies to the Code as well. To complete its fruition, the committee members have recommended that the Central Government prescribe rules that monitor the conduct of mediation under the Code with appropriate checks and balances. Additionally, the provision is to accommodate core tenets of the framework and its procedural requirements. The rules will be based on the Companies (Mediation and Conciliation) Rules, 2016, ensuring both the manner for reference to mediation and the qualifications of the mediators. In line with these suggestions, the US bankruptcy courts have tremendous institutional support for the growth of Mediation29.

Bearing in mind, there is a clear need for institutional development to promote mediation and meet the demands of the proposed framework. B. Cross border mediation for Insolvency matters The Involvement of UNCITRAL Model Law on International Commercial Mediation has bolstered the position of mediation amongst nations with a strong base for ADR. 30 Besides, the approach to cross border mediation was through the recognition of the Singapore Convention on Mediation which provides an institutional framework for expedited mediation. The Singapore Convention operates on the existence of a mediation settlement arising out of commercial disputes in matters concerning international parties. Contrary to the proposed framework, the Convention does not apply to settlement agreements approved by a domestic court.

Globally, the insolvency-mediation success paradigm had its inception through the Lehman Brother Holdings case with around 250 counterparties, out of which 77 proceedings reached the mediation stage and 73 were settled through mediation, and only 4 terminated without a settlement. 31A strikingly similar triumph arose in the case of B. MF Global Holdings Ltd32 where Global Holdings and its affiliates filed for bankruptcy protection in New York and its UK affiliates were administered in Wales. When the both parties (Affiliates of USA and UK) claimed against the other, the sitting bankruptcy judge encouraged the parties to move for mediation between the UK and the US holdings. The outcome of the mediation was desirable 29 Schnitzer E. (2019) “Bankruptcy Mediation”, Norton Journal of Bankruptcy Law and Practice, Vol. 28

30 UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements

Resulting from Mediation, 2018, available at

31 Lehman Brother Holdings, 415 B.R. 77 (N.D.N.Y. 2009)

32 B.MF Global Holdings Inc., 615 B.R. 415 (Bankr. S.D.N.Y. 2020)

for a global settlement benefitting the creditors. However, it becomes a setback when parties are not willing to compromise or concede especially in distribution of assets, in an attempt to balance the scales of equity. 33 C. Positions in other jurisdictions USA The origin of mediation culture in the US began in the 1960s to resolve family disputes. Eventually, it opened its door to insolvency dispute through the Alternate Dispute Resolution Act of 1998. 34 The strengthening of insolvency-mediation took place after the Bankruptcy court of Southern District of California launched the mediation programme in the year 1986. 35 It took its recourse when Greyhound Lines Inc. went bankrupt and set a pre-organisation Mediation for around 1000 claimants involved in this case.

36The Greyhound Lines case separated three stages to tackle the dispute through Mediation, (1) the creditor had to complete a claim form for lost wages, medical bills and other associated damages, (2) The parties are to negotiate the damages, (3) arbitration as a final resort in case the parties failed to reach an agreement. This case, perhaps marks monumental, as it convincingly purports a win-win strategy. Pursuant to this, the ADR Act in 1998 pushed for a cohesive legislation for mediation by urging parties to attempt to settle through mediation. The European Union The European Union gave importance to modernising the rules of bankruptcy law by providing resources for restructuring process instead of liquidation. The European Commission’s 2016 report acknowledged the potential of mediation in insolvency with the aim to reconcile strained relationships of creditors and debtors.

37 Unlike the USA, the European Union found its genesis for mediation from Case laws. The French Insolvency Law provides two special procedures; ad hoc mandate and conciliation and Germany persuasive’s law aids for the creditor and the debtor to conclude an insolvency plan through negotiation.

33 In re Nortel Networks Inc., Case No. 09-10138-KG, C. A. No. 10-230-JJF-MPT (D. Del. Aug. 5, 2010)

34 Section 654 of The Alternative Dispute Resolution Act of 1998; the provision required the district courts provide at least one alternative dispute resolution process in all civil actions which included mediation as well.

35 Supra note 30.

36 Greyhound Lines, Inc. v. Rogers (In re Eagle Bus Mfg. , Inc. ), 62 F. 3d 730, 733, 734 n. 6 (5th Cir. 1995). 37 Report From the Commission to the European Parliament, the Council and the European Economic and Social Committee on the application of Directive 2008/52/EC of the European Parliament and of the Council on certain aspects of mediation in civil and commercial matters, available at: Italy The Italian insolvency frameworks along with enforcement procedures for out-of-court settlements made an impact on the development of insolvency-mediation framework. The erstwhile Bankruptcy Act was replaced with the Code of Business Crisis and Insolvency. The objective was to introduce mechanisms that can deter financial crisis in its earlier stages and to restore the company’s profitability. The Italian Bankruptcy law provides for three restructuring arrangements.

The Recovery plan ‘piano di risanamentoattestato’ is an informal procedure that can be initiated by a debtor which does not require any approval and is private and confidential. The Debt Restructuring Agreement ‘accordo di ristrutturazionedeidebiti’ (Art. 182-bis, IBL) is a semi formal proceeding that involves parties to the negotiating agreement and the court as a supervisory role. The procedure gives freedom to the parties to decide the terms of the agreements. However, under Article 182 of the IBL, debtors are to comply certain formalities with respect to the agreement which is then later to be approved by the court. Preventive Arrangement with Creditors ‘concordatopreventivo’ (Art. 160, IBL) is an agreement which allows the debtor to seek an arrangement with creditors for restructuring plan authorised by a professional.

The process operates on the approval of board of creditors and remains a judicial procedure. D. Leaving much to be desired: Issues and Shortcomings of the framework Insolvency is a field that encompasses both rem and personam principles, often drawing fine distinctions between the two. When a privately mediated agreement is approved by the court, it can have significant implications, especially given the collective nature of insolvency resolution. The committee identifies two scenarios where conflicts might arise, potentially affecting third parties. The first scenario occurs when a settlement is reached before the commencement of the Corporate Insolvency Resolution Process (CIRP), and the second after its commencement.

In the first scenario, the dispute remains limited to the corporate debtor and the creditor, meaning that the confidentiality of the agreement does not impact third parties. However, in the second scenario, involving multiple parties to an insolvency proceeding, there is a greater potential for increased litigation during the conflict, thereby, resulting in the right in Rem. IV.

CONCLUSION

With the intertwining of two disciplinaries of law for a smoother outcome of desirable results, the operation of the said laws needs to be seamless, transparent and accountable. The proposed framework by the Insolvency and Bankruptcy Board of India is a great milestone to understand and incorporate unconventional and non-adversarial dispute resolution mechanism to complex legislations. Arguendo, mediation is a newer concept and still needs an institutional foundation to penetrate the existing system and insolvency matters are complex with a strict timeline. It is no doubt that the trend from the orthodox practice of liquidation has moved to restructuring and in the same fashion, the framework aims to navigate the shift by introducing a selfcontained mediation within the code.

Although, this has been a hinderance, the committee has suggested that the “one-size-fits-all” approach needs to be scrapped and an exclusive framework needs to be built. Having said this, the UNCITRAL Model rules has brought the existing disjunct closer by giving mediation an institutional framework along with guiding conventions that has been favourable for cross-border insolvency-mediation. To foster the growth of mediation in India, institutional set up becomes a vital factor with an addendum of inculcating practices of mediation before moving ahead with litigation. We need systems at place that make dispute resolution simple and affordable; insolvency matters need to be dealt with care while also restoring relationship of the parties, thereby making mediation a rewarding option.