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Role Of Mediation In Insolvency Process

The Insolvency and Bankruptcy Code, 2016 (IBC) has transformed the insolvency process in India by providing a time-bound and creditor-driven resolution process. In this process, mediation plays a significant role in resolving disputes between the debtor and the creditor. Mediation is a voluntary process where an impartial third party facilitates the negotiation process between the parties in dispute to arrive at a mutually acceptable solution. The role of mediation in the insolvency process is vital for achieving effective and efficient resolution of disputes.

Although the code has performed well over the past four years, there is still room for improvement in the results. The time it takes to complete a CIRP has been a matter of debate. By law, the entire process of corporate insolvency resolution should not exceed 180 days (with 90 day extension allowed and an additional 60 days) for a total of 330 days, but can see that his has been exceeded in many cases due to practical issues. But on average, the time to complete the IBC process hovered around 375 days (settlement case) and 309 days (clearing case) in March 2020. These times can still be shortened.

Mediation is an alternative dispute resolution (ADR) mechanism that can help resolve disputes between the debtor and the creditor before they escalate to a full-blown legal battle. Mediation is a collaborative process, and the mediator facilitates communication between the parties, identifies issues, and assists in developing options for resolution. The mediator does not impose a solution but helps the parties reach a mutually agreeable settlement.

One of the primary benefits of mediation in the insolvency process is that it can help to preserve relationships between the debtor and the creditor. In many cases, the debtor and the creditor may have a long-term business relationship that could be negatively impacted by a protracted legal battle. Mediation can help to facilitate communication between the parties and enable them to work collaboratively to find a solution that is acceptable to all parties involved.

Another benefit of mediation is that it can help to reduce the cost of litigation. Legal disputes can be expensive, and the insolvency process is no exception. Mediation can provide a cost-effective alternative to litigation by allowing the parties to work with a neutral third-party mediator to resolve their disputes in a timely and cost-effective manner.

In the context of insolvency, mediation can help resolve disputes arising out of claims, valuation of assets, and distribution of proceeds. The insolvency resolution process involves various stakeholders, including the financial creditors, operational creditors, and the debtor. Mediation can help these stakeholders arrive at a mutually agreeable solution, which can facilitate a faster resolution of the insolvency process.

The IBC recognizes the importance of mediation in the insolvency process and provides for the appointment of a mediator if the parties agree to mediate the dispute. Section 74 of the IBC provides for the appointment of a mediator by the Adjudicating Authority to facilitate the resolution of disputes between the parties. The mediator can be appointed at any stage of the insolvency process, and the process of mediation can continue even after the commencement of the insolvency proceedings.

The mediation process is governed by the rules prescribed under the IBC and the Insolvency and Bankruptcy Board of India (Mediation Process and Mediators) Regulations, 2019. The rules prescribe the qualifications and eligibility criteria for mediators and the procedure for appointment of a mediator. The rules also provide for the conduct of the mediation process, including the confidentiality of the process and the role of the mediator.

If the parties reach a settlement through mediation, the terms of the settlement must be filed with the Adjudicating Authority for approval. The settlement agreement is binding on all parties to the mediation process, and the Adjudicating Authority may pass an order in accordance with the terms of the settlement agreement.

If the parties are unable to reach a settlement through mediation, the Adjudicating Authority may proceed with the insolvency process, and the mediation process does not affect the rights of the parties to litigate their dispute in court.

In conclusion, mediation plays a crucial role in the insolvency process in India. The IBC recognizes the importance of mediation and provides for the appointment of a mediator to facilitate the resolution of disputes between the parties. Mediation is an alternative dispute resolution mechanism that can help save time and costs associated with a legal battle.

It can also help preserve the relationship between the parties, which may be important in cases where the parties have a long-term business relationship. The role of mediation in the insolvency process is vital for achieving effective and efficient resolution of disputes.

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