The proposal of the Insolvency and Bankruptcy Board of India (IBBI) to add an alternative of mediation for operational creditors (OCs) under the Insolvency and Bankruptcy Code (IBC), should be looked into “seriously”, as it will trim the load of NCLTs, said Anita Shah Akella, joint secretary, ministry of corporate affairs.
Since nearly 70% of withdrawals in the phase of pre-admission (of corporate insolvency resolution) are mostly by the OCs, therefore the (voluntary mediation) proposal ought to be looked at seriously, Akella said at the IIIPI’s 8th Foundation Day event.
She added that OCs are using IBC as a recovery mechanism. Once the voluntary mediation process has been introduced the matters of OC will lessen greatly which shall stop choking the NCLTs (National Company Law Tribunals).
This month within the discussion, the paper floated, the IBBI cited that the OCs shall practice the choice of mediation before filing the insolvency applications u/s 9 of the IBC. It is the exact provision that permits the OCs to start the CIRP against a corporate debtor (CD) for the non-payment of dues.
If the mediation losses to settle then the mediator would be questioned to make a non-settlement report which would be annexed with the application for the start of CIRP to the Adjudicating Authority (AA). As offered the mediation would take place under the procedure specified under the Mediation Act, 2023.
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The paper emphasized that in the majority of the OC-initiated insolvency matters the OCs are interested in the repayment of money claims instead of the admission or resolution of the CD.
Hence a bigger number of these matters are settled to the admission. According to the official data, as many as 21,466 cases u/s 9 were disposed of before admission, and solely 3,818 cases were admitted up to June 30.
As per IBC once an application for the initiation of CIRP is filed in the NCLT then the latter is obligated to admit the application for initiating the proceedings within 14 days. In real the consumed time for admission is much more, it is because of the lower strength of benches which delays the operations.
An expert committee of IBBI earlier this year suggested a voluntary mediation process for OCs and the offered provisions are based on the committee’s recommendations.
It was recommended by the committee that at the phase of admission, should mediation be started or continued in the cited duration i.e. 14 days, the automatic termination of mediation mandate shall be the admission date under the code or 30 days whichever is earlier.
