News By/Courtesy: POOJA KATEEL | 10 Apr 2020 0:39am IST


  • The existent problem of insolvency in India
  • Drawbacks of Formal legal proceedings for insolvency
  • Advantages and need for mediation in insolvency

When there is a legal problem, the first resort that people look for is to file a suit in the court of law. Insolvency is no different from this. When a company or any corporation is filing for bankruptcy, the only option that the creditors choose is to go through the insolvency and Bankruptcy Code (IBC) of 2016. This involves a formal process of appointment of an Insolvency Professional and other formalities. Little do people realize that the formal process is always more expensive and time-consuming. There is still an option of out of court settlement which is way easier to achieve.

The RBI states that the recovery through IBC is forty-two percent as against ten percent in the earlier methods to recover debts. But the ideal situation is not always reached. According to the statute, the entire process of corporate insolvency should not take more than a period of two hundred and 270 days in total, but it is seen that this time period is always exceeded due to practical difficulties. The adjudicating body for the cases under this statute is the National Company Law Tribunal, which is already overburdened with cases. Therefore there is a delay in the insolvency resolution process. The professionals who are appointed under the stature have to be paid more as the process of resolution extends, and therefore the entire process becomes an expensive affair.

Alternate dispute resolution has always been an option in a country like India, where the population is enormous and wealth is not equally distributed. It is an informal process that comes to an end in a few sittings and is very less compared to the formal process in the courts of law. In many areas of law, such a family law and property law, mediation is the most chosen form of Alternative Dispute Resolution Mechanism. This process will be initiated voluntarily and has more benefits as against the formal court procedure. There are many countries across the world, out of which the Netherlands was one of the first countries to adopt mediation in insolvency. Though it has its benefits, it has been a less chosen option always. In contrast to this, in the USA, mediation has proven to be in frequent use. In fact, court-ordered mediation in the USA has been very successful in some of the most significant bankruptcy cases, such as Enron, Lehman Brothers, etc. India should also try and adapt mediation for the purposes of the Corporate Resolution process. The IBS is a newly developed statute and has many flaws in it, one of them being no provision for mediation within the law. Since the statute does not make provision for mediation, the creditors are forced to choose the only option which is served to them. Amendments must be made to the statute in order to inculcate the healthy, inexpensive, and fast practice of mediation in insolvency as this has already proven to be successful in other parts of the world and also helps in reducing the burden on the courts.

Section Editor: Pushpit Singh | 10 Apr 2020 5:58am IST

Tags : #encourageadr #reducecourtburden

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