More Stories

Informist, Tuesday, Nov. 5, 2024

 

NEW DELHI – A discussion paper by the Insolvency and Bankruptcy Board of India has suggested that operational creditors should exercise the option of mediation before filing insolvency applications under Section 9 of the Insolvency and Bankruptcy Code, 2016. The paper said the proposal is aimed to reduce the burden on the national company law tribunals and thereby expedite admissions of insolvency applications.

 

The operational creditor can undergo mediation with the aid of mediators, as provided under the Mediation Act, 2023, the paper said. In case of failure of mediation settlement, the mediator will prepare a non-settlement report which shall be annexed with the application for initiation of the insolvency process before the national company law tribunals, the paper added. The insolvency board has invited comments on its proposal by Nov. 24. 

 

Earlier, an expert committee was constituted by the Insolvency and Bankruptcy Board of India on the 'Framework for Use of Mediation under the Insolvency and Bankruptcy Code, 2016'. The committee, submitting its report in January, had recommended introducing mediation as a complementary mechanism for resolution of disputes under the Insolvency and Bankruptcy Code, 2016.

 

In its report, the committee also suggested a pre-institutional mediation as a preliminary step before the filing of insolvency applications. This suggestion was further complemented by The Indian Institute of Insolvency Professionals of The Institute of Chartered Accountants of India in their report "Key Recommendations for the Amendments in Insolvency and Bankruptcy Code, 2016" submitted to the board on Sept. 21.

 

The discussion paper said there were several recurring issues in insolvency applications under Section 9, particularly disputes between operational creditors and corporate debtors. The paper highlighted some common issues such as disagreements on goods and services regarding their quality or performance. There were contractual disputes between parties with allegations of non-compliance with contractual terms, the paper said. 

 

Further, the issues involved discrepancies over the exact amount owed or alleged underpayment by the parties and the claims of the corporate debtor against the operational creditor for set-offs or damages. These issues are time-consuming and eventually unnecessarily burden the limited judicial capacity, the paper said. In most of the operational creditor initiated insolvency cases, they are more interested in repayment of money claims rather than admission or resolution of the corporate debtor, the paper added.

 

The paper took note of national company law tribunals data up to Apr. 30 and said that 21,466 cases under Section 9 were disposed of before admission and only 3,818 cases were admitted by the tribunals. Therefore, many Section 9 cases were settled before admission and the settlement rate of insolvency process in pre-admission for operational creditors has been larger than at any other stage, the paper said. 

 

Regarding delays in insolvency cases, the paper said the national company law tribunals are required to conduct hearings before accepting or rejecting an insolvency application, and the process often becomes time-consuming. Thus, in order to resolve disputes between the operational creditor and corporate debtor at the earliest stage, and facilitate faster admission by tribunals, mediation as an option may be considered as an effective tool, the paper suggested.  End

 

Reported by Surya Tripathi

Edited by Vidhi Verma

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2024. All rights reserved.