Insolvency claims: Pre-NCLT mediation needs a mindset shift in its favour

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Subscribe to enjoy similar stories. The Insolvency and Bankruptcy Board of India (IBBI) has recommended the addition of a stage for voluntary mediation in insolvency cases filed by operational creditors, based on the findings of its expert committee and the Indian Institute of Insolvency Professionals of ICAI (IIPI).

This proposal has come in the light of a record increase in the number of insolvency applications filed by operational creditors, which are often based on disagreements regarding the quality of goods and services provided, contractual disputes based on non-compliance of contractual terms, and claims of non-payment/underpayment of contractual dues. Insolvency applications by operational creditors are often filed to exert pressure on the corporate debtor to settle outstanding dues, and most do not even reach the stage of admission—since operational creditors do not have a genuine interest in the resolution of the corporate debtor.

By adding a stage for voluntary mediation, the IBBI hopes to bring about a significant reduction in the existing burden on the principal and regional benches of the National Company Law Tribunal (NCLT), which is the designated adjudicating authority for all claims under India’s Insolvency and Bankruptcy Code (IBC). According to existing data, of the 21,466 applications filed before NCLTs by operational creditors, only 3,818 cases were admitted for corporate resolution under the IBC, while most of such applications came to be settled at the pre-admission stage itself.

The addition of the stage for voluntary mediation, under the provisions of the Mediation Act, will help parties reach a mediated settlement—and reduce the existing burden on NCLTs of insolvency applications. The IBBI’s