An agreeable settlement is reached through the application of the ADRS (Alternative Dispute Resolution Mechanism) system. These methods are applied to settle disputes outside of court. One of the main reasons parties may select an alternative dispute resolution (ADR) method over litigation is that, in contrast to confrontational litigation, ADR procedures are often collaborative and allow the parties to understand each other’s points of view. The settlement processes of arbitration, conciliation, mediation, negotiation, and Lok Adalat are all commonly recognised.

A flexible, non-binding, and private way of settling disputes is mediation. This strategy involves gathering conflicting parties to discuss their concerns informally. It is an approach to negotiation and an informal means of resolving conflicts.

In mediation, an unbiased third party seeks to assist disputing parties in reaching a settlement on their own. Settlement refers to a voluntary and enduring agreement entered between two disputing parties once they solve their disputes. It is binding on the parties. A trained mediator helps the disputing parties explore the interests that underlie their position rather than attempting to impose their solution.

Mediation can be used to resolve various issues relating to civil disputes, family conflicts, commercial disputes, and employment disputes to name a few. Now, the importance of mediation in the context of bankruptcy disputes has grown. Unlike formal court procedures, mediation is a cost-friendly process that spares the debtor—who is already experiencing financial hardship—from having to pay further fees. The costs are split amongst the conflicting parties.

In India, mediation is used to settle contractual disputes at the parties’ option or as mandated by section 12A of the Commercial Courts Act, 2015, which requires mediation before the commencement of a suit.

Section 89 of the 1908 Code of Civil Procedure and other relevant statutes, such as section 37 of the 2019 Consumer Protection Act, stipulate that a court order may occasionally be necessary to mandate mediation.

SCOPE OF MEDIATION PROCESS IN INSOLVENCY DISPUTES:

Mediation is more useful as compared to any other mode of ADR because of its principle of parties themselves coming to a settlement and ‘without prejudice’ process. The term “insolvency dispute” shall refer to all disputes between a debtor and creditors related to the repayment of a debt where insolvency law is applicable.

Traditionalists contend that the goal of insolvency law should be to rescue a financially troubled firm and prevent its liquidation to preserve the company’s viability as a going concern. To prevent a firm from being insolvent, the parties must either begin with the restructuring process (CIRP- Corporate insolvency resolution process) IBC, under Section 12 of the Code, the Corporate Insolvency Resolution Process (CIRP) or settle the dispute between the debtor and the creditor.

There are two choices available to stakeholders in an insolvent firm when it becomes insolvent. They have two options: they can pick informal out-of-court settlements like pre-packaged restructuring and other forms of alternative dispute resolution, or they can choose formal insolvency proceedings that are dismissed by a court or tribunal. Mediation assistance may be rendered pro bono in certain cases as if so, directed by the Adjudicating Authorities.

Mediation sometimes in certain cases is mandated by a court in the interest of promoting a speedy and cost-efficient outcome, and these are known as court-mandated mediations.

Numerous international agencies advocate mediation, especially in the pre-insolvency period, because many legal instruments, like the World Bank’s principles for effective insolvency and creditor rights system, follow it.

The UNCITRAL Practice Guide on Cross-Border Insolvency Cooperation (2009), which includes some significant guidelines on the practice of Mediation in situations pertaining to Insolvency, and the UNCITRAL Model Law on International Commercial Conciliation (2002).

Justifications on how Mediation can be a useful tool in settling Insolvency Disputes:

1. Mediation increases the likelihood of a win-win result and decreases the likelihood of a lose-lose situation. Both parties can categorise their primary claims by perhaps lowering the demand through alternative dispute resolution (ADR). Continuous, third-party supervised negotiations between the harmed parties are the basis of mediation. Conversely, adjudication, regrettably, is a lose-lose scenario where one party is never in the winning position. The parties typically suffer financial losses as a result of this.
2. It aids in protecting the debtor’s valuable assets, which is crucial in bankruptcy cases. The goal of insolvency cases is to protect the debtor’s assets through mediation, giving interested parties a chance to talk about how to maximise asset value while safeguarding creditors’ interests.
3. Through mediation, insolvent businesses can maintain operations, safeguard jobs, and generate value for all involved parties.
4. In insolvency conflicts, Mediation protects existing corporate ties by emphasising communication and understanding of further concerns.
5. Mediation is a mutually negotiated solution that increases the likelihood of a promising outcome for both parties involved. It allows the corporate debtor to have some control over their assets and can create a comprehensive resolution plan. Mediation reduces court burden, protects the debtor’s reputation, and is convenient for both parties. It also maintains a cooperative relationship between the creditor and debtor, ensuring their cooperative nature for future transactions.

Overall, mediation helps the debtor and creditor to look for a common business solution with both their claims and negotiations and helps them preserve time by not following the lengthy formal litigation process and the parties shall have ultimate control over the proceedings.

Successful Mediation in Insolvency Disputes in Foreign Jurisdictions:

INDIA:

The evolution of mediation’s statutory and judicial framework over time demonstrates the acceptance of its validity and benefits. The Supreme Court noted in the case of Afcons Infrastructure Ltd v. Cherian Varkey Construction Co (P) Ltd, that trade, commerce, and contract issues can be settled through mediation.

In October 2018, the Insolvency and Bankruptcy Board of India (IBBI), in its ‘Report of Working Group on Individual Insolvency India acknowledged that mediation and counselling would be useful complementary mechanisms to the structure for insolvency in the Code.

The case of Essar Steel v. SK Gupta exhibits the exceptional reason that the IBC has been incapable of accomplishing its objective of making a quick and productive bankruptcy determination handle. The preface of the IBC is vanquished, as its exceptional substance is bankruptcy determination in a time-bound manner.

 Section 89 of the Civil Procedure Code, 1908 empowers the utilisation of pertinent elective dispute determination components together with the Companies Act, 2013, which gives for setting up intercession for cases hailed by the NCLT and NCLAT. Once educated just like the NCLAT begin encouraging parties to start intercession, prosecutors may proactively select intervention to resolve their disputes.

Mediation is as of now utilized effectively in different sorts of debate in India. A later Preeminent Court arrangement, alluding to the Ayodhya Dispute to Mediation may be a case. In Mediation, an impartial person called a go-between facilitates dialogue between disputants to discover win-win solutions to problems/issues Within the later Jaypee Infratech case a, few between the money-related lenders and the homeowners could have been settled through intercession. A bit like the later Jaypee Infratech case, which drove the collapse of the genuine domain showcase in India.

The Supreme Court prescribed Mediation in the Ayodhya dispute and the Jaypee insolvency procedures to begin with start pre-insolvency Mediation. In any case, due to the need for arrangements, creditors regularly resort to formal court procedures. Insolvency Mediation can be a cost-effective and voluntary preparation in India, allowing parties to arrange settlement clauses. In spite of its focal points, litigation remains a favoured choice for bankruptcy cases.

Mediation Act, 2023

Whereas there’s no legitimate enactment overseeing intercession in India, Mediation provisions allude to a few statutes such as the Code of Civil Procedure, 1908, the Arbitration and Conciliation Act, 1996, the Companies Act, 2013, the Commercial Courts Act, 2015, and the Consumer Protection Act, 2019.

India has also marked the UN Convention on Mediation (the Singapore Convention) in 2019. To bring uniform enactment overseeing intervention in India, the Rajya Sabha has passed a Charge on Intervention known as “The Mediation Act,2023”.

Pre-litigation Mediation is advanced whereby parties must endeavour to settle gracious or commercial disputes through Intercession sometime recently drawing nearer any court or tribunals. The court may at any arrange to allude the parties to mediation even after the pre-litigation mediation.

UNITED STATES OF AMERICA:

Mediation as an ADR method in the USA was introduced in the year 1986 in disputes relating to insolvency. Since then, all the disputes of insolvency have been dealt with by the Mediation process. Mediation in insolvency resolution is primarily used in the United States, where bankruptcy courts use Section 105 of the Bankruptcy Code to establish rules for mediation. The Alternative Dispute Resolution Act of 1998 consolidated this effort, mandating mediation in all civil actions, including adversary proceedings in bankruptcy. Courts in the US have established court-annexed ADR programs with experienced mediator panels, and mediation has been used in single creditor claims, large group claims, restructuring plans, disputes, asset recovery, preference actions, and future claims.

Thompson v. Greyhound Lines Inc., in 2013, Greyhound Lines Inc. faced bankruptcy, leading to thousands filing property damage and personal injury claims. The company established a mediation plan, resulting in a win-win situation by lowering litigation costs and balancing parties’ interests.

Lehman Brothers’ case, the Lehman Brothers insolvency too had led to the collapse of financial markets in the United States of America and internationally in the subprime mortgage crisis of 2008-09. Lehman Brothers Holdings Inc., a global provider of financial services, was established in 1847 and declared bankruptcy in 2008. Derivatives were dealt with by one of Lehman Brothers’ divisions.

The court ordered mediation for the disagreements involving the derivative contract in relation to the insolvency proceedings. Then, out of the approximately $9 billion in unresolved claims, 110 mediations for the Lehman Brothers estate have brought $333 million.

A provision analogous to Section 105 of the Bankruptcy Code may also find a suitable place in India’s bankruptcy law frame.

SINGAPORE:

In the late 1990s, the former chief justice Young Pung how instituted the first court-based mediation in the old sub-ordinate courts, the court’s approach to mediation has been guided by the notion that the court normally does not compel parties to mediate.

But in the year 2016, the Committee to Strengthen Singapore as an International Centre for Debt Restructuring recommended the use of mediation for efficient restructuring. Singapore’s courts have encouraged but not mandated insolvency mediation, but the Singapore Mediation Centre recognizes its usefulness for stakeholders. The Centre has established a Mediation Procedure for insolvency cases, supplemented by Rules and Fees. However, the framework remains underutilized in Singapore due to its voluntary nature.

An important advancement in global business mediation is the adoption of the Singapore Convention on Mediation by the UN General Assembly in December 2018. India has been a signatory since 2019 to the United Nations Convention on Mediation (the Singapore Convention). Like the New York Convention, it creates a system for upholding settlement agreements reached through mediation. The convention mandates that signatories set up a quick, easy process that safeguards the rights and interests of all parties. It encourages the use of mediation to settle conflicts involving transnational business relationships, improving enforceability and predictability. The Singapore Convention has a favourable influence on the business community and trade ties by offering a more effective and affordable method of resolving disputes.

Singapore incorporated mediation into insolvency resolution in 2017 and utilized existing mediation centres like the Singapore Mediation Centre and Singapore International Mediation Centre to create a global hub. The Singapore High Court highlighted the importance of mediation in insolvency resolution, potentially this can also be a transformative approach in promoting Mediation in insolvency resolution in India.

EUROPE:

ADR has gained acceptance among EU Member States, with several countries introducing pre-insolvency dispute resolution methods to rescue debtors. French Insolvency law provides ad hoc mandate and conciliation, while Germany’s insolvency plan procedure enables debtors and creditors to conclude an insolvency plan through negotiation.

The Italian insolvency system offers various options for entrepreneurs facing financial difficulties to restructure their debt, all conducted out of court. The Italian Bankruptcy Law provides three legal instruments for restructuring, with different characteristics depending on the process, court intervention, and applicability to non-creditors. The choice between these instruments depends on the company type and measures needed to maintain business solvency.

The EU Recommendation introduces a mediator as a new insolvency professional but does not specify its role or professional qualifications. The mediator assists parties in reaching a compromise on restructuring plans and can be appointed ex officio or on request by debtors or creditors. This lack of information highlights the need for a comparative study of the practical use of mediation in EU Member States for distressed company rescue.

Mediation is quite different from all other forms of ADR as the outcome can be with the ultimate control of the parties and is not legally binding.

CONCLUSION:

Mediation as a method of resolving disputes has been effective in India in solving various civil, contractual, and now commercial disputes as well. The practice of insolvency mediation underscores the importance of collaboration and open communication among stakeholders, bringing them together to craft solutions that, though legally not binding, can be made binding on the parties as per their settlement. As the complexities of insolvency cases continue to evolve, the role of mediation remains a steadfast and adaptive ally in the pursuit of equitable resolutions.

The evolution of mediation in India’s legal landscape reflects its growing recognition and effectiveness in resolving disputes. The Supreme Court, in cases like Afcons Infrastructure Ltd v. Cherian Varkey Construction Co (P) Ltd, has acknowledged the applicability of mediation in trade, commerce, and contract issues. Additionally, the Insolvency and Bankruptcy Board of India (IBBI) recognized the potential of mediation in complementing the insolvency framework, as highlighted in the ‘Report of Working Group on Individual Insolvency India’ in October 2018.

However, challenges persist, as seen in the Essar Steel v. SK Gupta case, where the objectives of the Insolvency and Bankruptcy Code (IBC) were not fully realized due to delays and inefficiencies. The preface of the IBC is vanquished, as its exceptional substance is bankruptcy determination in a time-bound manner. Despite this, provisions like Section 89 of the Civil Procedure Code, 1908, empower the use of alternative dispute resolution methods, including mediation, in conjunction with statutes like the Companies Act, 2013.

India has witnessed successful instances of mediation in various disputes, including the Ayodhya dispute and the Jaypee Infratech case. While the Supreme Court has recommended mediation in insolvency proceedings, the adoption of mediation remains voluntary, with litigation still preferred in many cases.

To address this, the proposed Mediation Act, 2023 aims to establish a legal framework governing mediation in India. This legislation, supported by various statutes and international conventions like the UN Convention on Mediation, seeks to promote pre-litigation mediation and facilitate the resolution of disputes through mediation.

Overall, mediation holds promise as a cost-effective and voluntary alternative to litigation, offering parties the opportunity to reach mutually beneficial settlements. However, its widespread adoption and effectiveness depend on comprehensive legal support and a cultural shift towards embracing mediation as a preferred method of dispute resolution.

Mediation has emerged as a prominent alternative dispute resolution (ADR) method in the United States of America (USA) since its introduction in 1986, specifically in insolvency disputes. Bankruptcy courts in the USA utilize Section 105 of the Bankruptcy Code to establish mediation rules, as mandated by the Alternative Dispute Resolution Act of 1998. Court-annexed ADR programs with experienced mediator panels have been established, facilitating mediation in various types of insolvency-related disputes, including single creditor claims, large group claims, restructuring plans, asset recovery, preference actions, and future claims. For instance, in the Thompson v. Greyhound Lines Inc. case of 2013, Greyhound Lines Inc. successfully navigated bankruptcy proceedings by implementing a mediation plan, resulting in cost savings and balanced party interests.

Similarly, in the Lehman Brothers case, mediation was ordered for disagreements concerning derivative contracts amidst insolvency proceedings. This led to successful mediation, resolving approximately $333 million out of the $9 billion in unresolved claims. Notably, the Lehman Brothers case underscored the effectiveness of mediation in resolving complex financial disputes arising from insolvency.

In Singapore, while the courts have historically encouraged but not mandated insolvency mediation, recent developments have highlighted its potential for efficient debt restructuring. Former Chief Justice Yong Pung How introduced court-based mediation in the late 1990s, laying the groundwork for Singapore’s approach to mediation. Despite being voluntary, the Singapore Mediation Centre recognizes the utility of mediation for stakeholders, especially in the context of debt restructuring. The adoption of the Singapore Convention on Mediation in 2018 further bolstered the global acceptance of mediation as a viable dispute resolution mechanism.

In Europe, ADR methods, including mediation, have gained traction among EU Member States, particularly in pre-insolvency dispute resolution. Countries like France, Germany, and Italy have introduced various mechanisms to facilitate debt restructuring and company rescue through negotiation and mediation. The EU Recommendation introduces mediators as new insolvency professionals, emphasizing the importance of mediation in promoting effective restructuring plans. However, there remains a need for further comparative study on the practical use of mediation in distressed company rescue across EU Member States.

Overall, mediation’s contributions to the evolving landscape of insolvency law are evident, with its effectiveness demonstrated in resolving complex financial disputes, promoting consensual agreements, and facilitating efficient debt restructuring processes. As countries continue to embrace mediation, its role in insolvency resolution is expected to grow, promoting fairness, efficiency, and sustainability in the resolution of financial disputes.

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