ABSTRACT
This research article explores the adoption of voluntary mediation as a means of resolving legal disputes. It delves into the legal framework surrounding voluntary mediation, examining its efficacy in promoting efficient and cost-effective dispute resolution. The article also discusses relevant legal provisions and analyses the advantages and challenges associated with the adoption of voluntary mediation in different jurisdictions.
Keywords: Alternate Dispute Resolution, Voluntary Mediation, Legal Disputes, Mediation Process, Insolvency and Bankruptcy Code, CIRP, pre-initiation Mediation,
INTRODUCTION
In recent years, Alternate Dispute Resolution has emerged as a new trend for resolving disputes in India. ADR is a set of procedures or strategies that enables disputing parties to reach an amicable settlement. Mediation is one of the ADR available in India. It is a voluntary process where the parties involved in the dispute agree to appoint a mediator and come to a mutually acceptable solution for their legal issue. India began to strengthen its system of Alternative dispute settlement way back in 1990s. The 129th Law Commission of India Report (1998) suggested that the Conciliation Court system be used for several types of litigation.
INSOLVENCY & BANKRUPTCY CODE
The Insolvency and Bankruptcy Code (IBC) is an Indian legislation aimed at resolving insolvency and bankruptcy cases efficiently. It has originated as a transformative reform as it has offered a framework for the dignified exit of stressed assets and as a result strengthened India’s standing as an investment destination. The IBC uses a timebound resolution-oriented strategy, outcomes of which have been determined based on- time taken, preservation of asset value and the amount of money recovered for the creditors. Even though, it prescribes timelines for important activities, considerable delays have been made at each stage.
In FY 22-23, the average time taken for approval of resolution plan by the National Company Law Tribunal (“NCLT”) from the date of commencement of corporate insolvency resolution process (“CIRP”) for 180 cases was 831 days (including excluded time) and 682 days (excluding excluded time). As of March,23 approximately 67% of CIRPs have already been ongoing for more than 270 days, i.e., the statutory timeline for completion of the CIRP under IBC. Therefore, in such circumstances, special out of court procedures like Mediation can be explored.
Keeping this in mind, the IBBI in 2022 engaged with industry stakeholders and identified that Mediation can play a vital role in streamlining proceedings, reducing court backlog, improving efficacy of delivery process and achieving more robust outcomes.
MEDIATION
Mediation involves a structured negotiation process facilitated by a neutral third party, the mediator, who assists parties in reaching a mutually acceptable resolution. The process is voluntary, confidential, and non-binding, empowering parties to control the outcome of their dispute.
NEED FOR MEDIATION
Mediation serves as a vital tool for resolving conflicts in a timely, cost-effective, and collaborative manner. Unlike litigation, which can be adversarial and time-consuming, mediation offers parties the opportunity to craft mutually acceptable solutions with the assistance of a neutral third party.
The need for mediation arises from several factors. Firstly, it offers a less confrontational alternative to litigation, maintaining relationships and reducing hostility between parties. Secondly, mediation provides flexibility and customization, allowing parties to address their unique needs and interests. Furthermore, compared to typical legal proceedings, mediation is frequently faster and less expensive, which relieves pressure on court systems and saves money for all parties.
Moreover, mediation promotes empowerment and self-determination, enabling parties to actively participate in the resolution of their disputes. This process fosters communication, understanding, and cooperation, leading to more sustainable outcomes.
The need for mediation stems from its ability to offer efficient, collaborative, and tailored solutions to conflicts, making it an indispensable tool in modern dispute resolution.
Further, there are two types of models of mediation:
Voluntary and consensual mediation: As per Section 5 of Mediation Act 2023, it is a process where parties willingly participate in mediation to resolve their disputes.
Mandatory Mediation also known as court-ordered or compulsory mediation: As per Section 12-A commercial courts Act, 2015 – it is compulsory for parties to mediate the suit before entering into court.
MERITS & DEMERITS OF INCORPORATING MEDIATION INTO INSOLVENCY
MERITS
Efficiency: Mediation can expedite the resolution process by providing a faster alternative to litigation. It allows parties to resolve disputes outside of the court system, potentially saving time and resources.
Cost-effectiveness: Compared to traditional litigation, mediation tends to be more cost-effective. It reduces legal fees, court costs, and other expenses associated with prolonged litigation.
Preservation of Relationships: Mediation can help preserve relationships between debtors, creditors, and other stakeholders. By facilitating open communication and negotiation, mediation can lead to mutually acceptable solutions that maintain ongoing business relationships.
Flexibility: Mediation offers flexibility in terms of the solutions that can be reached. Parties are not bound by strict legal precedents or judgments and can tailor agreements to meet their specific needs and circumstances.
Confidentiality: Mediation proceedings are usually confidential, allowing parties to discuss sensitive issues without fear of public disclosure. This can encourage parties to be more open and cooperative during negotiations.
DEMERITS:
Lack of Legal Binding: One of the primary drawbacks of mediation is that any agreements reached are not legally binding unless formalized through a separate legal process. This means there’s a risk that parties may not adhere to the terms of the agreement after the mediation process concludes.
Imbalance of Power: In some cases, there may be an imbalance of power between the parties involved in the mediation process, which can hinder the negotiation process and lead to unfair outcomes.
Resistance to Cooperation: Despite the benefits of mediation, parties may be resistant to engage in the process, particularly if there is a history of animosity or distrust between them. In such cases, mediation may not be successful in resolving the disputes.
Limited Scope: Mediation may not be suitable for all types of insolvency disputes, particularly those involving complex legal issues or where a judicial determination is necessary to clarify legal rights and obligations.
Delay in Proceedings: While mediation can expedite the resolution process in some cases, it can also lead to delays if parties are unable to reach an agreement and the dispute ultimately proceeds to litigation.
Cost of Mediation: While mediation is generally more cost-effective than litigation, there are still costs associated with hiring a mediator and conducting the mediation process, which may be prohibitive for some parties.
Incorporating mediation into insolvency proceedings requires careful consideration of these merits and demerits, as well as the specific circumstances of each case, to determine whether mediation is an appropriate avenue for resolving disputes.
Statutory position of Mediation in India
Mediation has attained the statutory position under various Indian Laws and recognized by Indian Courts in various Judicial pronouncements. In 2002, the Code of Civil Procedure, 1908 was revised, introducing Section 89, which allows court cases to be referred to alternative dispute resolution procedures. The Micro, Small and Medium Enterprises (MSME) Development Act, 2006 also provides for mandatory conciliation in case of payment dispute to MSME’s. Even, the Companies Act 2013 under section 442 along with Companies(Mediation and Conciliation) Rules, 2016 allows the tribunal and Appellate Tribunal to refer matters to Mediation. Further, a provision allowing the relevant commission to recommend a consumer dispute for mediation when there is a possibility of settlement between the parties was included by the Consumer Protection Act of 2019.The Commercial Courts, Commercial Division and Commercial Appellate Division of High Court (Amendment) Ordinance, 2018 inserted a new provision that mandates pre-institution mediation prior to filing commercial disputes, with some exceptions. Furthermore, a recent change to the Consumer Protection Act mandates that conflicts be sent to consumer mediation cells for mediation before moving forward. The IBC has also given settlement statutory recognition under Section 12A of the code which allows withdrawal of application admitted under section 7 or section 9 or section 10 under the Corporate Insolvency Resolution Process. The Hon’ble Supreme Court of India in its landmark judgement of Salem Advocate Bar Association, Tamil Nadu Vs. Union of India has held that the courts shall explore the possibility of settlement.
Mediation under Insolvency Proceedings
The Insolvency and Bankruptcy Code (IBC) of India has been instrumental in streamlining the resolution process for insolvent entities. It mandates that a Corporate Insolvency Resolution Process (CIRP) should be completed within 180 days from the date of admission of application to initiate CIRP which can be extended upto 270 days(with outer limit of 330 days), beyond which extension should not be given. However, as of March 2023, more than 67% of ongoing CIRP have crossed the statutory time limit. As a result of this, Supreme court in the case of Essar Steel India Limited vs. Committee of Creditors & Ors. held that 330 days time limit as directory and not mandatory where an overall timeline of 880 plus days was taken for resolution. This inordinate delays result in further erosion of impaired assets, leading to huge haircuts by creditors. The Adjudicatory Authority under the code is already overburdened with the cases. Therefore, if law aims to fulfill its intended purpose, then all of these concerns must be resolved soon.
For this purpose, the Report of the Working Group on Individual Insolvency as published by the IBBI in August 2017, proposed that the code should be amended to provide a time-bound mediation process for insolvency of individuals and partnership firm. A new cadre of qualified mediators and specific mediation centers offering mediation services were also suggested by the report. The report further submitted that the same concept of mediation can be brought in corporate insolvency cases.
As per NCLT disposal data for CIRP proceedings between 2017 and 2022, 23,500 applications involving default of 7.21 crores were settled before the cases reached the admission stage. this was the outcome of defaulting promoters running the risk of losing control of companies once insolvency cases are admitted. It is also observed that the settlement rate of CIRP pre-admission has been larger than at any other stages. Such resolved disputes comprise more than 68.74% of the total disposal at NCLT.
Further, recently in the case of VK Parvinder Singh v. Intec Capital Ltd. & Anr, prior to the constitution of CoC, an appeal was filed by the representative of the promoters of Corporate Debtors against the admission order issued by the NCLT, submitting that they were ready to resolve the claims of the FCs. The parties consented to mediate the case and Hon’ble Mr. Justice (Retd.) A.K. Sikri was appointed as mediator in the matter by the NCLAT with the mutual assent of the parties. Following a successful mediation, a report was presented to the NCLAT which was taken on record. The NCLAT’s order was amended to include the mediated agreement, overriding the previous NCLT order that admitted the CIRP.
LEGAL FRAMEWORK
Most nations have legal frameworks that allow voluntary mediation, including statutes, court rules, and judicial decisions. Prior to pursuing legal action, parties are expressly encouraged by law in many nations to participate in mediation. For example, legal foundations for mediation in civil and business disputes are provided by the EU Mediation Directive and the US Federal Mediation and Conciliation Service Act.
RECENT LEGAL DEVELOPMENTS
Globally, voluntary mediation has advanced significantly in recent years as part of judicial systems. The United Nations Convention on International Settlement Agreements Resulting from Mediation, also known as the Singapore Convention, was enacted in 2019 and has strengthened the enforceability of mediated settlements on a global scale. In addition, a lot of jurisdictions have passed new laws to encourage mediation and lighten the load on overflowing court dockets.
CONCLUSION
Adopting voluntary mediation offers tremendous potential for advancing effective and cooperative conflict resolution. To guarantee the efficiency and equity of the mediation procedure, issues like enforcement and power disparities must be properly handled. In the future, legislators and attorneys should keep pushing for the inclusion of voluntary mediation in the legal system since it can reduce court workloads and improve access to justice.
Author:- Aashi Gupta, a Second year Law Student of Faculty of Law, University of Delhi
Co-Author:- Anugya Shukla, a Second year Law Student of Faculty of Law, University of Delhi
