Beyond the Gavel: The Way forward to Alternative Dispute resolutions in the Indian insolvency and Bankruptcy Code.

This article is written by Simranjeet Kaur. She is a student at Maharishi Markandeshwar University, Mullana.

Abstract
The Insolvency and Bankruptcy Code, 2016 (IBC) in India has become a landmark in the sphere of economic legislation and has propelled the idea of time-limited solutions and transferred the power between debtors and creditors. Nevertheless, the National Company Law Tribunal (NCLT) is finding itself in a situation of prolonged litigation, which is going against the fundamental goal of value maximization by the Code. This paper claims that the inclusion of Alternative Dispute Resolution (ADR) mechanisms is significant to the effectiveness of the Code. It examines the tension between antagonistic insolvency and cooperative ADR and discusses such mechanisms as mediation and Pre-packaged Insolvency Resolution Processes (PPIRP). The paper dwells upon recommendations, obstacles, and a solution as a multi-pronged strategy to conclude that the ADR is the needed synergy needed to clear the system and provide the IBC with its potential.

Keywords: Insolvency and Bankruptcy Code, Alternative Dispute Resolution, Mediation, Pre-packaged Insolvency, NCLT, Value Maximization.

Introduction: The Revolution and Its Unintended Baggage.
The IBC (2016) has completely changed the commercial landscape in India. Instead of the ragged legal system, it introduced a system of complete or creditor-in-control and expediency. The best achievement of the IBC has been the inculcation of financial discipline; the fear of losing control makes promoters have to negotiate early.

Nevertheless, the Code is a casualty of its success. The NCLT is overwhelmed with cases. The 330-day statutory plan of a Corporate Insolvency Resolution Process (CIRP) has turned into an aspiration rather than a requirement. These delays hit the economic core of the IBC: value maximization. The erosion in the value of assets takes place as the litigation proceeds; machinery gets rusty, talents will move out, and successful businesses become shells.

This system needs a philosophical shift out of the adversarial model of the courtroom to Alternative Dispute Resolution (ADR). The combination of mediation and ready-made solutions is no longer a choice, but a structural necessity in order to survive the IBC.

Philosophical Friction: Cooperation in an Adversarial World.
The nature of insolvency is adversarial with creditors against debtors and, in most cases, creditors against each other. This appears to be a far-fetched basis of the group spirit of ADR. The aim of mediation is a win-win situation and the insolvency situation may seem like a zero-sum game.

Nevertheless, this tension is overcome. Micro-level interests are in conflict, but the IBC establishes a common macro-level interest, which is the prevention of value destruction. The best thing that happens is normally liquidation, giving pennies on the dollar. A zone of possible agreement is produced by this common fear. ADR thrives here. A mediator also assists parties to set aside posturing and concentrate on their common interest in saving the company as a going concern. It is not about what is right or wrong but rather it is about co-plotting a commercially viable course the standard procedures can never provide.

Weaving ADR into the IBC Fabric: Mechanisms and Pathways.
ADR integration entails different processes at different levels.

1. Mediation: The Potential Not Explored.
   Mediation refers to the process where a third party mediates negotiations. The Insolvency Law Committee (ILC)has suggested its introduction on two very important junctures:

• Pre-Admission Stage: A large number of bankruptcies are non-contentious recovery of debts, which overburdens the NCLT. These cases could be sieved with mandatory pre-admission mediation. A mediator might help in settlements, which might be in the form of structured payment plans, before official insolvency is affected. This spares the debtor the stigma and provides the creditors with quicker recovery compared to a protracted CIRP.
• Post-Admission Stage: The Committee of Creditors (CoC) is a process that continues once CIRP has been initiated. Nevertheless, CoC disputes internally tend to create delays. A financially savvy mediator may take care of inter-creditor disputes or even negotiate with resolution applicants. Confidentiality permits the stakeholders to engage in commercial trade-offs without biases on legal standpoints.

Challenges:

• Delays: Debtors may also use mediation as a tool to postpone admission and loot assets. Frameworks need to be time-bound.
• Imbalances of Power: The mediators should deal with the imbalance between big financial creditors and small operational creditors so that there is no coercion.
• Enforceability: The mediation settlements should be legally binding, which necessitates faster means to document them as conclusive NCLT orders.

1. Pre-packaged Insolvency Resolution Process (PPIRP): Hybrid Solution.
   The PPIRP is an out-of-court negotiation streamlined into a formal approval, introduced in 2021 to MSMEs. Before the initiation of insolvency, the debtor and the creditors enter a resolution plan. The NCLT then goes on to truncate it to a process of approval.

Speed, certainty, and little business disruption are the benefits because the management is usually in control. The effective application of this model has led to the demand to increase it to bigger corporations. A pre-pack of a big organization may permit complicated restructuring talks out of camera view, before a prompt judicial seal.

Challenges:

• Transparency: Critics have concerns about back-room deals favoring smaller creditors. The growth should have protection that allows fairness to all classes of creditors.
• Collusion: Collusion between promoters and certain creditors can occur, and the Insolvency Professionals (IPs) will be required to scrutinize this carefully.

The Way ahead: A Multi-pronged Framework.
The successful inclusion of ADR needs an enabling ecosystem.

• Legislative Amendments: This would require the IBC to be amended to officially acknowledge the practice of mediation and entrench timelines, appointment processes, and enforceability regulations. The eligibility of PPIRP is to be extended with caution.
• Judicial Championship: The NCLT and the National Company Law Appellate Tribunal (NCLAT) need to change their thinking solely towards a problem-focused approach and not an adjudicative one, promoting the use of mediation. The Supreme Court of India promoting ADR in other business areas is a precedent.
• Capacity Building: Insolvency mediation requires profound financial and legal expertise. The Insolvency and Bankruptcy Board of India (IBBI) should devise strong training and certification for a special group of insolvency mediators.
• International Best Practices: India can be exposed to world models. The provision of mediation in the UNCITRAL Model Law and “breathing space” schemes in UK law provides a lesson on the balance between flexibility and fairness.

Summary: A Synergistic Future.
The IBC is at a crossroad. Overburdening would compromise its effectiveness in the same litigation which it attempted to simplify. More benches are not the answer, but less litigation. The adoption of ADR is a practical development and not a watering down of the Code. Disputes can be solved effectively through mechanisms such as mediation and pre-packs to save on value and release the NCLT to complex cases.

ADR is not a panacea; its implementation needs a delicate adjustment. Nevertheless, the combination of ADR and IBC collaboration efficiency and legal authority respectively shows the most promising way out. India could secure the continued relevance of its insolvency regime by placing the gavel aside and going to the negotiating table.