Possibility of using ADR for Insolvency Resolution Process

Possibility of using ADR for Insolvency Resolution Process

Possibility of using ADR for Insolvency Resolution Process

Introduction India is on the verge of becoming one of the fastest-growing economies of the world.  India being in its developing stages in a number of sectors, yet, it has never looked back & has continued to excel rapidly. For a fast-growing economy like India, where even multinational companies are investing rigorously, it is imperative for the lawmakers or the legislation to provide the investors, both domestic &  international investors; a proper piece of legislation securing and governing their rights  & duties. was enacted by the Parliament in the year, 2016, ensuring a favorable jurisprudential environment for a number of investors, as well as securing the rights of a number of potential investors.

The Insolvency & Bankruptcy Code was enacted in 2016 after a number of recommendations were put forward with regards to the changes that could be made to the previous insolvency regime, which caused delays and resulted in poor recoveries for the creditors. The new Code brought about a plethora of changes as compared to the previous regime dealing with the various complex aspects revolving around Insolvency and Bankruptcy.

With regards to the corporate companies, the Code brought about a change & a ‘creditor-in-control’ method was introduced which primarily focused on securing the rights of the Financial Creditors as the previous regime dealt with a different process when it came to debt restructuring & dealing with matters pertaining to asset seizures which were imperative to get the insolvency process moving and to settle the debts of the creditors.

There were a number of laws dealing with this process such as the Sick Industrial Companies Act, 1985, the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Recovery of Debt Due to Banks & Financial Institutions Act, 1993 & the Companies Act, 2013. The provisions of all these acts along with the previous regime caused a severe hindrance in the entire debt restructuring process & this lead to the collapse of multiple organizations and along with them the collapse of their investors & their creditors as the non-performing assets of the corporation went on accumulating, however there was no proper regime in place to settle the debts by way of selling these assets and this resulted in creditors simply waiting for years to recover their money.

A number of well-known institutions like the Insolvency and Bankruptcy Board of India (IBBI), Insolvency professionals and information utilities were established & setup under the ambit of this Code.

One of the other important objectives behind the enactment of this Code was to ensure that all the broken pieces of laws pertaining to insolvency, consolidates under one single Code which deals with all these broken pieces together. The Code repealed & introduced a number of modifications to the various provisions of laws that were in direct conflict with it. A number of laws which were passed by the Central Legislature as well as the State Legislatures can still be deemed to be regarded as inconsistent with the other pieces of legislations. With regards to this, it is quite imperative to look into the manner in which such inconsistencies can be dealt with, however, this article focuses on how the 9, 2016 came into existence & how a link can be drawn between using the various methods of Alternative Dispute Resolution when it comes to dealing with Insolvency Proceedings.

Introduction to Alternative Dispute Resolution Methods Arbitration, Conciliation, Mediation & Negotiation are the four most important methods of resolving disputes outside the four confines of a courtroom. Alternate Dispute Resolution is a method wherein parties are provided with an opportunity to amicably & peacefully settle the various disputes arising between them, without entering the courtroom. It also includes negotiation, which can simply be described as a chat between the parties to the dispute and they come to a conclusion based on the points discussed during their chat.

Then comes Mediation which can simply be described as a means of conducting a dialogue with a third party who, controls the mediation process and understands the perspectives put forth by either of the parties & then comes arbitration which can be simply described as a private litigation method & the arbitral awards passed by the arbitrator in an arbitration proceedings can be deemed to be regarded as binding on both the parties to the dispute, unlike the decisions set aside by the mediators in a mediation proceeding.

  1. Mediation: The Civil Procedure Amendment Act, 1999 introduced the scope of Mediation as a method of alternative dispute resolution. The Court was conferred with the powers to find out cases wherein a peaceful settlement could be deemed to be regarded as the ultimate way to settle the dispute & then call for observations thereon of the parties to such a dispute.
  2. Conciliation: Conciliation can be deemed to be regarded as one of the most effective means of settling disputes outside the confines of the court. The process of Conciliation can be deemed to be regarded as a process which is non-binding upon the parties to it & in this process, a Conciliator is appointed, who provides his necessary assistance to both the parties to the proceedings & helps them reach a settlement.
  3. Arbitration: To lower the burden upon the judiciary, the Legislature enacted the Arbitration and Conciliation Act, 1996 & provided that Arbitration can be used as a means to resolving disputes between parties located within the same country as well as between parties located within different countries (international arbitration). The Act provides provisions dealing with the making of the arbitral awards & how they can be challenged by the parties. This piece of legislature confers limited grounds under which an arbitral award can be challenged. An arbitral award passed by an arbitrator is binding on both the parties to the dispute unlike the award passed by a mediator or a conciliator.

Why is it necessary? It is crucial to understand that India’s insolvency regime at present focuses on providing an encouragement to debt recovery over the debtor’s rehabilitation, which simply means debtor’s ability to further carry out business activities. The Preamble to the 9, 2016, largely focuses on the reorganization & the rehabilitation of corporate persons which should be done in a time bound manner & should follow the measures of debt recovery.

However, if disputes are referred to ADR, then it would also focus upon the complex details of each debtor & each creditor of the corporation & would also reduce the burden which has been imposed upon the National Company Law Tribunal. Conclusion There have been many instances where the application or the reference of a dispute to ADR has helped the parties to resolve their matters quickly & easily. However, it is important to understand that referring a dispute to ADR, allows parties to come up with new, innovative solutions & there is also a chance that the resolution or the conclusion at which the parties arrive, could be deemed to be regarded as financially beneficial for financial as well as operational creditors, instead of relying upon the court to draw or come up with a resolution plan which does not delay the entire process leading to a fall in the value of the non-performing assets.


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