Mediation as a Tool for Balancing Creditor-Debtor Interest in Insolvency Proceedings

The Mediation Act defines mediation as a process that encourages parties to reach a consensual agreement through various types of mediation, whether institutional or commercial, to arrive at a mutually agreeable solution. Unlike arbitration, mediation enables parties to work together collaboratively to resolve their disputes. Section 89 of the Indian Civil Procedure Code allows arbitrators or mediators to assist parties in finding common ground, even when binding decisions may not fully meet their needs. Section 10 of the IBC outlines the procedures for handling insolvency. Although mediation is referenced in several sections, its practical application has grown, as countries like the US and France have successfully employed it. For example, in the US, the Greyhound Lines Inc. bankruptcy case demonstrated mediation’s effectiveness, as it resolved various claims, with most settled at an early stage. France experienced similar success.

The primary aim of this paper is to examine the utility and necessity of a process like mediation in bankruptcy proceedings, for achieving a cost-effective, time-saving solution. The paper is structured around a central research question: How will mediation help in the resolution of insolvency cases? It will consider whether mediation is essential for supporting struggling businesses, facilitating methods of debt repayment to creditors, or managing the competition for assets. The paper will also address the challenges of balancing the interests of all creditors, the impact of agreements with creditors, and the complex situations involved in finding solutions that benefit all stakeholders.

The paper will explore the application of mediation in India, drawing examples from other jurisdictions such as the European Union and the United States. It will also analyse the factors that contribute to the success of mediation in these countries and will explore how similar approaches can address prevailing disputes and the “Common Pool Problem” in India. The paper will propose ways to enhance the existing literature by advocating for new mediation methods and legislative reforms that are necessary in India.