ANU College of Law

Legal Studies Research Paper Series

Akshaya Kamalnath and Aparajita Kaul

Adding Mediation to India’s Corporate

Resolution Process

ANU College of Law Research Paper No 21.41

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Electronic copy available at: https://ssrn.com/abstract=3924626
ADDING MEDIATION TO INDIA'S CORPORATE RESOLUTION PROCESS

Akshaya Kamalnath* and Aparajita Kaul**

Abstract

India’s new insolvency law, the Insolvency and Bankruptcy Code, 2016 (“IBC”) was

introduced with the aim of improving the efficiency of the resolution process. While there

is much to be credited in the law, the practice of it has shown that the process is often

delayed by excessive litigation. The aim of this article is to study delays under the IBC

by looking at the application of the law and providing an alternative feminist assessment.

This assessment highlights that a feminist value missing from the practice of the IBC is

the inclusion of stakeholders, and particularly a non-adversarial system that helps

stakeholders manage and resolve conflict amicably (and expeditiously) during insolvency

resolution. Litigation before tribunals and courts to adjudicate upon stakeholder conflict

often leads to significant delays. The article proposes a model the nudges parties towards

mediation during a Corporate Insolvency Resolution Process (“CIRP”) within the IBC in

order to preserve relationships and reduce delays.

Keywords: India, corporate insolvency, feminist analysis, mediation

*
Senior Lecturer, The Australian National University College of Law.
**
Associate, Cyril Amarchand Mangaldas, Mumbai and graduate of NALSAR University of Law,
Hyderabad.

Electronic copy available at: https://ssrn.com/abstract=3924626

 I. Introduction

This article critically reviews India’s Insolvency and Bankruptcy Code, 2016 (“IBC”)

with a feminist lens and proposes the use of mediation within the formal insolvency

resolution process as a solution to delays plaguing the process. The IBC was introduced

in India to replace the patchwork of legislation and an overall mediocre performance.1

The Bankruptcy Law Reforms Committee (“BLRC”) sought to make the objectives of

speedy resolution and balancing interests of all stakeholders a reality through IBC.2 While

the IBC has made strides in advancing efficient insolvency resolution in India,

unfortunately, delays threaten to become endemic in the process.3 One key reason for this

1
World Bank Group, 'Economy Profile 2015- India' (2014)
<https://openknowledge.worldbank.org/bitstream/handle/10986/21236/920420WP0Box380494580India0
0Public0.pdf?sequence=1&isAllowed=y> accessed 7 May 2021.
2
Bankruptcy Law Reforms Committee, ‘Report Volume I: Rationale and Design’ (2015).
3
Amitabh Kant, ‘IBC Delayed is IBC Denied’ Economic Times (24 June 2019) <
https://economictimes.indiatimes.com/blogs/et-commentary/ibc-delayed-is-ibc-denied/> accessed 7 May
2021; Joel Rebello and Saikat Das, ‘Delay Becomes the Norm in Insolvency & Bankruptcy Cases’ The
Economic Times (Mumbai, 15 August 2019)
<https://economictimes.indiatimes.com/industry/banking/finance/banking/delay-becomes-the-norm-in-
insolvency-bankruptcy-cases/articleshow/70693319.cms?from=mdr> accessed 7 May 2021; Insolvency
and Bankruptcy Board of India, 'Insolvency And Bankruptcy News: Quarterly Newsletter Of The IBBI
July-September 2020' (2020)
<https://www.ibbi.gov.in/uploads/whatsnew/411436dab58c1265aacb015b6b43a215.pdf> accessed 9
March 2021; ‘SC Judge Cautions Against Delays Under the IBC’ The Indian Express (New Delhi, 7
March 2020) <https://indianexpress.com/article/business/companies/sc-judge-cautions-against-delays-in-
cases-under-ibc-6303198/> accessed 7 May 2021; Payaswini Upadhyay, ‘IBC and The Unfulfilled
Promise of Timely Resolution. The Story in Numbers’ Bloomberg Quint (28 January 2021)
<https://www.bloombergquint.com/law-and-policy/ibc-and-the-unfulfilled-promise-of-timely-resolution-
the-story-in-numbers> accessed 7 May 2021; Shayan Ghosh, ‘Insolvency Cases Face Delays as Covid
Spikes’ Mint (25 April 2021) <https://www.livemint.com/industry/banking/insolvency-cases-face-delays-
as-covid-spikes-11619372333190.html> accessed 7 May 2021.

Electronic copy available at: https://ssrn.com/abstract=3924626

is the high volume of litigation between various parties during the resolution process.4

This also signals that stakeholder interests may not have been balanced as intended. The

feminist analysis employed in this article throws light on these issues. The article

proposes a model where mediation can be used to address these issues. While the article

is focused on India, the two themes of feminist analysis of corporate insolvency and

potential incorporation of mediation within a formal insolvency resolution process are of

universal relevance.

The article is divided into six parts. This Part I is the introduction. Part II discusses the

introduction of the IBC and the regime it creates. Part III describes the issues plaguing

the resolution processes with the help of two case studies - Essar Steel and Binani Cement.

Part IV employs a feminist perspective to study the IBC and identifies a masculist slant

to the law. While masculist values are important for the IBC, the exclusion of feminist

values like stakeholder inclusion and non-adversarial dispute resolution hinders the

actualization of the IBC’s objectives. Part V proposes a model to co-opt mediation into

the IBC. Part VI concludes.

4
Sunny Verma, ‘Lenders’ Differences, Legal Challenges Behind Delay in Resolutions under IBC’ The
Indian Express (New Delhi, 13 May 2019) <https://indianexpress.com/article/explained/lenders-
differences-legal-challenges-behind-delay-in-resolutions-under-ibc-5724351/> accessed 7 May 2021;
Tanya Thomas, 'Govt’s New 330-Day Deadline May Not Ease Resolution Bottlenecks' Mint (29 July
2019) <https://www.livemint.com/politics/policy/govt-s-new-330-day-deadline-may-not-ease-resolution-
bottlenecks-1564340639674.html> accessed 7 May 2021; Upadhyay (n 3); Dev Chatterjee, ‘Litigation
Turning Out to be a Big Hurdle for IBC: Economic Survey’ Business Standard (Mumbai, 30 January
2021) <https://www.business-standard.com/budget/article/litigation-turning-out-to-be-a-big-hurdle-for-
ibc-economic-survey-121012901244_1.html> accessed 7 May 2021.

Electronic copy available at: https://ssrn.com/abstract=3924626

 II. The Insolvency and Bankruptcy Code, 2016

Prior to the creation of the IBC, India’s insolvency regime was a patch-work of laws.5

The primary legislation regulating companies in India were the Companies Act, 1956 and

later, the Companies Act, 2013, both of which provided for two possibilities for distressed

companies- winding up of the company or entering into schemes of arrangement with

creditors or members at any stage of the insolvency process.6

Special legislations catered to different stakeholders, such as the Recovery of Debt Due

to Banks and Financial Institutions Act, 1993 (“RDDBFI Act”), and the Securitisation

and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

(“SARFEASI Act”), which were recovery legislations for creditors. The Sick Industrial

Companies (Special Provisions) Act, 1985 (“SICA”) was a rescue and rehabilitation

legislation for industrial companies. Apart from other issues, the operation of these

legislation was marked with significant delays and inefficiency.7 For instance, SICA and

its administration through the Board of Industrial and Financial Reconstruction was

widely criticized, with persistent calls to replace it.8 India’s insolvency regime fared

poorly on a comparative global level. In 2015, it ranked 137 in the world for resolving

5
Akshaya Kamalnath, 'Corporate Insolvency Resolution In India- A Proposal To Overcome The
‘Initiation Problem’' (2019) 88 UMKC Law Review 631.
6
ibid.
7
The Committee on Industrial Sickness and Corporate Restructuring, ‘Report’ (1993) 18-24; M/s Madras
Petrochem Ltd and Anr v BIFR & Ors (2016) SCC SC 86, paras 40-43; Swiss Ribbons (P) Ltd v Union of
India (2019) 4 SCC 17, para 16.
8
Kristin Van Zwieten, 'The Demise of Corporate Insolvency Law In India: The Role Of The Courts'
(PhD Thesis, Magdalen College, University of Oxford 2012).

Electronic copy available at: https://ssrn.com/abstract=3924626

insolvencies.9 An insolvency resolution would take 4.3 years on an average with a meagre

recovery rate of 25.7 cents on the US dollar.10

Recognizing the problems with the fragmented insolvency framework, the BLRC was set

up to recommend reforms to the system.11 The BLRC recognized the need to develop an

efficient regime that would effectively reorganize viable companies and liquidate the

unviable ones to minimize the losses of all stakeholders.12 Delays in the process was

identified as one of the key reasons for the failure of the erstwhile regime.13 The BLRC

noted that these delays were attributable to factors such as delaying tactics by a

corporation’s managers, mandatory court approvals and excessive discretion for judicial

intervention, inadequate institutional capacity, abuse of the moratorium period by

debtors, pro-rehabilitation bias of judicial forums even for unviable businesses,

complicated distribution regime in relation to prioritization during liquidation, holdouts

by some creditors through the schemes of arrangement and compromises, delays in the

decision-making by state-owned creditors and multiplicity of forums provided under

different legislations leading to overlapping legal actions.14 In such a scenario, creditors

usually initiated independent recovery proceedings, regardless of the company’s viability.

These proceedings could involve the same assets, leading to conflicts, complicated

distribution and significant delays that would further deplete the value of the company.

9
World Bank (n 1) 14.
10
ibid 15.
11
Bankruptcy Law Reforms Committee, 'Interim Report' (2015).
12
ibid 32.
13
BLRC, 'Interim Report' (n 11) 13.
14
ibid.

Electronic copy available at: https://ssrn.com/abstract=3924626

This was a natural consequence in the absence of an efficient and cohesive corporate

rescue system in India.

Finally, India’s insolvency regime was overhauled in 2016 with the introduction of the

IBC. The BLRC’s final report highlighted three main objectives to achieve- quick

resolution, low loss in recovery and higher levels of debt financing across debt

instruments.15The BLRC noted that the most important objective was the “need for

speed” for two reasons.16 First, even though the moratorium applicable during insolvency

resolution helps in keeping the entity a going concern, important decisions cannot be

made without clarity regarding the ownership and control of the entity. Increased delay

may push the corporation toward liquidation. Second, time is crucial even after

liquidation has been resorted to. The value of many assets will suffer due to delay, thus

harming all stakeholders. 17

The IBC was envisioned to be more than a simpliciter recovery legislation for the

creditors.18 Thus, the objectives provided within the IBC are to be viewed in the following

order.19 First, to rescue the company in distress. Second, the value of the company’s assets

must be maximised and third, promote entrepreneurship, availability of credit and balance

the interests of all stakeholders.

15
BLRC, ‘Report: Volume I’ (n 2) para 3.4.1.
16
ibid 15.
17
BLRC, ‘Report: Volume I’ (n 2) 14-15.
18
Swiss Ribbons (P) Ltd v Union of India (n 7) para 28.
19
Binani Industries Ltd v Bank of Baroda & Anr, 2018 SCC OnLine NCLAT 521 para 17; These
objectives are included in the Preamble of the IBC 2016.

Electronic copy available at: https://ssrn.com/abstract=3924626

The IBC allows both creditors and the corporate debtor to initiate the Corporate

Insolvency Resolution Process (“CIRP”).20 The moment a ‘default’ occurs, the respective

party can initiate the process. Default has been widely defined as the non-payment of the

debt upon it becoming due and payable.21 It allows the initiation of the CIRP at an early

stage where the debtor’s value can be effectively preserved with timely resolution.22

Initially the minimum default amount for triggering the IBC was INR 1 Lakh, however it

has been raised to INR 1 crore, to protect the Medium, Small and Micro Enterprises in

particular during Covid-19.23

After admission of the application by the Adjudicating Authority, that is, the National

Company Law Tribunal (“NCLT”), a public announcement is made and an interim

resolution professional is appointed, within 14 days from the date of commencement of

the CIRP.24 Further, a moratorium is declared, including, on all proceedings against the

corporate debtor and on any transfer of property or interest by the debtor. 25 Unlike the

American model where the company management remains in control of the company

(called the ‘debtor-in-possession’ model) for the insolvency process,26 in India, the IBC

transfers control of the corporate debtor to the creditors during CIRP, exercised through

20
The Insolvency and Bankruptcy Code 2016, s 6 (IBC 2016).
21
IBC 2016, s 3(12).
22
The Insolvency and Bankruptcy Code 2015 was introduced in the Lok Sabha with a ‘Notes on Clauses’
115 < https://www.thehindu.com/multimedia/archive/02976/Insolvency_and_Ban_2976443a.pdf>
accessed 18 May 2021.
23
Ministry of Corporate Affairs, ‘Notification No. S.O. 1205(E)’ (24 March 2020).
24
IBC 2016, s 13.
25
IBC 2016, s 14.
26
Gerard McCormack, 'Control And Corporate Rescue–An Anglo-American Evaluation' (2007) 56
International and Comparative Law Quarterly 515.

Electronic copy available at: https://ssrn.com/abstract=3924626

the interim resolution professional (later resolution professional).27 The directors’

participation in the Committee of Creditors (“CoC”) meetings is limited to attending,

without even a right to vote.28 The rationale for choosing this model was to prevent any

erosion of value by the management of the debtor during insolvency resolution.29

The powers of the board of directors are initially given to an interim resolution

professional whose two main responsibilities are first, to keep the debtor a going

concern30 and second, to constitute the CoC.31 The CoC consists of the financial creditors

of the corporate debtor32 and is responsible for determining the corporate debtor’s future

through the CIRP. Upon its constitution, the CoC appoints a resolution professional33

who manages the affairs of the corporate debtor for the duration of the process, with the

approval of the CoC for certain actions,34 and conducts the CIRP.35

There is a critical distinction in the IBC between two kinds of creditors- financial and

operational. Financial creditors are typically in a financial contract such as a loan with

the corporate debtor and are owed debts disbursed against consideration for the time value

of money.36 Operational creditors have claims against the debtor with respect to any

goods supplied or services rendered by them, any claims arising out of employment, and

27
IBC 2016, s 17.
28
IBC 2016, s 24(4).
29
BLRC, ‘Report: Volume I’ (n 2) para 3.4.2.
30
IBC 2016, ss 17 and 20.
31
IBC 2016, s 18(c).
32
IBC 2016, s 21(2).
33
IBC 2016, s 22.
34
IBC 2016, ss 25 and 28.
35
IBC 2016, s 23.
36
IBC 2016, ss 5(7) and 5(8).

Electronic copy available at: https://ssrn.com/abstract=3924626

dues owed to the government.37 The operational creditors do not have voting rights in the

CoC and can only be present in the meetings of the CoC through a representative,

provided their aggregate dues amount to not less than 10% of the debt.38

The CoC must assess the viability of the corporate debtor and choose an appropriate

resolution plan that adheres to the provisions of the IBC. The resolution professional aids

the CoC in the process and is responsible for maintaining record of all claims submitted

by various stakeholders.39The resolution professional prepares an information

memorandum that provides the relevant information about the corporate debtor and an

evaluation matrix that lays down the parameters on which any resolution plan will be

evaluated by the CoC.40 These plans are subsequently placed before the CoC after the

resolution professional determines whether they conform to the requirements.41 The plans

are deliberated and voted upon by the CoC.42 For a resolution plan to be successfully

approved, it requires an affirmative vote of at least sixty-six percent of the financial

creditors in the CoC by value of claims.43

Once a resolution plan is successful, the NCLT has to approve whether the plan adheres

to the requirements under the IBC and underlying rules and regulations.44 If the plan is

37
IBC 2016, ss 5(20) and 5(21).
38
IBC 2016, s 24.
39
IBC 2016, s 25(2)(e).
40
IBC 2016, s 29 and Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations 2016, Regulation 2(1)(ha) (CIRP Regulations 2016).
41
IBC 2016, s 30.
42
ibid.
43
IBC 2016, s 30(4).
44
IBC 2016, s 31.

Electronic copy available at: https://ssrn.com/abstract=3924626

approved, the CIRP is successfully concluded. However, if the NCLT rejects a plan for

non-compliance with the provisions of the IBC, then it must pass an order for

liquidation.45 This process of NCLT approval serves a dual function- first, it provides a

limited extent of judicial review, while the commercial decisions in choosing a resolution

plan are deferred to the CoC. Second, the threat of liquidation can incentivise creditors to

follow the timelines in the IBC and finalize a plan that adheres to the IBC. An appeal

against the approval of the resolution plan may be filed before the National Company

Law Appellate Tribunal (“NCLAT”).46 The IBC provides several grounds for preferring

an appeal such as contravention of the law, material irregularity in the functioning of the

resolution professional, debts of the operational creditors not being included in the final

plan in the manner provided by the Insolvency and Bankruptcy Board of India (“IBBI”),

etc.47 The CIRP finally concludes with either a final resolution plan in place for

implementation or the initiation of liquidation.

The IBC has succeeded in the sense that it has mostly gained buy-in from both financial

and operational creditors.48 As of September 2020, 50.3% of the CIRPs were initiated by

operational creditors, followed by 43.1% by financial creditors and the remaining by

corporate debtors.49 This is significant when contrasted with the new bankruptcy law in

45
IBC 2016, s 33(1)(b).
46
IBC 2016, ss 32 and 61.
47
IBC 2016, s 61(3).
48
But see Kamalnath (n 5) arguing that corporate debtors and creditors in some cases are reluctant to
initiate CIRP as was the case with Jet Airways.
49
Insolvency and Bankruptcy Board of India (n 3).

10

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China (Enterprise Bankruptcy Act) under which few formal processes have been

initiated.50

III. Delays Under the IBC

Originally, the CIRP was to be completed within a period of 180 days, which may be

further extended by 90 days, taking the maximum period for completion to 270 days.51

However, as of September 2020, of the 4008 cases admitted under the IBC, only 277 of

these involved approval of resolution plans.52 Of the 1942 cases that are undergoing

resolution,1442 have been in the pipeline for over 270 days.53 So, while time is of the

essence under the IBC, the reality paints a different picture.

Litigation initiated by parties in the CIRP before tribunals and courts has been cited as

one of the main reasons for delays under the IBC.54 In order to account for time spent in

litigation during a CIRP, the Insolvency and Bankruptcy Code (Amendment) Act, 2019

inserted two provisos into Section 12(3) of the IBC, extending the overall time limit for

a CIRP to 330 days.55 The amended time limit includes the original time period of 270

days and any time taken in legal proceedings with respect to the CIRP. Concerns have

been raised that the extension to 330 days would not lead to much change as the

50
Rebecca Parry and Yingxiang Long, 'China’s Enterprise Bankruptcy Law, Building an Infrastructure
Towards A Market-Based Approach' (2019) 20 Journal of Corporate Law Studies 157.
51
IBC 2016, s 12 requires a resolution for this to be passed by the CoC, and then submitted to the NCLT
for grant of extension.
52
Insolvency and Bankruptcy Board of India (n 3) 16.
53
ibid.
54
Verma (n 4); Thomas (n 4); Upadhyay (n 3); Chatterjee (n 4).
55
The Insolvency and Bankruptcy Code (Amendment) Act, 2019.

11

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institutional incapacity of the NCLT and NCLAT to deal with the overwhelming

workload remains and the numerous stakeholders involved in a typical CIRP makes it

susceptible to various challenges.56 In 2020, the mandatory nature of the 330 days limit

was removed by the Supreme Court of India in Essar Steel v. S.K. Gupta.57It held that a

mandatory time-limit would excessively interfere with parties’ fundamental right to carry

on business under Article 19(1)(g) of the Indian Constitution, when delays occur due to

the tribunal.58 However, the Court noted that entirely striking down the provision would

be akin to “throw(ing) the baby out with the bath water” as evidently, delays continue to

be a significant hurdle in effective insolvency resolution.59 The Supreme Court thus

struck down the word “mandatorily” from the language of the provision as manifestly

arbitrary under Article 14 of the Indian Constitution.60 Consequently, while ordinarily a

CIRP would be expected to be completed within the outer-limit of 330 days, if on the

facts of the case it is found that it is in the stakeholders’ interest for the CIRP to continue

on instead of liquidation; and that the delays are largely attributable not to the litigants

but to the belated process in the NCLT or an appellate body, the timeline may be

extended. Two significant cases on the issue of delays due to litigation are discussed

below.

56
Thomas (n 4).
57
Committee of Creditors of Essar Steel India Limited v Satish Kumar Gupta and Others, (2020) 8 SCC
531.
58
ibid para 127.
59
ibid.
60
ibid.

12

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 A. Essar Steel

The case of Essar steel is useful for understanding the IBC not only for the

aforementioned judgment, but, the company’s CIRP itself, which epitomizes the saga of

delays under the IBC. One of the most protracted CIRPs began soon after the IBC came

into effect. In June 2017, the central bank of India, that is, the Reserve Bank of India

(“RBI”), identified twelve accounts as defaulters for resolution under the IBC, with Essar

Steel being one of the companies identified.61 Subsequently, two financial creditors, State

Bank of India and Standard Chartered Bank, filed a petition against Essar Steel before the

NCLT, Ahmedabad bench.62 On 2 August 2017, the NCLT admitted the initiation of

CIRP against Essar Steel.63 So began a process lasting 800 days, fraught with litigation.
64

61
Pratik Bhakta and Saikat Das, ‘Identified: 12 Insolvent Accounts Responsible for 25% of Toxic Assets
on Bank Balance Sheet’ The Economic Times (Mumbai, 14 June 2017)
<https://economictimes.indiatimes.com/news/economy/policy/rbi-identifies-12-accounts-with-25-per-
cent-of-bank-npas-for-insolvency/articleshow/59130725.cms?from=mdr> accessed 7 May 2021.
62
Special Correspondent, ‘Insolvency Plea Against Essar Steel Admitted’ The Hindu (Ahmedabad, 2
August 2017) <https://www.thehindu.com/business/Industry/insolvency-plea-against-essar-steel-
admitted/article19409953.ece> accessed 7 May 2021.
63
ibid.
64
Radhika Merwin, ‘Legal Complications Have Slowed the Bankruptcy Process’ The Hindu BusinessLine,
(5 November 2019) <https://www.thehindubusinessline.com/specials/india-file/legal-complications-have-
slowed-the-bankruptcy-process/article29881398.ece> accessed 7 May 2021; Ishita Ayan Dutt and Namrata
Acharya, ‘ArcelorMittal Set to Close Rs 42,000-cr Essar Steel Deal Next Week’ Business Standard,
(Kolkata/Hyderabad, 14 December 2019) <www.business-standard.com/article/companies/arcelormittal-
set-to-close-rs-42-000-cr-deal-with-essar-steel-next-week-119121400055_1.html> accessed 7 May 2021.

13

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During the pendency of the CIRP, Section 29A was inserted into the IBC.65 This provision

disqualifies certain persons from being resolution applicants in a CIRP. Two companies

namely, Numetal Ltd., and ArcelorMittal Pvt. Ltd., submitted their respective bids as

resolution applicants. The resolution professional declared both bids to be ineligible

under Section 29A of the IBC and they were rejected.66 The rejected bidders challenged

this decision before the NCLT.67 While the NCLT affirmed the decision of the resolution

professional, the NCLAT disagreed as it found that Numetal’s ineligibility under Section

29A had been cured by it.68 It directed ArcelorMittal to cure its ineligibility by a stipulated

deadline to be considered as an eligible bidder.69 The NCLAT order was challenged

before the Supreme Court of India.70

Once again, the bids of both Numetal and ArcelorMittal were declared ineligible under

Section 29A, this time by the Supreme Court.71 However, they were given the opportunity

to cure their ineligibility under Section 29A by paying off the Non-Performing Assets of

their respective corporate debtors, which was the basis of disqualification.72 While

65
The Insolvency and Bankruptcy Code (Amendment) Act 2017.
66
The resolution professional’s opinion with respect to Numetal and ArcelorMittal’s disqualification was
reproduced in Numetal Limited v Satish Kumar Gupta and Others, 2018 SCC OnLine NCLAT 520, paras
6-12.
67
Priyanka Mittal and Malvika Joshi, ‘Supreme Court Allows Arcelor, Numetal to Rebid for debt-laden
Essar Steel’ Mint (4 October 2018)
<https://www.livemint.com/Companies/e0VIMIWGhyv0Jw5o6fPZnJ/Essar-Steel-bidding-SC-allows-
Arcelor-Mittal-Numetal-to-re.html> accessed 22 May 2021.
68
Numetal v Satish Kumar Gupta (n 66) para 126.
69
Numetal v Satish Kumar Gupta (n 66) para 125.
70
ArcelorMittal India Private Limited v Satish Kumar Gupta and Others, (2019) 2 SCC 1.
71
ibid para 113.
72
IBC 2016, s 29A(c) makes a person ineligible to be a resolution applicant if such person “Has an account,
or an account of a corporate debtor under the management or control of such person or of whom such

14

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ArcelorMittal followed through, Numetal did not and so ArcelorMittal submitted

resolution plan. The final plan of ArcelorMittal was approved by 92.24% majority of its

CoC.73 However, in March 2019, the plan was challenged before the NCLT and

thereafter, the NCLAT, for being discriminatory and unreasonable by treating financial

creditors and operational creditors unequally. The NCLAT modified the resolution plan

to give greater share to operational creditors in order to treat the classes of creditors

alike.74 This NCLAT decision was appealed against and finally in November 2019, the

Supreme Court of India put the matter to rest by setting aside the NCLAT order and

deferring to the “commercial wisdom” of the CoC.75It restored the original resolution

plan submitted by ArcelorMittal that treated the creditors differently.76

Delays in Essar Steel can be attributed to litigation arising from two main concerns. First,

the introduction of a new substantive provision that affected the rights and obligations of

the parties in a CIRP initiated before the amendment. Second, the conflict between

operational and financial creditors and their differential treatment in the CIRP. The latter

concern is a recurring phenomenon across CIRPs and an issue that needs to be addressed

to improve efficiency of the CIRP process.

person is a promoter, classified as non-performing asset in by the RBI and at least a period of 1 year has
lapsed from the date of such classification; Provided that the person shall be eligible to submit a resolution
plan if such person makes payment of all overdue amounts with interest thereon and charges relating to
non-performing asset accounts before submission of resolution plan”.
73
Essar Steel v Satish Kumar Gupta (n 57) para 4.
74
Standard Chartered Bank v Satish Kumar Gupta and Others, 2019 SCC OnLine NCLAT 388, para
222.
75
Essar Steel v Satish Kumar Gupta (n 57).
76
ibid para 156.

15

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 B. Binani Cement

Another CIRP that commenced in the early days of the IBC was of Binani Cement Ltd.77

The application of its financial creditor, the Bank of Baroda, to initiate CIRP was admitted

by the NCLT, Kolkata Bench on 25 July 2017.78 Initially, the CoC of Binani Cement

approved the resolution plan proposed by the resolution applicant, Rajputana Properties

Pvt. Ltd., with a 99.43% vote. It was discovered later that 10.53% of the CoC was

“forced” to vote for the plan and therefore recorded a ‘protest note’ that they were not

treated equitably compared to the other financial creditors despite having to assent to the

plan.79 Further, with respect to operational creditors, ‘unrelated parties’ had received 35%

of their claims while ‘related parties’ did not receive any amount at all.80 Another plan,

submitted by Ultratech Cement Ltd. had allegedly not been considered adequately by the

CoC, which provided a framework that maximized the value of the corporate debtor’s

assets and balanced stakeholders’ interests in a better manner.81 Subsequently, upon

direction by the NCLT, the CoC repeated the process of finalizing a resolution plan and

eventually chose to submit Ultratech Ltd.’s plan.82

77
Financial Express Bureau, ‘Binani Cement Insolvency Proceedings by Bank of Baroda Admitted by
NCLT’ Financial Express (Kolkata, 26 July 2017) <https://www.financialexpress.com/industry/binani-
cement-insolvency-proceedings-by-bank-of-baroda-admitted-by-nclt/779602/> accessed 7 May 2021.
78
Bank of Baroda v Binani Cement Ltd, Interim Order, 25 July 2017 (NCLT).
79
Binani Industries v Bank of Baroda (n 19) para 13.
80
ibid para 22.
81
ibid.
82
Avishek Rakshit, ‘Insolvency: Binani Cement Submits UltraTech Plan for NCLT Approval’ Business
Standard (Kolkata, 1 June 2018) <https://www.business-standard.com/article/companies/insolvency-
binani-cement-submits-ultratech-plan-for-nclt-approval-118060101552_1.html> accessed 7 May 2021.

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The NCLAT in its final order in Binani held that there was non-application of mind by

the CoC and it was discriminatory to approve the plan of Rajputana Properties.

Ultratech’s plan proposed payment of 100% of the financial and operational creditors’

claims, apart from related parties.83 It further observed that if the operational creditors are

ignored and simply paid liquidation value, then these creditors would cease to supply

goods or services on creditor to protect their interests. Balancing interests is pivotal to

assuage concerns of all stakeholders and in this case, the CoC chose a plan that left

stakeholders, apart from a certain set of financial creditors, worse off, and in a

discriminatory manner. The NCLAT therefore approved Ultratech’s plan on 14

November 2018.84 Finally, on 19 November 2018, the Supreme Court also ruled in favour

of the Ultratech plan.85 Again, the entire CIRP took longer than the anticipated 270 days

period. This prolonged process took place despite the plan with the maximized value

being put before the CoC at the appropriate juncture in the CIRP.

It is anecdotally evident from the two cases discussed above that the causes of the delays

are twofold – litigation necessary to clarify aspects of the new law, and litigation resulting

from conflicts between different stakeholders involved in the process. These issues have

83
Binani Industries v Bank of Baroda (n 19) para 43.
84
Binani Industries v Bank of Baroda (n 19) para 48.
85
Mahima Kapoor, ‘Supreme Court Upholds Binani Cement Sale to UltraTech’ The Quint (19 November
2018) <https://www.thequint.com/news/business/supreme-court-upholds-binani-cement-sale-to-
ultratech> accessed 7 May 2021; Avishek Rakshit, ‘SC Verdict on Binani Cement’s Takeover a Relief for
its Former Promoter’ Business Standard (Kolkata, 25 November 2018) <https://www.business-
standard.com/article/companies/sc-verdict-on-binani-cement-s-takeover-a-relief-for-its-former-promoter-
118112400594_1.html> accessed 7 May 2021.

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been noted in several other cases as well.86 In India, where the judicial system both at the

tribunal and court levels, faces a crisis of workload and incapacity, 87 there is an urgent

need to explore potential ways to divert the traffic arising from CIRPs.

IV. IBC From a Feminist Perspective

While the previous part of this article studied the IBC primarily from the lens of efficiency

in terms of time-bound resolution as an objective, it also highlighted conflicts between

various stakeholders as a recurring theme in CIRPs. This part will study the issue by

engaging in a feminist analysis of the IBC.

The feminist movement constitutes myriad views and perspectives.88 Kathleen Lahey and

Sarah Salter produced one of the first works on feminism and corporate law, by primarily

86
Radhika Merwin, ‘IBC Delays are Hurting Banks, Economy’ The Hindu BusinessLine (17 October 2018)
<https://www.thehindubusinessline.com/opinion/ibc-delays-are-hurting-banks-
economy/article25240394.ece> accessed 7 May 2021.
87
Muskan Khan and N. Sundaresha Subramanian, ‘Gavel to the Block: An Overburdened NCLT is a Drag
on the New Bankruptcy Code’ The Economic Times Prime (12 February 2019)
<https://economictimes.indiatimes.com/prime/corporate-governance/gavel-to-the-block-an-
overburdened-nclt-is-a-drag-on-the-new-bankruptcy-code/primearticleshow/67951567.cms> accessed 7
May 2021; Dipak Mondal, ‘Overwhelmed’ Business Today (2 June 2019)
<https://www.businesstoday.in/magazine/the-hub/overwhelmed/story/345985.html> 7 May 2021;
Apoorva Mandhani, ‘NCLTs, Meant to Resolve the Bad Debt Mess in Days, are Understaffed and
Overburdened’ The Print (New Delhi, 24 June 2019) <https://theprint.in/economy/nclts-meant-to-resolve-
the-bad-debt-mess-in-days-are-understaffed-and-overburdened/253106/> accessed 7 May 2021;
Bloomberg Quint Desk, ‘India’s Pending Court Cases On the Rise: In Charts’ Bloomberg Quint (29
September 2020) <https://www.bloombergquint.com/law-and-policy/indias-pending-court-cases-on-the-
rise-in-charts> accessed 7 May 2021.
88
Kathleen Lahey and Sarah W. Salter, ‘Corporate Law in Legal Theory and Legal Scholarship: From
Classicism to Feminism’ (1985) 23 Osgoode Hall Law Journal 543; Kimberle Crenshaw, ‘Demarginalizing
the Intersection of Race and Sex: A Black Feminist Critique of Antidiscrimination Doctrine, Feminist

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critiquing the corporate structure and ethics as masculist and calling for more engagement

by feminist scholars.89 There is sparse scholarship about feminist analyses of insolvency

law. In 1994, Julie Streeton’s work analysed the insolvency framework from the

perspective of women as persons.90More recently, Lezelle Jacobs,91 like Lahey and Salter

in the corporate law space, centred her article around feminist values. In this article we

adopt the latter approach and assess whether values termed as ‘feminist’ are present in

the IBC or not.92

The central argument in considering men and women to possess different values is that

women perceive the self in relation with others, while men prime individuality and

separateness.93 Therefore, while men view the individual selves in competition and strive

for dominance, women value connectedness and caring for others’ needs.94 The

Theory and Antiracist Politics’ (1989) University of Chicago Legal Forum 139; Denise G. Réaume,
‘What’s Distinctive About Feminist Analysis of Law?: A Conceptual Analysis of Women’s Exclusion from
Law’ (1996) 2 Legal Theory 265; Joanne Conaghan, ‘Reassessing the Feminist Theoretical Project in Law’
(2000) 27 Journal of Law and Society 35; Judith A. Baer, ‘Feminist Theory and the Law’ in Robert E.
Goodin (ed), The Oxford Handbook of Political Science (Oxford: Oxford University Press 2010).
89
Lahey and Salter, ibid.
90
Julie Dodd Streeton, ‘Feminist Perspectives on the Law of Insolvency’ (1994) 6 Adelaide Law Review
Research Papers 1.
91
Lézelle Jacobs, ‘Legal Feminism and Insolvency Theory: A Woman’s Touch?’ (2019) 3
Wolverhampton Law Journal 49.
92
This method of enquiry is generally attributed to the school of relational feminism, Réaume (n 88) 287;
Theresa A. Gabaldon, ‘The Lemonade Stand: Feminist and Other Reflections on The Limited Liability of
Corporate Shareholders’ (1992) 45 Vanderbilt Law Review 1387, 1422-3.
93
Carol Gilligan, In a Different Voice: Psychological Theory and Women’s Development (Harvard
University Press 1982); Réaume (n 88) 287.
94
Réaume (n 88) 287; Robin West, ‘The Difference in Women’s Hedonic Lives: A Phenomenological
Critique of Feminist Legal Theory’ (2000) 15 Georgetown Law Faculty Publications and Other Works 149;

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difference between what is termed as masculist as opposed to feminist from this

perspective was highlighted by Carol Gilligan when she distinguished between the female

“ethics of care” system and the male “ethics of justice” system.95 However, to attribute a

value as feminist is not to imply that it is present in all women or conversely, absent from

all men.96

This system of difference has found favour in those critiquing law as customarily centring

around masculist values.97Carrie Menkel-Meadow wrote that an adversarial system of

litigation is reflective of the male value system of competition and binary results98 while

more cooperative methods (termed as ‘alternative dispute resolution’) such as mediation,

align with the female ethics of care system by emphasizing on preserving relationships

and finding solutions together.99 While discussing the epistemology of corporate law,

Peta Spender wrote that corporate law is based on the premise of the self-interested male,

Kellye Y. Testy, ‘Capitalism and Freedom- For Whom?: Feminist Legal Theory and Progressive Corporate
Law’ (2004) 67 Law and Contemporary Problems 87, 100.
95
Gilligan, (n 93).
96
Carrie Menkel-Meadow, ‘Portia in a Different Voice: Speculations on a Women’s Lawyering Process’
(1985) Berkeley Women’s Law Journal 39, 41-42; Reference to just binary genders is due to their use in
the original literature being relied upon in this article.
97
Menkel-Meadow (n 96); Réaume (n 88); Leslie Bender, ‘A Lawyer’s Primer on Feminist Theory and
Tort’ (1988) 38 Journal of Legal Education 3; Leslie Bender, ‘From Gender Difference to Gender
Solidarity: Using Carol Gilligan and an Ethic of Care in Law’ (1990) 15 Vermont Law Review 1; West (n
94); Gabaldon (n 92).
98
Menkel-Meadow, ibid 51.
99
ibid 51-52.

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characterized by values such as “competition, hierarchy, aggression and strict

classification of roles”.100

The ethics of care was also used to redefine the stakeholder theory in corporate law by

highlighting the importance of a network of relationships forged among stakeholders.101

This view embraced the feminist care conception of viewing the self, that is, the

corporation, in relation with stakeholders, which give meaning to the corporation.102The

value attached to the stakeholders of a corporate debtor is significant for the insolvency

resolution process. If the company is to be restructured as a going concern, it is crucial to

preserve various stakeholder relationships including those with operational creditors

(employees and trade creditors are often included in this category). Even if the company

is to be liquidated, it is in the interests of all stakeholders, the over-burdened NCLTs and

the economy in general, that this decision is taken quickly without excessive litigation. It

is, therefore, important to assess how various stakeholders are treated in the IBC.

The IBC views the insolvency of a corporation as a stakeholder concern. In Swiss Ribbons

v. Union of India, the Supreme Court observed that the IBC is a beneficial legislation,

and interests of all stakeholders are taken care of as the corporate debtor becomes a

beneficiary of the final resolution scheme- workers are paid, creditors in the long run will

100
Peta Spender, ‘Women and the Epistemology of Corporations Law’ (1995) 6 Legal Education Review
195, 196; Hierarchy and competitiveness were also identified as part of the male value system by Réaume
(n 88) 287.
101
Andrew C. Wicks, Daniel R. Gilbert Jr. and R. Edward Freeman, ‘A Feminist Reinterpretation of the
Stakeholder Concept’ (1994) 4 Business Ethics Quarterly 475.
102
Wicks et al (n 101) 483-84.

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be repaid in full, and shareholders/investors are able to maximise their investment.103 As

noted in Part II, this shift toward a more holistic purpose was a deliberate one after

witnessing the failures of a fragmented recovery framework. Considering this, the IBC

aims to preserve the corporation and the relationships that constitute it. From this

perspective, the IBC may appear to lean toward a more feminist approach.

However, as previously discussed, the financial creditors determine the fate of all

stakeholders in the CIRP through the CoC. The BLRC believed this composition of the

CoC would make the process “rapid and efficient”.104 The classification of roles for

stakeholders, along with the creation of a hierarchy in powers among the creditors to the

exclusion of others can be perceived as an action stemming from the masculist values

identified previously in this article.

The distinction between financial and operational creditors was subject to a constitutional

challenge and the same was rejected by the Indian Supreme Court in Swiss Ribbons v.

Union of India.105 The Court affirmed the distinction by referring to the difference

between secured and unsecured creditors under the respective Companies Acts of India

and the United Kingdom. It noted that financial creditors, who are generally secured

creditors, enter into contracts involving significant money for a long duration of time to

help the corporate debtor set up or operate. Whereas, operational creditors are usually

unsecured and concerned with payments relating to wages, goods or services that do not

103
Swiss Ribbons v Union of India (n 7) para 28.
104
BLRC, ‘Report Volume I’ (n 2) 84.
105
Swiss Ribbons v Union of India (n 7).

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add up to a very significant amount. The debts of operational creditors are generally

recurring and carry a higher likelihood of disputes that may not be as easily resolvable as

a default with respect to a financial creditor, and involving issues that are to be proved in

arbitration or courts of law.106 Further, from the beginning of a financial creditor’s

relationship with the corporate debtor, it is involved in assessing the viability of the

corporate debtor. Therefore, as opposed to operational creditors, financial creditors can

and do engage in restructuring of loans provided by them and restructuring of the

corporate debtor during financial stress.107 As per the BLRC, incorporating operational

creditors into the CoC would go against the goal of efficiency and cause delays in the

process, due to lack of sufficient incentive or expertise to effectively participate.108 It

observed that operational creditors would generally not want to postpone payments due

to them for the sake of exploring better prospects for the debtor or have the ability to

decide the matters that arise in the insolvency process.109Therefore, the CoC continues to

operate solely consisting of the financial creditors as the decision-makers.

Apart from the composition, the functioning of the CoC does not align itself to achieving

inclusion or treating different stakeholder relationships with equal value. The CoC has

been provided with significant discretion to determine the future of the corporate

debtor.110 In doing so, the committee has no fiduciary duty towards other stakeholders

and no incentives to think beyond maximising its own interests. The IBC seeks to provide

106
Swiss Ribbons v Union of India (n 7) para 75.
107
ibid.
108
BLRC, ‘Report Volume I’ (n 2) 84.
109
ibid.
110
The Supreme Court in Essar Steel v Union of India (n 57), stated that there has to be deference to the
commercial wisdom of the CoC.

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a system of checks and balances111such as mandating content of the resolution plan to

address how stakeholders interests have been dealt with,112 providing minimum values to

be paid to operational creditors who are prioritized over financial creditors,113and judicial

review.114 However, these provisions come with their own concerns.

The Insolvency Resolution Process for Corporate Persons Regulations, 2016 (“CIRP

Regulations”) mandate that the resolution plan must include a statement on how interests

of all stakeholders are dealt with.115 However, the provision is ambiguous on crucial

questions like what the threshold for accepting that stakeholder interest has been dealt

with is. Is there a subjective or an objective test, or no test at all? The NCLT merely has

to be satisfied that the plan adheres to the provisions of the IBC.116 As previously noted,

the NCLT also has to defer to the CoC’s commercial wisdom. The NCLT can reject the

approval of a plan only for non-compliance with the requirements under Section 30(2) of

the IBC.117 In case the NCLT decides to reject a plan, liquidation will be initiated. The

outcome of the liquidation process could actually leave stakeholders relatively worse off

due to the ranking in claims in the liquidation waterfall.118

111
M. S. Sahoo, ‘Here’s How IBC 2016 Has Taken Corporate Governance to New Heights’ Financial
Express (13 February 2020) <https://www.financialexpress.com/opinion/heres-how-ibc-2016-has-taken-
corporate-governance-to-new-heights/1866199/> accessed 7 May 2021.
112
IBC 2016, s 30; CIRP Regulations 2016, Regulation 38(1A).
113
IBC 2016, s 30; CIRP Regulations 2016, Regulation 38(1).
114
IBC 2016, s 31.
115
CIRP Regulations 2016, Regulation 38(1A).
116
IBC 2016, s 31(1).
117
IBC 2016, s 31(1).
118
IBC 2016, s 53.

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In 2018, the Insolvency Law Committee made recommendations for changes to the

IBC.119 One of the provisions discussed in its report was the minimum value guaranteed

to operational creditors under a resolution plan. As per the erstwhile Section 30(2)(b) of

the IBC, the operational creditors were entitled to at least the liquidation value under the

final resolution plan. Further, the CIRP Regulations provided that the operational

creditors must be paid this value prior to financial creditors.120This guarantee of the

minimum value had apparently been provided under the IBC as sort of a concession for

excluding the operational creditors from the CoC.121

Comments received by the Insolvency Law Committee stated that in reality this

guaranteed value could very well be negligible or nil since the creditors fall under the

residual category of claims in the liquidation waterfall.122 Specifically, it was contended

on behalf of unsecured operational creditors that there would be no incentive for them to

continue working with the corporate debtor and keep it a going concern if the recovery

chances were so low.123 The Committee considered and rejected other values as the basis

for a floor amount for operational creditors.124 Citing a lack of empirical evidence (due

to many pending CIRPs), to indicate that operational creditors were not receiving a fair

share under resolution plans, the Insolvency Law Committee concluded that changes

were not necessary in the present provisions. It suggested rather that regulatory bodies

119
Insolvency Law Committee, ‘Report’ (2018)
<http://www.mca.gov.in/Ministry/pdf/ReportInsolvencyLawCommittee_12042019.pdf> accessed 7 May
2021.
120
CIRP Regulations 2016, Regulation 38(1)(b).
121
Insolvency Law Committee (n 119) 57.
122
ibid
123
ibid.
124
ibid 57-58.

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like the IBBI must act to improve the quality of resolution plans to protect the interests

of operational creditors.125

Section 30(2)(b) was subsequently amended retrospectively with effect from 16 August

2019.126 The amended section provides operational creditors with the higher of the two

values between the liquidation value and the value they would be entitled to if the amount

provided under the resolution plan is distributed as per the order of priority under Section

53(1) of the IBC. The amendment also added an explanation that a distribution in

accordance with this section would be considered ‘fair and equitable’ to the creditors. The

Supreme Court upheld the amendment’s constitutionality in Essar Steel.127

So, in effect, the IBC provides the CoC the responsibility to do the bare minimum with

regards to other stakeholders, with the freedom to maximise their own interest. The

Supreme Court in Essar Steel also held that the IBC does not envision equal, but rather

equitable treatment of financial and operational creditors.128 The Supreme Court observed

that since these creditors constituted distinct and separate classes, they warrant

differential treatment and therefore, a resolution plan does not have to treat their claims

equally.129 It held that the CoC’s decision has to show that it has considered the IBC’s

objectives of value maximization and balancing the interests of all stakeholders. The

Court deferred to the commercial wisdom of the CoC for determining the specific

125
ibid.
126
The Insolvency and Bankruptcy Code (Amendment) Act, 2019.
127
Essar Steel v Satish Kumar Gupta (n 57).
128
ibid.
129
Essar Steel v Satish Kumar Gupta (n 57) para 88.

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allocations within the final plan, limiting the NCLT and NCLAT’s power to review and

interfere with this.130

The engendered ambiguity- from the weak obligation on the CoC with regards to

stakeholder interests to the tribunals’ ambiguous, albeit limited, power to review the

CoC’s commercial wisdom virtually leaves stakeholders at the mercy of the dominant

financial creditors and failing that, challenges before adjudicatory bodies. The

consequence of exclusion is observed in stakeholders’ response in CIRPs. As noted in the

previous parts of this article, challenges by stakeholders during the CIRP have become a

recurring phenomenon.131 The Essar and Binani incidents recounted in Part III were two

examples where stakeholders have felt their rights were not sufficiently recognised or

valued.

As the above analysis shows, the IBC predominantly reflects masculist values. A quick

or purportedly efficient outcome is prioritised over ensuring that all stakeholders

participate or feel valued in the CIRP. The hierarchy and classification between the

classes of stakeholders under the IBC results in exclusion and situations of

disenfranchisement of one set of creditors.132 This prioritisation subverts the feminist

values of inclusion and preservation of stakeholder relationships. While masculist values

130
ibid para 147.
131
Amrita Sinha and Zubin Mehta, ‘Balancing Interests Under the IBC’ Mint (16 July 2018)
<https://www.livemint.com/Opinion/ddNrMVyUv0t96gvOvfPBHK/Balancing-interests-under-the-
IBC.html> 7 May 2021; Verma (n 4); Upadhyay (n 3); Chatterjee (n 4).
132
Sudip Mahapatra, Pooja Singhania and Misha Chandna, ‘Operational Creditors in Insolvency: A Tale
of Disenfranchisement’ (2020) 14 NALSAR Student Law Review 78; C Scott Pryor and Risham Garg,
‘Differential Treatment among Creditors under India’s Insolvency and Bankruptcy Code, 2016: Issues and
Solutions’ (2020) 94 American Bankruptcy Law Journal 123.

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are important, particularly in the context of Indian insolvency where delays were a huge

problem, the working of the IBC has shown that constant litigation by stakeholders might

in fact take away from the goals of speed and efficiency.

The only opportunity that many stakeholders get to voice their concerns is through

contentious litigation. The legal system followed in India is reflective of masculist values

such as competition and binary results, typically found in adversarial systems as

highlighted by Menkel-Meadow.133While India also provides for Alternative Dispute

Resolution (“ADR”) options, these have mostly been ignored in the corporate insolvency

process. Court proceedings can last years, while the corporate debtor continues to lose its

value and stakeholders harden their positions in opposition to each other.

The issue we find with the present functioning of the IBC is not the final unequal

outcomes for the parties, but the lack of importance given to inclusion and valuing

stakeholder relationships in determining these outcomes. It is therefore necessary to

rethink the values we want governing the IBC, that act as a foundation for its provisions.

We are not advocating an either-or approach to the feminist and masculist perspective but

rather, bringing the excluded values into the fore to transform the law for better outcomes.

Masculist and feminist values are not always competing and can usefully learn from each

other.134

There is a possibility of marrying the goals of efficiency and inclusion in a mutually

beneficial way. A more inclusive process at some stage in the CIRP that encourages

communication between different stakeholder groups, can lead to compromise rather than

133
Menkel-Meadow (n 96) 51.
134
ibid 47.

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subsequent prolonged conflict before judicial forums. Non-adversarial mechanisms of

dispute resolution that encourage open communication to maximise collective interest

could prove useful. Specifically, mediation challenges the traditional masculist way of

adversarial adjudication by focusing on responding to all parties’ needs, and seeking

solutions that serve collective interest.135 Presently, the IBC does not provide for

mediation at any stage.

V. A Proposal to Employ Mediation Within the CIRP

Mediation and other forms of ADR have been used in corporate insolvency cases in other

countries, and its benefits have been recognised in many jurisdictions. Justice James M.

Farley, as he then was, extolled the benefits of ADR in insolvency cases as follows:136

…it may be desirable for the parties in such an insolvency situation to quickly and

actively explore in a bona fide way some of these ADR processes as an alternative

to the more time consuming traditional trials or applications. Timing (or lack of

time) therefore may dictate the process.

135
Janet Rifkin, ‘Mediation from a Feminist Perspective: Promise and Problems’ (1984) 2(1) Law &
Inequality: A Journal of Theory and Practice 21; Menkel-Meadow (n 96).
136
James M. Farley ‘The Judges' Forum: Effective Use of the Judicial Process in Insolvency and
Reorganizations’ (1995) 4 International Insolvency Institute of Canada (Articles).

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Speedy resolution of the CIRP was one of the dominant goals of the IBC.137 Justice

Farley’s statement above reflects the significance of this goal. There is much truth in this

emphasis on the value of time in the context of insolvent companies where, depending on

the sector, value of the company can deplete very quickly. In India, where NCLTs have

a heavy workload, litigation delays are almost inevitable.138 Ensuring that stakeholders

feel heard and any negative emotions are addressed will help the company preserve

relationships and continue operations with the support of these stakeholders. Litigation

between stakeholders during the CIRP not only delays the resolution but could well

damage relationships that are essential for the company’s operations after resolution of

the insolvency.

Mediation has been employed frequently in the U.S. for insolvency cases.139 The

bankruptcy court in the Southern District of New York, introduced the court-connected

mediation programme, and the reorganisation of Macy & Co. was one of the first referees

to the process in 1993.140 Further, bankruptcy cases involving adversary proceedings and

preference actions were referred to mandatory mediation by the U.S Bankruptcy Courts

in Delaware.141 Mediation may also be used to resolve disputes arising out of an

insolvency proceeding. The Lehman Brothers insolvency case resulted in 75

137
BLRC, ‘Report: Volume I’ (n 2) 15.
138
Khan and Subramanian (n 87); Mondal (n 87); Mandhani (n 87).
139
After the enactment of the ADR the courts are authorised to use ADR in all civil actions, including
adversary proceedings in bankruptcy, United States Code, Title 28, ss 651-58 (2009).
140
Cassandra G. Mott, ‘Macy's Miracle on 34th Street: Employing Mediation to Develop the
Reorganization Plan in a Mega-Chapter 11 Case’ (1998) 14 Ohio State Journal on Dispute Resolution 193,
198.
141
Marcos A. Ramos, ‘Delaware Bankruptcy Court: Mandatory Mediation Update’ (2013) 18(3)
Bankruptcy & Insolvency Litigation, American Bar Association.

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simultaneous legal proceedings across 40 countries dealing with more than 18 major

Lehman subsidiaries. This posed a major challenge as each jurisdiction perceived the case

in a different angle thus resulting in conflicting judgements.142 Lehman sought leave to

mediate with most of its creditors and successfully arrived at a solution in 77 proceedings

of which only 4 were terminated without arriving at a conclusion. This enabled Lehman

to avoid time consuming and convoluted legal proceedings and successfully arriving at

maximum value arrangement with respective creditors.143

European countries have also recognized the importance of mediation in the corporate

insolvency context even if it is less developed there than in the U.S. The French

preventive restructuring proceedings (which can only be opened when the company is not

insolvent) involves the appointment of a mediator to help the company negotiate a

contractual agreement with its main creditors.144 The other preventive restructuring

process in France is conciliation which involves a court appointed conciliator suggesting

relevant proposals to be agreed upon.145 The European Commission has recommended

court appointed mediators to help with negotiations to arrive at a restructuring plan.146 It

142
Kayjal Dasan and Samuel Seow, ‘Seminar Review: Mediation in International Insolvency’ International
Arbitration Asia (20 September 2015)
<http://www.internationalarbitrationasia.com/mediation_in_international_insolvency_disputes> accessed
17 May 2021.
143
ibid.
144
David Christoph Ehmke, Jennifer L.L. Gant, Gert-Jan Boon, Line Langkjaer, and Emilie Ghio, ‘The
European Union Preventive Restructuring Framework: A Hole in One?’ (2019) 28(2) International
Insolvency Review 184, 191.
145
ibid.
146
Gert-Jan Boon, ‘Harmonising European Insolvency Law: The Emerging Role of Stakeholders’ (2018)
27(2) International Insolvency Review 150, 173; A Dutch court in 2018 suggested in an interim ruling, that
parties in the two cases it was addressing should consider whether they could reach a settlement on the

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also stated in an earlier directive (‘mediation directive’) that mediation should be

promoted because it is cost-effective, quick, and can result in solutions tailored to party

needs. Further, “agreements resulting from mediation are more likely to be complied with

voluntarily and are more likely to preserve an amicable and sustainable relationship

between the parties”.147 Although the mediation directive did not specifically mention

insolvency matters, it mentions ‘civil and commercial matters’ which include matters of

‘rescue and insolvency’.148

In India, Justice A.K. Sikri and Anuroop Omkar have suggested that mediation could be

suitable for disputes arising out of insolvency resolution procedures.149 They note the

possibility of resolution plans arrived at during mediation being more stakeholder friendly

and innovative as compared to a typical plan resulting from a CIRP.150 Additionally,

whole or part of the issues at hand; and whether a reference to insolvency mediation was possible. Court of
Appeal’s-Hertogenbosch (Netherlands), ECLI: NL: GHSHE: 2017: 2250.
<https://uitspraken.rechtspraak.nl/inziendocument?id=ECLI:NL:GHSHE:2018:3746> accessed 17 May.
2021.
147
Council Directive 2008/52/EC of 21 May 2008 on Certain Aspects of Mediation in Civil and
Commercial Matters [2008] OJ L 136, Recital 6.
148
Bob Wessels and Stephan Madaus, ‘Instrument of the European Law Institute - Rescue of Business in
Insolvency Law’ (2017) The European Law Institute 126
<https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/Instrument_INSOLVEN
CY.pdf > accessed 17 May 2021.
149
Justice A.K. Sikri and Anuroop Omkar, ‘Mediation in Corporate Insolvency: A Game Changer’
BusinessWorld (14 June 2019) <http://www.businessworld.in/article/Mediation-In-Corporate-Insolvency-
A-Game-Changer/14-06-2019-171872/> accessed 17 May 2021.
150
ibid.

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solutions such as future dealings between the parties, and even apologies might be

included in mediation driven agreements as against what is possible in a court decision.151

The Indian government has been considering a range of reforms within the IBC,

particularly in the aftermath of Covid-19, to ensure that the NCLTs across the country are

able to handle the spike in CIRP filings. Fresh filings under the IBC had been barred for

almost a year since Covid-19 hit (up to March 2021) to ensure that viable companies are

not liquidated.152 In the meantime, the government has introduced pre-packs or pre-

packaged insolvency resolution for small and medium sized businesses which is likely to

be more expedient.153 While a pre-pack requires cooperation amongst various

stakeholders, the company management is still in control of the company and it can be

expected to orchestrate the process in a manner that ensures continued stakeholder

support after the pre-pack is approved by the court.154 With the introduction of pre-packs,

some of the burden on the NCLTs will likely be lightened.

However, as the discussion in Parts III and IV make clear, delays are also caused by

litigation by unhappy stakeholders. Thus, the introduction of pre-packs, while a welcome

151
Mark Addison, ‘10 Reasons Why Insolvency Practitioners Should Consider ADR’ Mondaq Business
Briefing (1 November 2015) <mondaq.com/australia/insolvencybankruptcy/439512/10-reasons-why-
insolvency-practitioners-should-consider-adr> accessed 22 May 2021.
152
Gireesh Chandra Prasad and Shreya Nandi, ‘Centre extends IBC suspension till March’ LiveMint
(New Delhi, 21 December 2020) <https://www.hindustantimes.com/business-news/centre-extends-ibc-
suspension-till-march/story-iLZ9yndxJLn65GObTRfoGM.html> accessed 17 May 2021.
153
Insolvency and Bankruptcy Code (Amendment) Ordinance, No. 3 of 2021.
154
Aparna Ravi, ‘Introducing Pre-packs in India - A Useful Tool in Times of COVID-19?’ Oxford
Business Law Blog (25 May 2020) <https://www.law.ox.ac.uk/business-law-
blog/blog/2020/05/introducing-pre-packs-india-useful-tool-times-covid-19> accessed 17 May 2021.

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step, will not be enough to address all the problems that the feminist analysis of the IBC

made evident. Parties should be nudged towards mediation during the CIRP and even the

pre-pack process where necessary. In cases where it is apparent that much of the litigation

is a result of lack of cooperation between parties, the NCLT should recommend mediation

to the parties. This is particularly relevant where the company is viable and parties expect

to continue working with each other. Not only will the burden on the NCLTs be eased,

delays in the process caused by litigation will be reduced, and innovative solutions

tailored to suit both commercial and emotional issues between the parties can be achieved.

However, instead of recommending the use of mediation as an alternative to formal

insolvency procedures, we propose that mediation be used in conjunction with the formal

CIRP to help prevent delays due to avoidable disputes.

The IBC has already provided incentives for parties to negotiate and enter into settlements

after a CIRP is filed.155 Similarly, mediation in the shadow of the IBC will ensure that

more cases settle or stakeholder disputes within the process are resolved without undue

delays. The NCLTs should recommend that the parties attempt to mediate disputes

particularly where stakeholder relationships are at stake. India already has the legal

infrastructure to achieve this. Section 89 of India’s Civil Procedure Code allows courts to

encourage settlement of disputes and to refer disputes to relevant ADR processes where

suitable.156 The Companies Act, 2013 specifically provides for the setting up of a

mediation and conciliation panel of experts to which pertinent cases may be referred by

155
Gireesh Chandra Prasad, Japnam Bindra and Prathma Sharma, ‘NCLT Order puts the Spotlight on Out
of Court Settlements’ LiveMint (19 July 2020) <https://www.livemint.com/news/india/nclat-order-puts-
the-spotlight-on-out-of-court-bankruptcy-settlements-11595168351981.html> accessed 17 May 2021.
156
The Code of Civil Procedure 1908, s 89.

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the NCLTs.157 Despite this, not many commercial cases have been mediated.158Proactive

courts identifying and referring pertinent matters to litigation will provide the necessary

encouragement for parties. Insolvency professionals should also be urged to propose

mediation where relevant. Once more cases are resolved via mediation, parties are likely

to proactively opt for it to explore solutions.

The Companies (Mediation and Conciliation) Rules, 2016 provide guidance regarding

who may be nominated as mediators,159 relevant procedure,160 and principles and ethics161

to be followed by the mediator. These rules set out that the role of the mediator is to:

facilitate voluntary resolution of the dispute by the parties, communicate the view

of each party to the other, assist them in identifying issues, reducing

misunderstanding, clarifying priorities, exploring ideas of compromise and

generating options in an attempt to resolve the dispute, emphasizing that it is the

responsibility of the parties to take the decision and that he shall not impose any

terms of settlement on the parties, unless both parties consent that such terms and

conditions may be imposed for early settlement’.162

157
The Companies Act 2013, s 442.
158
Vijayalakshmi Sridhar, ‘Mediation on the Table’ Business Today (16 May 2021)
<https://www.businesstoday.in/magazine/bt-management/mediation-on-the-table/story/437856.html>
accessed 17 May 2021.
159
The Companies (Mediation and Conciliation) Rules 2016, Rule 4.
160
The Companies (Mediation and Conciliation) Rules 2016, Rule 11.
161
The Companies (Mediation and Conciliation) Rules 2016, Rule 28.
162
The Companies (Mediation and Conciliation) Rules 2016, Rule 17.

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As this description of the mediator’s role makes clear, the parties get a chance to air their

grievances during the process and often this helps assuage some of the fraught emotions

that corporate insolvency entails. Despite stakeholders like operational creditors not

having a say on the CoC, they consist of important groups like suppliers and employees

and taking their concerns to mediation will allow their voices to be heard. The process

itself, focused as it is on compromise and win-win options, can help preserve relationships

as against litigation. Even where a mediation does not result in settlement, there is

substantial evidence of mediation being able to improve communication and negotiation

between parties to a dispute.163 The Companies (Mediation and Conciliation) Rules

provide a 3 month limit for completion of the mediation or conciliation, although this

may be further extended by the NCLT.164 Thus, one of the IBC’s core value of timeliness

will still be prioritised; perhaps even more so if the mediation is able to prevent litigation.

Beyond the NCLTs referring cases to mediation, what needs to be developed in India is

institutional capacity in terms of qualified mediators with experience in commercial

matters. The market for insolvency professionals has developed very quickly in India and

it is likely that allowing this option within the CIRP process will incentivise many

insolvency professionals to qualify as mediators to take on these roles.

VI. Conclusion

163
Rebecca Storrow and Harold Coleman Jr., ‘Exploring research regarding mediation party preferences
and mediation within commercial arbitration’ (2020) 37(4) Conflict Resolution Quarterly 291.
164
The Companies (Mediation and Conciliation) Rules 2016, Rule 18.

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This article has proposed that the IBC use mediation as a tool within the CIRP to resolve

suitable disputes. Mediation not only presents a solution to the feminist concerns

highlighted in this article, but also improves efficiency of the process. Stakeholders will

feel more valued during the CIRP if their concerns are heard via mediation. Further, the

process of mediation can ease the burden off the NCLTs and courts, thus improving the

overall system.

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