Status as on- 06/03/2023
As a recovery mechanism, Banks try through several means as suits under different laws are mainly used to get possession of the property under the SARFAESI Act. The latest is under the Insolvency and Bankruptcy Code, 2016 which also provides a mechanism to adopt when a default occurs by the corporate debtor. On the identification of NPA where the borrower defaults in repayment of the loan over 90 days from the due date. Time settlement schemes are being offered by the bank giving partial/full waiver of interest/principal to settle or regularize the loan account. There, while using all remedies by the bank for recovery of the loan, meditation is not being used as an effective tool.
Despite taking several steps for recovery like filing cases under section 138 of Negotiable Instrument Act 188, taking possession of the property, arbitration awards, taking control over the board, running CIRP under IBC, etc., banks take several years and substantial haircut in the recovery because the value of underlying assets decreases over years. As a result, mediation can be an effective way to provide a platform to reach a mutually agreed settlement which would be a win-win situation for both, borrowers as well as banks. This would help the borrower to remove the insolvency tag or have time to restart the business. If mediation fails banks can proceed with other remedial steps for recovery.
Under IBC, the resolution professional always tries to sell the company as a going concern as the main objective IBC and if it doesn’t work then he initiates the liquidation process, sells the assets, and recovers the money for the various stakeholders. The realized proceeds under CIRP/Liquidation are distributed under the waterfall mechanism. One of the major challenges faced by the IBC process is the delay in meeting the timelines. It is mainly due to the pendency of cases before NCLT/NCLAT. There are limited judges against sanctioned posts. Administrative challenges and a heavy workload at the NCLT level, therefore lead to delays in the entire insolvency process which are the main challenges faced.
Being the least expensive and less time-consuming, Mediation is popular ADR in India. The mediator plays the role of a neutral party who helps the parties to have direct communication and assists in exploring the options and a mutually accepted agreement. Therefore, this process is confidential, time-bound, and voluntary. The mediator acts as a facilitator and the proceedings are not legally binding as against arbitration.
There are various legislation passed which promote mediation like section 442 under section Companies Act, 2013 gives authority to the Central Government for setting up an expert panel to solve the dispute of the parties through mediation, section 32(g) of the Real Estate (Regulation and Development) Act, 2016 provide a measure to use mediation between parties and promoters to reach an amicable settlement through a dispute settlement forum set up by the consumer or promoter association and section 74 to 81 in Consumer Protection Act, 2019 provides the establishment of consumer mediation cell, Empanelment of mediator, Recoding settlement and passing an order.
At the end pre/post-filling petition for admission before NCLT by the financial institution, the mediation tool should be attempted to get a resolution between the defaulting.
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