Bankruptcy body for creditors trying out mediation first

India's bankruptcy regulator and the central government will consider making mediation mandatory between defaulting companies and their creditors before moving proceedings into bankruptcy courts, two persons informed about the development said.

- Gireesh Chandra Prasad

The move is being mulled as policy makers seek to leverage the bankruptcy ecosystem in an optimal way, the two persons said on condition of anonymity. "If mediation is made a compulsory step, admission of bankruptcy cases to tribunals will come down a lot," one of the two persons cited above said.

Currently, work is underway to offer mediation as a voluntary option for operational creditors like vendors and service providers under bankruptcy rule maker Insolvency and Bankruptcy Board of India's (IBBI's) regulations. The IBBI has just completed public consultation on offering the voluntary mediation option to operational creditors before they approach the National Company Law Tribunal (NCLT) against a corporate defaulter.

To be sure, the public consultation was done only to offer mediation to operational creditors, who have historically outnumbered financial creditors in initiating bankruptcy proceedings, even though their numbers have moderated in recent quarters after the government raised the payment default threshold for invoking IBC to ₹1 crore.