Vol 23 (2026) - Issue 5

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Silent Leverage: Mediation Driving Efficiency in Avoidance Transaction Litigation

Synopsis
Avoidance transactions under the Insolvency and Bankruptcy Code, 2016 (IBC) are designed to safeguard the corporate debtor’s estate by reversing preferential, undervalued, extortionate and fraudulent transfers. These provisions help in preserving creditor equality through enforcing the parri passu distribution rule, preventing value erosion, and ensuring that the insolvency process is not distorted by opportunistic or abusive pre-insolvency conduct. However, despite their importance, the effectiveness of avoidance proceedings has been reduced significantly by prolonged litigation due to heavy evidentiary burden and prolonged delays involved in such proceedings. This results in delayed or diluted recoveries for creditors and thus nullify the objective of value maximisation. In this backdrop, the proposal of the Insolvency and Bankruptcy Board of India’s Expert Committee Report on Mediation (January 2024) have reignited the debate around whether alternative dispute resolution mechanisms can be applied into the insolvency framework. This article examines the challenges that currently afflict in adjudication of avoidance applications and evaluates the feasibility of introducing mediation, as the same was rejected by the expert committee by invoking the defence of violation of public interest. The article explores the feasibility of introducing mediation specifically in cases of preferential and undervalued transactions, where liability is determined by objective statutory conditions rather than element of mala fides or fraud. Drawing upon the practices from different jurisdiction and developments under Indian law, the article argues that a court-supervised mediation mechanism for these applications can complement adjudication without diluting the public interest dimensions of the IBC. If cautiously designed, such a framework has the ability to expedite value recovery, enhance bid certainty and ease the burden on insolvency tribunals. Ultimately, the article contends that application of mediation to preferential and undervalued transaction can help better align these provisions with the objectives of IBC i.e. speed and value maximisation.