In this edition of Leading Questions, Akshat Khetan explores the evolving landscape of contractual disputes in India, the progress of the Insolvency and Bankruptcy Code (IBC), and the growing roles of mediation and arbitration in reshaping the economy and corporate transactions.
India’s Dispute Landscape: An Insider’s Perspective
Akshat Khetan, with decades of experience in corporate debt restructuring, insolvency, and litigation, provides insights into India’s dispute resolution landscape. He notes that in India, the destiny of a business is often determined in the disputes that follow boardroom decisions. Reflecting on his early career, Khetan observed that many viable businesses collapsed not due to business failures, but because the mechanisms for addressing financial and contractual issues were slow, fragmented, and adversarial. He believes that effective dispute resolution is essential for economic infrastructure, akin to roads and ports, in fostering investments.
According to Khetan, India’s current legal landscape is at a pivotal moment. While the country has developed a modern insolvency code, a supportive judicial system for arbitration, and a new framework for mediation, challenges like delays and capacity constraints persist. The tension between reformist legislation and institutional capacity remains significant.
The Journey of the Insolvency and Bankruptcy Code
Approaching a decade since its enactment, the IBC is regarded by Khetan as one of the most significant economic legislations of its time. Its effectiveness is evident in altering promoter behavior and promoting pre-case settlements. The shift from debtor-in-possession to creditor-in-control has transformed the dynamics of Indian credit markets. However, Khetan acknowledges the IBC’s shortcomings, particularly in terms of timelines, as resolution processes often exceed the intended duration, diminishing asset values.
To advance, Khetan suggests that the IBC must focus on developing frameworks for group insolvency, effective cross-border insolvency regimes, and scalable pre-packaged resolutions beyond just MSMEs. Speed, he emphasizes, is central to the IBC’s purpose.
The Role of Judiciary in IBC Jurisprudence
Khetan praises the Supreme Court for its role as the IBC’s institutional guardian, maintaining the Code’s constitutionality and ensuring the primacy of the committee of creditors’ commercial decisions. However, he notes ongoing uncertainties concerning the treatment of government dues and the scope of judicial review over commercial decisions. He advocates for rigorous process policing by courts while deferring to commercial judgments made by creditors.
Arbitration and Mediation: Emerging Dispute Resolution Tools
Khetan believes India is moving towards becoming a dispute resolution-friendly jurisdiction. Legislative changes have reduced judicial interference, and institutional arbitration is gaining traction. The introduction of the Mediation Act has formalized the cultural preference for dialogue-based dispute resolution, offering advantages like speed and confidentiality.
Nonetheless, Khetan points out that cultural changes are still needed. Parties often approach arbitration with a litigation mindset, and government entities must set an example by accepting awards and settling early.
Impact on Mergers and Acquisitions
The IBC has significantly influenced India’s mergers and acquisitions landscape by creating a market for distressed acquisitions. This shift has encouraged strategic and financial investors to pursue assets free from legacy liabilities. The emphasis on dispute-centric diligence has shaped conventional M&A practices, focusing on indemnities, escrow structures, and dispute resolution mechanisms.
The Economic Stakes of Effective Dispute Resolution
Khetan highlights the critical role of trust in economic development. Slow contract enforcement results in higher costs and risk premiums, impacting honest businesses. Achieving India’s ambition to become a developed economy requires legal certainty that matches the pace of commerce, along with a shift from litigation to resolution culture.
Advice for Young Professionals
To those entering corporate law and insolvency, Khetan advises mastering both business and legal aspects. Building a reputation for fairness and understanding the broader impact of their work on employees, creditors, and communities is crucial.
Akshat Khetan, Founder of AU Corporate Advisory and Legal Services (AUCL), specializes in corporate strategy, mergers and acquisitions, debt restructuring, IBC, and dispute resolution in India.
