Out of court: For faster, efficient and tailor-made insolvency resolutions

The Insolvency and Bankruptcy Board of India (IBBI) has constituted an expert committee to examine the feasibility of resolution of disputes by way of mediation and the scope of its use under the Insolvency and Bankruptcy Code (IBC). The IBBI expert committee released an extensive report of its recommendations, positively advocating and proposing a discrete mediation framework under IBC aligned with its fundamental objectives — time bound reorganisation and maximisation of value This gave autonomy to parties to voluntarily opt for the “out-of-court” mediation process to enhance the efficiency of the insolvency resolution process.

A glance at the recommendations indicates that the Committee aims at increasing awareness and building confidence of stakeholders and users in the resolution of disputes by encouraging the use of mediation, especially in bilateral issues.

The mediation process envisaged under the Mediation Act of 2023, based on a ‘one-size-fits-all’ approach, may not be made applicable to the insolvency processes under IBC. Thus, the report suggests that the proceedings under IBC be specifically excluded from the ambit of the Mediation Act and provide for a bespoke adoption of mediation in insolvency disputes or lay out tailored application to specific aspects of IBC.

The proposed mediation framework is aimed at expediting resolution of insolvency cases and would best operate as a self-contained blueprint within IBC, with independent infrastructure to ensure that the objectives of IBC are met without compromising or diluting its basic structure.

The committee has proposed enabling provisions for introduction of mediation as an Alternative Dispute Resolution (ADR) method under IBC. It clarifies the role of National Company Law Tribunal (“NCLT”) as the Adjudicatory Authority (“AA”) about extension of mediation timelines, interim reliefs etc. The report recognises the need for conferring statutory sanctity to settlements and seeks to enforce Mediated Settlement Agreements (MSA) under IBC.

One of the most striking features of the recommendations is the endeavour to resolve disputes through mediation within the statutory timelines of Corporate Insolvency Resolution Process (CIRP)— 180 days extendable up to 270 days and with an outer limit of 330 days. This is to ensure that there is no delay in the insolvency resolution process and that the goal of mediating a dispute parallel to such a process is achieved. It is pivotal to avoid any delays in the mediation under IBC as it may directly affect the stress status of the CD from the time of default and have a cascading effect on the possibility of its revival as a going concern.

The committee has recommended delegating powers to the Central Government and IBBI for legislating rules, regulations and notifications, as may be required. The Centre may prescribe rules for the basic structure of the insolvency mediation framework, including specifying categories of disputes that are considered ‘mediable’. An NCLT annexed in-house insolvency mediation cell/secretariat may also be established by the Centre. Moreover, it proposes that the Centre outline the infrastructure, provisions for staff, personnel, systems, including for the e-mediation process, e-filing and decide the minimum qualifications of mediator appointments.

The recommendations seek to enable IBBI to issue discrete provisions for procedural specifications like the conduct of mediations including automatic termination of mediation where timelines have expired, the process of mediator appointment and removal, the functioning of the secretariat, capacity-building programmes for mediators, the enforcement of MSAs.

The report suggests that voluntary mediation is preferable over mandatory mediation. It suggests that reference of disputes to voluntary mediation may be filed by the OCs post-institution of insolvency resolution process with the approval of NCLT. However, voluntary mediation provisions may not include the CIRP applications filed by Financial Creditors(FCs)/ CD itself, in the initial stages of implementation of mediation framework.

Further, it makes proposals to outline the types of disputes for reference to mediation under IBC. It includes selective reference of applications by OCs and corporate applicants under CIRP. The Committee believes that pre-institution mediations in cases initiated by FCs may be explored during later phases of implementation of insolvency mediation framework. The report also seeks to include pre-pack CIRP, fast track CIRP, individual insolvencies, and disputes within the processes including claims collation process, intercreditor issues at the CoC level, applications filed under Section 60(5) of the Code, avoidance actions etc.

The proposed mediation framework provides for a specialist mechanism and infrastructure including specialist mediators for resolving insolvency disputes. Mediation aims to reduce the caseload in the NCLT docket and will be implemented in a phased manner under a regulatory sandbox space, to address bottlenecks in current regime of IBC and the Mediation Act, with room for incorporation of implementational learnings.

(Trisha Shreyashi is a lawyer and writer)

Published on March 11, 2024