What Are IBBI Panel’s Key Recommendations On Mediation Use Under IBC?

An expert committee, constituted by the Insolvency and Bankruptcy Board of India (IBBI) to examine the scope of using mediation in respect of processes under the Insolvency and Bankruptcy Code (IBC), recently submitted its report to the insolvency regulator.

The expert committee, chaired by T.K. Viswanathan, in its report has made recommendations on the likely framework for the introduction of mediation as a complementary mechanism for resolution of disputes around the processes under the bankruptcy law.

Other members of the committee are Sudhaker Shukla, Rajiv Mani, Bahram Vakil, Shardul Shroff, Sumant Batra, Satyajit Roul and Santosh Kumar Shukla.

Following are the key points from the expert committee’s report:

TAILOR-MADE MECHANISM

• The blanket introduction of mediation as contemplated under the Mediation Act 2023 does not meet the core elements or objects of the IBC. Incorporation of mediation into Indian insolvency regime will require specific, tailor-made mechanism to suit each insolvency resolution process or its constituents.

• The framework for insolvency mediation in India should be incorporated exclusively within the scheme of the IBC from best governance and implementation perspective. Therefore, a ‘stage based’ and a phased introduction approach should be applied for the implementation of mediation in the IBC to address ‘bottle-necks in the current regime’.

VOLUNTARY MEDIATION

• Voluntary mediation i.e., reference of dispute to mediation by consensus of parties will be best suited to the Indian insolvency regime.

• The parties will have to approach and inform the National Company Law Tribunal (NCLT), the appellate tribunal, or the court about their intention and mutual agreement to mediate the dispute.

TIMELINES

• The timelines under the IBC must remain sacrosanct even when parties engage in mediation. Therefore, no provision for stay or extension of statutory timelines by orders of the NCLT due to ongoing mediation may be made at parties’ request or on the tribunal’s own discretion. This will ensure that parties pursue their chance at mediation seriously.

• A provision for automatic termination of the mediator’s mandate upon expiry of particular statutory timeline must be provided to ensure sanctity of current IBC timelines that will run parallel to the process.

• Keeping mediation as a parallel process to the corporate insolvency resolution process (CIRP) before the NCLT would ensure that no time is lost, and there's no adverse impact on asset value and public interest.

FIT CASES FOR MEDIATION

• Fit cases for mediation exist in the following insolvency resolution processes:

  • CIRP initiated by the financial creditors, operational creditors and the corporate debtor in a tailored manner respectively

  • Pre-packaged insolvency resolution process

  • Individual insolvencies

  • Group companies’ insolvencies, and

  • Cross-border insolvencies

MEDIATION PHASES

• In the first phase, it will be prudent to exclude post-admission stage cases from mediation.

• Even in later phases, it will be imperative to apply mediation in such a manner that third-party interests are not altered or impacted without their express consent. However, this will not bar voluntary withdrawal and settlement as it currently exists under the IBC.

MANAGING INFORMATION DROUGHT

• There are instances where the information is not provided in a timely or efficient manner to the interim resolution professional/resolution professional by the corporate debtor (CD). In such situations, quick reference to mediation, where a neutral third party, facilitates this exchange of information would be helpful to iron out differences between a CD and the insolvency professional.

MEDIATION DURING PLAN IMPLEMENTATION

• In case of any dispute or conflict during implementation of the approved resolution plan by the successful resolution applicant, a reference to mediation (with a timeline of 30 to 60 days for completion, subject to the implementation schedule provided in the resolution plan) before approaching the NCLT for liquidation may be made.

• A mediation clause of this nature may be inserted/provisioned for in the resolution plan itself, if deemed appropriate at the time of finalization of the resolution plan.

MEDIATION COST

• The parties must have the liberty to mutually decide how the costs ought to be allocated and they must bear the expenses related to the mediation process in equal shares.

• The costs for the conducting mediation during the CIRP process should be excluded from the purview of the insolvency resolution process cost.

POOL OF MEDIATORS

• The pool of mediators can include:

  • Retired members of the NCLT and National Company Law Appellate Tribunal (NCLAT)

  • Senior advocates and/or advocates with advocacy experience in more than 10 successful insolvency proceedings

  • Ex-senior officials of financial sector regulators such as IBBI, or scheduled commercial banks

  • Insolvency professionals with more than ten years of experience

  • Legal practitioners with at least 10 years of experience in insolvency disputes

  • Persons with experience as mediators or in mediation advocacy in commercial disputes for at least 10 years

  • Persons with technical expertise in insolvency, accounting, valuation, sectoral, and industry operations possessing experience of at least 10 years

TRAINING FOR MEDIATORS

• A comprehensive curriculum should be prescribed for the training of mediators in order to equip them to perform in the most effective way.

• A Code of Ethics should be created for mediators, outlining the minimum standards a mediator must adhere to.

The insolvency regulator said the mediation framework, as recommended by the committee, would best operate as a self-contained blueprint within the IBC, with independent infrastructure to ensure that the objectives of the law are met without compromising or diluting the basic structure of the code in terms of timelines and public rights.

The committee has taken a cautious approach and endeavored to balance the fundamental objectives of the IBC i.e., “time-bound reorganization” and “maximization of value”, with autonomy to parties to voluntarily opt for the ‘out-of-court’ mediation process to enhance the efficiency of the insolvency resolution process, it noted.

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