IBBI Committee Proposes Framework For Voluntary Mediation Under IBC

The Insolvency and Bankruptcy Board of India (“IBBI”) has published a report dated 31.01.2024 on “Framework for Use of Mediation under the Insolvency and Bankruptcy Code, 2016”. The Report has been prepared by an Expert Committee constituted by the IBBI and the Report contains recommendations on framework for introduction of voluntary mediation, as a complementary disputes resolution mechanism around the processes under IBC. Summary Of Recommendations Of The Committee The mediation framework under IBC would operate as a self-contained blueprint within IBC, with independent infrastructure to ensure that the objectives of IBC are met. Since in-rem rights and aspects of public interest get involved at many stages during the proceedings under IBC, there is a strong case for seeking exemption by making a specific amendment to the Mediation Act, 2023 (“Mediation Act”) or through a notification under Entry 13 of the First Schedule to Mediation Act. The Committee recommended the phased introduction of voluntary mediation as a dispute resolution mechanism under IBC while maintaining the sanctity of the timelines for various existing insolvency resolution processes. The core essence of the framework is its independence and flexibility to provide room for quick incorporation of implementational learning. Self-contained framework of mediation under IBC and Exclusion of IBC from application of the Mediation Act, 2023 Enabling provisions for: (a) introduction of mediation as ADR method under the Code within existing statutory timelines and processes; (b) delegation of powers to Central Government and IBBI for making rules, regulations, notifications, etc., as may be required; (c) establishment of the (in-house) mediation secretariat at the NCLT; (d) specifying timelines for mediation; (e) clarifying role of the NCLT as AA , i.e., no scope for extension of timelines for mediation under the Code, interim relief, etc.; (f) recognition and enforcement of Mediated Settlement Agreements (“MSA”) under the Code; and (g) impact on moratorium.The mediation process envisaged under the Mediation Act, based on a 'one-size-fits-all' approach, may not be made applicable to the insolvency resolution processes under the Code. While Entry 13 of the First Schedule to Mediation Act, allows the Central Government to exclude by notification the subject matter of dispute that may be kept out of the purview of the Act, for abundant clarity, proceedings under the Code may be specifically excluded from the realm of the Mediation Act. Rules by Central Government Central Government may prescribe via rules: The basic structure of the insolvency mediation framework, including specifying categories of disputes that are considered 'mediable' (if required); The establishment of an NCLT annexed insolvency mediation cell/secretariat; Creating an infrastructure (including e-filings, e-hearings, etc.); Minimum qualifications for mediator appointments; etc.; andOffering OCs to mediate by suitably modifying the Form prescribed under the existing relevant Rules, etc. For any mediations conducted by the parties at appellate fora level under the Code (i.e., NCLAT or the Supreme Court), similar provisions may be made. Regulatory Framework by IBBI The IBBI regulations must be aligned with the enabling provision to be introduced in the Code. ii. IBBI to specify procedures for: (a) the conduct of mediations (including automatic termination of mediation where timelines have expired); (b) the process of mediator appointment and removal; (c) the functioning of the secretariat; (d) capacity-building programmes for mediators; (e) the enforcement of MSAs, etc. Reference to mediation: Mandatory or Voluntary Voluntary mediation, i.e., reference of a dispute to mediation by consensus of parties, will be the most suitable method to settle insolvency disputes. Stage of Reference Voluntary mediation for post-institution matters filed by the OCs and enforcement of MSAs with the approval of NCLT. ii. At the present stage, voluntary mediation provisions may not include the CIRP applications filed by FCs/ CD itself. iii. Post institution reference of specific disputes/conflicts during the insolvency resolution process ('process disputes'). These may include claims collation, intercreditor issues, etc. Competent Authority to Refer: NCLT or Parties by Mutual Consent Reference at pre-institution stage by parties voluntary and falls outside the scope of the Code, but remains subject to the dispute being identified as fit for mediation, for example, individual insolvency resolution process. While filing the application, reference to attempts at mediation undertaken, if any, needs to be mentioned in the application. ii. Reference post-institution but pre-commencement by parties with express intimation to the NCLT, subject to automatic...

IBBI Committee Proposes Framework For Voluntary Mediation Under IBC

Pallavi Mishra

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