IBBI Committee Proposes Framework For Voluntary Mediation 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.; and
• Offering 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

1. Voluntary mediation for post-institution matters filed by the OCs and enforcement of MSAs with the approval of NCLT.
2. ii. At the present stage, voluntary mediation provisions may not include the CIRP applications filed by FCs/ CD itself.
3. 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 termination of mediators' mandate at the admission/ commencement of CIRP or 30 days from reference to mediation, whichever is earlier.

Reference of 'process disputes' post-commencement by 66% majority of the CoC, or by the creditor in case of claims collation process, subject to automatic termination of mediators' mandate at the expiry of timeline of underlying stage under the Code. Post commencement, the current process of settlement under Section 12A would not be impacted by the mediation framework at the present stage. Reference of disputes during plan implementation stage, as prescribed under the IBC or Rules.

Subject Matter for Reference

Identified insolvency resolution processes:

• CIRP, selective reference of applications by OCs and Corporate Applicants

• Pre-packs

• Fast track CIRP

• Individual insolvency – PG to CD cases

• Individual insolvency (other than PG to CD cases (as and when rolled out) Identified process disputes within the processes:

• CIRP: Claims collation process, inter-creditor issues at the CoC level, Applications filed under Section 60(5) of the Code, etc.

• Individual insolvencies: avoidance actions (where no allegations of fraud are raised).

Timelines

Timelines for insolvency mediation, as introduced and enabled for identified disputes and insolvency resolution processes, to run parallel with the statutory timelines under IBC.

For example, any mediation (ongoing or commencing) during the post-institution but pre-commencement stage of CIRP will necessarily be subject to automatic termination of mediator's mandate within 30 days' of its reference or upon NCLT's admission of the CIRP, whichever is earlier.

Operational Infrastructure

Establishment of a dedicated and specialized NCLT- annexed insolvency mediation cell with an independent secretariat to administer, oversee, and manage the conduct of insolvency mediations under the Code.

Provisions for staff, personnel, systems, including for the e-mediation process.

Adequate infrastructure, such as e-meetings and e-filings, for the conduct of online or paperless mediation (where appropriate).

Enforcement of Mediated Settlement Agreement

Parties to approach the Adjudicating Authority (or the relevant appellate authority) without instituting separate legal proceedings, for enforcement of MSAs. MSAs to be enforced by way of incorporation of MSA in an order of the NCLT (or the appellate authority), similar to the existing process under Rule 8 of the AA Rules, 2016 (withdrawal process prescribed for preadmission matters).

At the post-admission stage, process disputes can be settled as per Section 12A of the Code. Here, settlements are given statutory sanctity by being recorded in the order of the NCLT. In case of breach, the aggrieved party has the option to approach the NCLT for revival of CIRP.

Costs

Costs arising in connection with the mediation process to be borne by the parties equally. or as may be mutually agreed amongst them. ii. Costs incurred for the conduct of mediation during the CIRP process to be excluded from the purview of insolvency resolution process costs. iii. Introducing provisions for reimbursing expenses incurred by the parties at the NCLT (or NCLAT or the Supreme Court).

Mediators

Pool of mediators to include:

(a) retired members of the NCLT/NCLAT;

(b) senior advocates and/or advocates with advocacy experience in more than ten (10) successful insolvency proceedings;

(c) ex-senior officials of financial sector regulators, such as IBBI, or scheduled commercial banks; and

(d) insolvency professionals with more than ten (10) years of experience.

As additional pool of mediators, the following can be included:

(a) legal practitioners with at least ten (10) years of experience in insolvency disputes;

(b) persons with experience as mediators or in mediation advocacy in commercial disputes for at least ten (10) years; and

(c) persons with technical expertise in insolvency, accounting, valuation, and industry operations possessing experience of at least ten (10) years may also be included in the pool of mediators.

Adequate training to be provided to the mediators for conduct of mediation under IBC. A Code of Ethics for Mediators may be formulated to enable mediators to perform their duties while upholding principles of professional ethics.

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