[By Ayesha Nacario Gupta]
The author is a student of Amity University, Rajasthan.
INTRODUCTION
The Insolvency and Bankruptcy code, 2016 (hereinafter the ‘Code’) is an important enactment by the legislature which provides for specialized mechanisms for insolvency and liquidation processes of corporate entities. The main highlight of this code is that it provides for the corporate insolvency process (hereinafter the ‘CIRP’) for financially distressed companies which is initiated on the application made to the Adjudicating authority i.e., the National Company Law Tribunal (hereinafter the ‘NCLT’) by financial or operational creditors, or even on the application of the corporate debtor itself by virtue of Sections 7, 9 and 10 of the aforesaid code respectively.
Even though the code emphasizes on providing a revival scheme for corporate entities in a “time bound manner” for “maximization of value of assets”, as stated in its preamble, it was observed that the code was unable to do so due to ambiguity in its text and various other external factors. The IBC laws were unable to provide a comprehensive mechanism to resolve matters relating to insolvency and bankruptcy within a reasonable time frame even though the law provides for it under Section 12. Therefore, in order to address this issue, an expert committee was constituted by The Insolvency and Bankruptcy Board of India (hereinafter the ‘IBBI’) to examine and produce a report regarding the scope of voluntary mediation in relation to various process under the code and also suggest recommendations. Therefore, this article aims to highlight various aspects of the report and its contribution to establishing a new paradigm of Insolvency and bankruptcy laws in India.
ABOUT THE REPORT
On 31st January, 2024, the IBBI published a report titled “Framework for Use of Mediation under the Insolvency and Bankruptcy Code, 2016”. This report was prepared by an expert committee constituted by the board and was headed by former secretary of Ministry of Law and Justice, Shri. T.K. Viswanathan. The expert committee, in its report, proposed that mediation can contribute as a supplementary mechanism to resolve conflicts which are associated with IBC laws. The report suggests that adopting a non-adversarial approach will not only foster goodwill in business relationships but will also shield the Corporate Debtor from the negative connotations of insolvency, all while facilitating reconciliation of conflicts through amicable settlements.
The report, under the heading “Fundamental Objectives of the Framework” lays down its objectives which encompasses the following-
- to expedite the resolution of insolvency cases by means of voluntary mediation,
- to reduce pending cases that lie before NCLT,
- to provide a specialist mechanism and infrastructure to settle insolvency disputes,
- to maintain sanctity of timelines provided under the code,
- to promote phased implementation,
- to increase awareness of various stakeholders by means of mediation,
- to foster insolvency mediation culture and encourage the use of mediation.
Hence, the recommendations made by the committee is vital to address pre-existing challenges of the Code by offering a more efficient, flexible, cost effective and collaborative approach by integrating mediation with IBC laws.
WHAT DOES IT BRING TO THE TABLE?
Firstly, the committee has recommended opting for the path of mediation to be voluntary (with consensus of parties) and a parallel process to the CIRP to make efficient use of time while also protecting the interest of stakeholders. “The essence of the framework is its independence and flexibility to provide room for quick incorporation of implementational learning,” the committee report said. It proposed the incorporation of mediation as an alternative dispute resolution (hereinafter ‘ADR’) mechanism within the existing statutory limitations and timelines of the IBC.
The committee further stated that it aimed to reconcile the objectives of the Code, including the timely restructuring of businesses and the maximization of asset value, while also allowing parties the freedom to voluntarily choose an ‘out-of-court’ mediation process, thereby improving the efficiency of the resolution process.
With the delegation of powers given to the Central Government, it may also prescribe rules for the basic structure if the insolvency mediation framework, the establishment of mediation cells in NCLT, the qualification required for the appointment of mediators and other essential notifications. On the other hand, the IBBI may specify the various procedures for the purpose of appointment of mediators and the method and manner in which insolvency mediations shall be conducted. It may also provide for the “automatic termination” of the insolvency mediation on the expiration of the given timeline.
It further opines the establishment of an internal mediation secretariat within the NCLT which shall be responsible to oversee, administer and manage the enforcement and conduct of insolvency mediation. However, this will also require the appointment of specialized mediators for resolving insolvency mediation disputes. Therefore, the report provided that such specialized mediators may comprise of retired members of NCLT/NCLAT, ex-senior officials in finance sector, insolvency professionals with more than 10 year of experience, and senior advocates to name a few.
Additionally, to prevent mediation from becoming an expensive affair, the committee proposes to provide a designated schedule on the various cost or fees associated with the mediation process and such fees shall be nominal. It also provides for the creation of a budget to reimburse any fee spent by the parties to NCLT. Such budget shall be managed by the mediation secretariat.
The committee also proposes to conduct “paperless mediation” by facilitating e-filing as it is of the opinion that conducting e-meetings would help NCLT achieve operational efficiency. Further, the committee insists on adopting hybrid or online mode for conducting mediation wherever possible.
On account of the above recommendations, it is understood that mediation would be seamlessly integrated into the existing framework of the IBC which will allow parties and various stakeholders to initiate mediation proceedings at any stage of the insolvency process starting from the pre-insolvency negotiations to the resolution and liquidation stage.
AUTHOR’S REMARKS
The committee report represents a commendable initiative by the IBBI to acknowledge the unique characteristics of ADR mechanisms. The framework provided by Shri. T.K. Viswanathan led committee is a right step towards creating a legal framework that improves the effectiveness and efficiency of already existing insolvency laws in India. This report coherently provides for the implementation of ADR mechanisms to resolve insolvency and bankruptcy related disputes amicably to ensure speedy resolution of matters that lie before NCLT. Since the CIRP process provided under the code is not adversarial in nature, the fusion of mediation with IBC laws will aid in the reduction of caseload and also ensure the resolution of insolvency mediation within specified timelines. The very purpose of the Code is to protect the interests of stakeholders while ensuring that sufficient measures are taken to shield the corporate debtor from the process of liquidation. Therefore, the expert committee, in its report, has proposed several measures for the use of voluntary mediation which signifies an iconic departure from traditional litigation by opting to resolve insolvency disputes amicably and reaping the benefits of ADR to revive the business of corporate debtor. Hence, the integration of mediation with IBC signifies a much-needed change in insolvency laws.
CONCLUSION
The Insolvency and Bankruptcy Code, 2016 was enacted with a primary aim to amend and consolidate old insolvency laws. With the establishment of various institutions like IBBI, NCLT, DRT etc., the Code aims to provide a framework that facilitates ease of doing business and provide for the insolvency and liquidation process of a corporate entity. Additionally, in the dynamic landscape of India’s insolvency legislation, the suggestion of the IBBI to include mediation in IBC laws marks a pivotal moment. In a recent development, the IBBI has promoted the integration of mediation into the framework of the Insolvency and Bankruptcy Code, 2016 indicating a notable shift away from traditional litigation-focused strategies. By providing stakeholders with a voluntary, alternative avenue for dispute resolution, the IBBI’s recommendation holds the promise of expediting the resolution of insolvency cases while fostering a culture of collaboration and mutual respect among all parties involved. As India refines its insolvency framework to adapt to the changing demands of its vibrant business environment, the integration of mediation appears poised to become a fundamental aspect of a more effective, fair, and enduring method for addressing corporate insolvency issues.