An IBBI-appointed expert committee headed by former Law Secretary TK Viswanathan has recommended a voluntary mediation framework under the Insolvency and Bankruptcy Code (IBC). Currently, mediation does not exist as a legislative mandate under IBC. 

Mediation is the use of a neutral third party to facilitate the negotiated settlement of a dispute and resolve conflicts between two or more parties. 

The Committee has, in its 129-pages report, taken a cautious approach and endeavoured to balance the fundamental objectives of the Code, i.e., “time-bound reorganisation” and “maximisation 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. 

The report of the expert panel was handed over by Viswanathan to the IBBI Chairman Ravi Mital on January 31 at the Insolvency and Bankruptcy Board of India (IBBI) office in the capital.

In consonance with the Mediation Act, 2023, the Committee has recommended a “voluntary” mediation framework under the Code. This expert panel was constituted to look into the use of mediation under the Code and suggest a framework for effective implementation.

The Committee has recommended a “stage based” and phased introduction of voluntary mediation as a dispute resolution mechanism under the Code, 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.

The expert committee 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 Code. 

The mediation framework under the Code, as recommended by the Committee, would best operate as a self-contained blueprint within the Code, with independent infrastructure to ensure that the objectives of the Code are met without compromising or diluting the basic structure of the Code in terms of timelines, public rights, etc, according to Viswanathan. 

Exterts’ take

Hari Hara Mishra, CEO, Association of ARCs in India, said: “In line with  best global practices and customising it to our own IBC process,  based on empirical data and experience so far, the committee suggests a phased roadmap to apply mediation in IBC at various stages as an effective supplement to address existing  bottlenecks”.

Yogendra Aldak, Partner at Lakshmikumaran & Sridharan Attorneys, said the Committee’s recommendations are primarily aimed at providing a voluntary process parallel to the insolvency proceedings as laid down under the IBC. 

Thus, there shall be no delays in the resolution process and depending on the stage at which mediation has been referred, the mandate of the mediator is envisioned to be limited to 30-60 days. Critically, no settlement between the parties can bypass the waterfall mechanism. Furthermore, third party rights may get affected by such mutual settlements under mediation, however appropriate mechanisms have been provided for their redressal.

Pawan Sharma, Partner at DMD Advocates, said the integration of mediation into the insolvency resolution framework, aligns with the overarching goals of accelerating the resolution process.

There are critical issues that require attention before the scheme is implemented. One notable concern is the exclusion of financial creditors from the initial scope of voluntary mediation provisions, he said.