With the advent of the Insolvency and Bankruptcy Code, 2016 ('Code/IBC'), the
framework for resolution of stressed assets and corporate entities was
transformed into a streamlined, risk-friendly and timebound endeavor. The
ecosystem of commerce in India has thrived since as rishconfidence amongst
lenders, suppliers and investors to support the entrepreneurial spirit has
strengthened. That being said, at the heart of the Code, "dispute" resolution is
still an impediment to the implementation of the inherent ethos of the Code –
value maximization of the assets of the Corporate Debtor and speedy resolution
of the stressed entity.
Even though the IBC prescribes for a time limit of one-hundred and eighty (180)
days for completion of the Corporate Insolvency Resolution Process (CIRP), with a mandate for a one-time extension of ninety
(90) days, these timelines, as ensconced under Section 12 of the Code read with
Regulation 40 of the Insolvency and Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) Regulations, 2016 ('CIRP Regulations')
have been held to be not mandatory in nature[1].
Naturally, the eventual
resolution of a Corporate Debtor still remains to be a long-drawn out process
marred by protracted litigation between the stakeholders of the Corporate
Debtor. According to an Economic Times report[2], "Resolution timelines
continued to increase for OCs [Operational Creditors] and FCs [Financial
Creditors], with the highest being 635 and 643 days for OCs and FCs,
respectively," as of August, 2023.
The biggest contributor to this factum of delay can be identified as the wide
array of disputes that are brought before the Hon'ble National Company Law
Tribunal (NCLT) vis-à-vis the conduct of the CIRP, by the Corporate Debtor's
stakeholders as well as any remote party under Section 60(5) of the Code. This
is where mediation as a dispute resolution tool presents itself before the Code
as a worthy inductee to aid and transform the incumbent insolvency regime and
preach the gospel of non-adversarial, amicable dispute resolution so as to
foster efficient and robust outcomes in insolvency cases.
This article shall
endeavor to chart the:
- Advent of mediation as a Dispute Resolution Mechanism in India
- The framework of mediation under the Code as suggested by the Expert Committee
- Dissect the framework as considered and discussed under the Report[3] in light of the groundbreaking Mediation Act, 2023
Evolution of mediation in India and the Mediation Act, 2023
Mediation as a process is designed to facilitate communication and negotiation
between parties to assist them in reaching a voluntary "win-win" resolution to
their conflicts. The Dispute Resolution landscape in India is also no stranger
to mediation as a tool for amicable, collaborative resolution of conflicts. For
instance, even prior to the British Rule in India, commercial disputes between
merchants, traders and the likes were settled through a form of mediation headed
by the Mahajans, who were known to be prudent, impartial and respected
businessmen. Back in those days, commercial disputes were de facto referred to
mediation. If a merchant did initiate proceedings in a Court of law before
referring the dispute to mediation, then, the merchant would be sanctioned by
dismemberment from the Association[4].
In the more modern context, legislative recognition was first afforded to
mediation under the Industrial Disputes Act, 1947, wherein a comprehensive
framework for mediation proceedings were provided for. For instance, the
conciliators appointed under Section 4 of the Act are "charged with the duty of
mediating in and promoting the settlement of industrial disputes". The
Arbitration and Conciliation Act, 1996 was a watershed moment for Alternate
Dispute Resolution mechanisms ('ADR') in India. However, mediation of disputes
was not included in this legislative package.
Thereafter, in 1999, the Indian
Parliament passed the Code of Civil Procedure Amendment Act of 1999 inserting
Section 89 in the Code of Civil Procedure, 1908 ('CPC') providing for reference
of cases pending in the courts to ADR, which for the first time included
mediation. The contours of mediation as an ADR mechanism were strengthened for
commercial disputes with the amendment of the Commercial Courts Act, 2015,
whereby, Section 12-A was introduced. In essence, Section 12-A of the Act
mandates pre-litigation mediation. Therefore, a suit cannot be filed under the
Act without the parties first attempting to resolves their disputes vide
mediation. The only exception to this rule being the prayer of any party for an
urgent interim relief in the matter.
In more recent times, mediation has been afforded recognition as a premier
dispute resolution mechanism, and the importance of amicable settlement of
conflicts outside the purview of Courts has also been taken cognizance of by the
legislature. Hence, On September 15, 2023, the Central Government notified the
Mediation Act, 2023[5] ('Act'). Thereafter, on October 9, 2023, the Ministry of
Law and Justice notified that certain provisions of the Mediation Act, 2023 have
come into force – these provisions included; provisions relating to the
Mediation Council of India, the Mediation Fund, power of the Central Government
to issue directions, power to make rules and regulations, amongst others.
Before we delve into the framework for mediation as envisaged and discussed by
the Expert Committee in its report, it is appropriate to first extract the
salient features of the Act as the fate of the two apropos mediation under the
Code are interwoven. The most novel conception under the Act is the introduction
of Mediated Settlement Agreements ('MSA'). An MSA essentially is an agreement
between the parties recording the terms of settlement in pursuance of resolution
of some or all of the disputes between such parties, and authenticated by the
mediator[6]. Under the aegis of the Act, as per Section 20, such MSAs can also
be registered giving the proceedings under the Act, and the final outcome
further credence.
Additionally, the Act envisages the mediation process under
the Act to be a timebound process with a period of one-hundred and twenty (120)
days from the first appearance before the mediator fixed as the timeline for
completion of the mediation proceedings. The period of mediation may be extended
for a further period as agreed by the parties, but not exceeding sixty (60)
days[7]. Furthermore, the Act also provides for strict standards of
confidentiality and provisions for future implementation of online mediation
under Section 22 and Chapter VII of the Act, respectively.
The Expert Committee Report on mediation framework under the Insolvency and
Bankruptcy Code
The Expert Committee report has bifurcated its recommendations vis-à-vis
inculcation of mediation as an ADR methodology under the Code. According to the
report, the Insolvency and Bankruptcy Board of India ('IBBI') shall have the
powers to make rules and regulations and to formulate the procedures for
implementation of mediation under the Code. This is in contrast with the Act
which prescribes the 'Mediation Council of India' (as established under the Act)
to be the regulatory body for mediation in India. Further, the report also
suggests a phased implementation of voluntary mediation between the parties.
One of the most important aspects that the expert committee discusses in its
report is the recognition and enforcement of the MSAs. As per the Act, MSAs can,
at the will of the parties be registered before an Authority as will be notified
by the Central Government and the enforcement of the same, de hors of
registration, shall be done in accordance with the provisions of the Code of
Civil Procedure, 1908, in the same manner as if it were a judgment or decree
passed by a Court[8]. Under the aegis of the recommendations of the Expert
Committee "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)."
Moreover, at the post-admission stage, the settlements will be
afforded legal credence by being recorded in the order of the NCLT, as
per Section 12A of the Code. In case of any breach of the terms of the
settlement, the parties have the liberty to approach the NCLT for revival of the
CIRP. This, too, is a detour from the provisions of the Act as the Expert
Committee has also suggested a self-contained framework to be established for
recognition and enforcement of MSAs under the Code.
Moving on, the Expert Committee report has also given weightage to the timelines
as prescribed by the Code. The bulwark of proceedings under the Code has been
its timebound resolution structure from its very inception. Keeping the same in
mind, the Expert Committee opined that the provisions of Section 18 of the Act
vis-à-vis the timelines for completion of mediation proceedings may not be
suited to the end goal of the Code. The major apprehension of the Expert
Committee was with respect to mediation being used as a tool to delay
adjudication by the parties at various stages.
Hence, the Committee was of the
opinion that the timelines of insolvency mediations were best suited to run parallelly alongside the statutory timelines under the Code. To this end, the
report formulated an illustration to exposit the afore-stated recommendation
– mediations during the post-institution but pre-admission stage shall stand
automatically terminated within 30 days of its reference or upon admission of
the Corporate Debtor into CIRP by an order of the NCLT, whichever is earlier.
Other notable inclusions and recommendations made by the Expert Committee with
respect to the induction of mediation as an ADR mechanism under the Code
includes exclusion of insolvency mediation costs from the purview of CIRP costs,
creation of a pool of mediators comprising of inter alia retired members of NCLT/NCLAT,
experienced legal practitioners in the domain of insolvency law and technical
experts in insolvency, accounting, valuation etc., along with facilitation of
their training, and the advent of online mediation as a way forward for
mediation under the Code.
A standalone Code for Insolvency Mediation
Throughout the elaborate report presented by the Expert Committee, one
underlying theme that stands out is the independency from the Mediation Act,
2023 the Committee urges on maintaining when it comes to insolvency mediation. A
bare perusal of the report's recommendations as encapsulated hereinabove would
clearly demonstrate that the Expert Committee wants to develop a bespoke
framework for insolvency mediation and not be bound by the provisions of the
Mediation Act, 2023.
In the Committee's own words, "The mediation framework under the Code would best
operate as a self-contained blueprint within the Code," whereby, an independent
infrastructure would enable the inclusion of mediation as an ADR tool to be in
line with the inherent aim, intent and object of the Code. The report relies on
two primary pillars of arguments to rationalize this hypothesis. Firstly, the
report categorizes the Code as a sui generis piece of legislation that was
tailor-made for the express purposes of value maximization, balancing the
interests of all the stakeholders and for resolution of a stressed corporate
entity. Hence, the application of an "umbrella legislation" such as the Act was
deemed to be not suitable and inefficient by the Committee.
Secondly, the report
emphasized on how the insolvency proceedings under the Code involved in rem rights
and blanket application of the Act would jeopardize the rights of stakeholders
involved, especially under the stringent confidentiality norms of the Mediation
Act, 2023. The report makes the mode of achieving an independent, institutional
insolvency mediation framework abundantly clear, too.
Under the Mediation Act,
2023, Entry 13 of the First Schedule provides for any subject matter of dispute
which is notified by the Central Government to be excluded from the ambit of the
Act. Hence, the Expert Committee in its report has unequivocally suggested
amending the Act or making a specific notification under Entry 13 of the First
Schedule, exempting mediation proceedings under the Code from the Act itself.
Conclusion
Mediation has become an undeniable need of the hour within the domains of
insolvency and bankruptcy law and with the Mediation Act, 2023, the Indian legal
system was injected with a functional and institutional model of ADR that could
be supplemented to negate the issues plaguing traditional litigation across
various fora of adjudication and disciplines of law.
However, with the Expert
Committee's report on Mediation as an ADR tool under the Code, the Mediation
Act, 2023 is seemingly side-stepped to accommodate a more tailor-made framework
for resolution of disputes arising out of the CIRP/Liquidation of a Corporate
Debtor such as claims collation, inter-creditor disputes, third-party disputes
etc. It will be interesting to see whether a standalone framework made from
scratch would yield favorable results or reliance upon an already formulated
legislation singularly concerned with mediation in the Indian context would have
been a better starting point.
Written By: Simranjeet Kaur
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