The concept of insolvency is extremely fertile in a market economy. The insolvency regime in India was started with the enactment of the Insolvency and Bankruptcy Code, 2016(Code). A key pillar of the insolvency ecosystem is the regulator, namely, the Insolvency and Bankruptcy Board of India(IBBI). It is responsible for professionalising insolvency services through the regulation and development of service providers, namely, insolvency professionals, insolvency professional agencies, insolvency professional entities, information utilities, registered valuers, and registered valuers’ organisations. The IBBI entered into a Cooperation Agreement with the International Finance Corporation (IFC), a member of the World Bank Group, in 2019, which aims, inter alia, to further build the capacity of insolvency professionals.
IBC which was the biggest insolvency reform in the economic history of India was intended to tackle the bad loan problems that were affecting the banking system. The IBC process has changed the debtor-creditor relationship as it was understood by numerous resolved cases. The Adjudicating Authority, the Appellate Authority, the High Courts, and the Supreme Court have all delivered numerous landmark orders and judgments explaining several conceptual issues, settling contentious issues and resolving grey areas.
On initiation of the corporate insolvency resolution process, the powers of the management/board of the corporate debtor stand suspended and get vested in an Interim Resolution Professional (IRP) appointed by the National Company Law Tribunal (NCLT), the Adjudicatory Authority (AA) under Insolvency and Bankruptcy Code, 2016 (IBC or Code) to manage the operations and assets of the corporate debtor. The role of IRP or Resolution Professional (RP) is vital in the efficient operation of the Corporate Insolvency Resolution Process (CIRP), as they regulate, manage and administer the entire insolvency and bankruptcy process as an agent to the adjudicator.
Background
Various scattered laws relating to insolvency and bankruptcy were already enacted which turned out to be inadequate and ineffective resulting in undue delays. Laws like Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act SARFAESI –for security enforcement and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI) for debt recovery by banks and financial institutions didn’t put the desired results.
The ineffective implementation and the time-consuming procedure in the laws pointed out the necessity of a new law to redress all these issues. To meet the redressal the Bankruptcy Law Reform Committee drafted and introduced the Insolvency and Bankruptcy Law Bill. By the Implementation of IBC, all existing insolvency laws in India were consolidated and amended.
Provisions related to Misconduct under IBC
To regulate the functioning of RPs, the Code lays down the procedure for complaint by any person aggrieved by the functioning of IRP/RP or on contravention by IRP/RP of any provisions of the Code or directions of Insolvency and Bankruptcy Board of India (Board/IBBI) under section 217 of the Code. Chapter IV of Part IV of the Insolvency and Bankruptcy Code, 2016 prescribes the duties of Insolvency Professionals (IPs).
As per Section 18 of the Code, the Interim Resolution Professional takes control and custody of any asset over which the corporate debtor has ownership rights monitors the assets of the corporate debtor and manages its operations until RP is appointed by the Committee of Creditors. According to section 23 of the Code, the RP shall conduct the entire corporate insolvency resolution process and manage the operations of the corporate debtor during the CIRP period and sometimes even after the expiry of the CIRP period, if resolution plan under section 30(6) has been submitted to the NCLT, till an order is passed by the NCLT under section 31 of the Code.
Penalty on Contravention by RP
The DC appointed by the board has given the power to regulate the IP professionals for the smooth execution of the CIRP. As per section 220 sub-clauses (2) to (6), the Disciplinary Committee, on being satisfied that sufficient cause exists, may impose a penalty or suspend or cancel the registration of an insolvency professional. In cases where the amount is unquantifiable, an upper limit of Rs. 1 Crore has been fixed for the imposition of penalty. Additionally, the IBBI may direct any person who has made an unlawful gain or averted loss by indulging in any activity in contravention of the Code, to give an amount equivalent to such unlawful gain or aversion of loss.
Judgements Related Professional Misconduct
The Disciplinary Committee of the Insolvency and Bankruptcy Board of India (IBBI) has recently directed the Board to conduct an inspection and submit a report concerning the allegation of excess fee charged by the liquidator. The Insolvency and Bankruptcy Board of India (IBBI) had appointed an Investigating Authority (IA) to conduct the investigation of Mr Amit Gupta in the liquidation process of Hindustan Dorr Oliver Limited (CD).
The Disciplinary Committee, thereby issued a direction to the Board to inspect the fee charged by Mr. Amit Gupta in all the liquidation process(es) handled/being handled by him as the liquidator and to submit the report within two months.
The Disciplinary Committee of the Insolvency and Bankruptcy Board of India (IBBI) has recently warned a registered valuer to be diligent as he had left out some important indices in preparation of valuation report. The SCN alleged that there appears to be no convergence between the methodology indicated by the RV in his valuation report and the final valuation figures estimated by him. The report claims to have taken into account, various factors such as ‘price from market/manufacturer’, ‘price indices’, ‘age’, ‘balance life’, ‘salvage’, ‘depreciation’, ‘obsolescence’ ‘cost to cure’ etc. The DC went on to dispose of the Show Cause Notice, with a word of caution to the RV for being careful and diligent, in future, in preparation of the valuation report in such a manner that all the material information is provided in the valuation report itself to make the document complete in itself, leaving nothing at the discretion or judgement or interpretation of the stakeholders who intend to use it during the process.
The Disciplinary Committee of the Insolvency and Bankruptcy Board of India (IBBI) has issued a warning to an Interim Professional for alleged bribery demands and non-cooperation with the inspecting authority. Due to the non-cooperation contravention described, the Disciplinary Committee warned Mr Srigopal Choudhary to be extremely careful and ensure compliance with the provisions of the Code and its underlying regulations when performing his duties as an IP. The Adjudication Division of the Board was instructed to keep this Order on active record as negative points against him, warranting continuous vigilance. The Board will also monitor other cases handled by him to deter him from repeating such mistakes.
IP Misconduct: IBBI reprimands IP for Delay in execution of CIRP Proceedings
The Insolvency and Bankruptcy Board of India‘s (IBBI) Disciplinary Committee has issued a warning to an Insolvency Professional (IP), for the alleged inordinate delay of the corporate insolvency resolution process (CIRP) of M/s Sabari Realtors Private Limited. The order was issued under Section 220 of the Insolvency and Bankruptcy Code, 2016, and relevant regulations. The order of the IBBI comes into immediate effect, and a copy of the order will be forwarded to the ICSI Institute of Insolvency Professionals, where Mr. S. Amarendran is enrolled as a member. It will also be shared with the Registrar of the Principal Bench of the National Company Law Tribunal (NCLT).
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