Dear Friends,
As you are aware that, before implementation of IBC,2016 there are various laws governing individual as well as corporate insolvency and bankruptcy matters in India. There were a lengthy and cumbersome method for creditors /financiers for recovery of their dues from the defaulting corporate debtors. For individuals insolvency and bankruptcy matters there were three laws dominating in India and the last recourse if the Court of Laws. The process adopted earlier for resolution of matters were painful for creditors /financiers ad the defaulting persons were taking advantage of loopholes of these laws, rules and regulations. Even some defaulters have taken thousands of crores of public only from banks and settled abroad. The government of India considering these lacunas and matters has brought the IBC,2016.
On 28th May, 2016, the Code was published in the official gazette after its passage in Parliament. It has been hailed as a major economic measure, aimed at aligning insolvency laws with international standards. Parliament's previous attempts to ensure recovery of public debt, (through the Recovery of Debts due to Banks or Financial Institutions Act, 1993, hereafter "RDBFI Act") securitisation (by the Securitisation and Reconstruction and Enforcement of Security Interests Act, 2002 hereafter "SARFESI") deal with certain facets of corporate insolvency.
These did not result in the desired consequences. The aim of the Code is to
a) promote entrepreneurship and availability of credit;
b) ensure the balanced interests of all stakeholders and
c) promote time-bound resolution of insolvency in case of corporate persons, partnership firms and individuals.
The Insolvency & Bankruptcy Code 2016 ("IBC"), enacted to address the troubling shortcomings in existing staggered insolvency laws in India and to bring them under one umbrella, is set up to face a monumental challenge and equally monumental expectations.
Thus it is apparent that the Code is perhaps one of the most critical legislations introduced in the recent years impacting the ease of doing business in India.
The Insolvency and Bankruptcy Code 2016, enacted to radically change the process of insolvency resolution in India, is keenly watched by economists and jurists as well as businessmen and investors, for the reason that each aspect of the implementation of law has the potential to critically impact the ease of doing business in India. For this reason, the Code is especially sensitive to interpretation and it is vital that the issues thrown up in its inaugural year of implementation be recognized and the judicial remark on the same be understood.
THE PREAMBLE OF THE CODE IS
"consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto".
THE INSOLVENCY RESOLUTION PROFESSIONALS
The Code,2016 has brought unique concept of " Resolution Professionals" , a well educated highly sophisticated and agency governed professionals, who are working on ethics and law established by the Insolvency and Bankruptcy Board of India ( IBBI). The main aim of these professionals are resolution of the insolvency and bankruptcy situation of corporate debtor and streamline their activities so that they will restart their economic activities again. The main aim of the Code,2016 is on the resolution of the matters and not on winding up of corporate debtors and distributing its assets among stakeholders.
WHO IS A RESOLUTION PROFESSIONAL?
A Resolution Professional is a licensed professional who:
- Has qualified the Limited Insolvency Examination,
- Is enrolled with the Insolvency Resolution Agency,
- Is registered with the Board.
The Adjudicating Authority appoints the Resolution Professional who manages the entire process of insolvency and bankruptcy. According to the Code, "Resolution Professional" means an Insolvency Professional who conducts the insolvency resolution process and includes an interim resolution professional and takes necessary steps to revive the company. The Insolvency Professional is governed by specific legislation that they have to follow i.e., IBBI (Insolvency Professional) Regulation, 2016.
The Resolution professional plays a very significant role for the efficient operations of the insolvency process. He has to perform a whole range of functions and duties that are vested in him. The primary responsibility of a resolution professional is to conduct the Corporate Insolvency Resolution Process with transparency. Besides, the Insolvency Professional is also required to possess the appropriate skills, knowledge, expertise to ensure that the proceedings are conducted in an effective manner and carry out the duties and responsibilities vested in him.
The Resolution Professional is also governed by the prudent ethics ,rules and regulations of the agency through which they have registered. It is necessary that the Insolvency Agency control behaviour of their members and formulate some ethical grounds not following which an Insolvency Professional should be penalised. You know that sticks and carrots are the two essential conditions for development of a profession and hence there should be some checks and balances for the members.
THE IBBI CIRCULAR ON PENALTIES
The Insolvency and Bankruptcy Board of India(IBBI) through Circular No. IBBI/IPA/43/2021, Dated 28/07/2021 came out with some sets of penalties on the Insolvency Professionals in case of default by them or non performance ,etc. so that Insolvency Agencies should incorporate in their Bye-laws governing their members.
The IBBI has recommended that the IPA( Insolvency Professional Agency) shall amend its Bye-laws to provide for the maximum and minimum monetary penalty , where the Disciplanary Committee decides to impose such penalty on its professional members under Clause 24(2)(d) of the Schedule to the IBBI( Model Bye-laws and Governing Board of Insolvncy Professional Agencies) Regulations, 2016 as under;
|
Sr. No. |
Contravention |
Monetary Penalty |
|
1 |
Fails to submit disclosures, returns, etc. to IPAs or submits inadequate or incorrect disclosures, returns, etc., relating to any assignment, as required under the Code and Regulations made thereunder or Bye-laws of the IPA or called upon by the Board or the IPA. |
Up to Rs. 1,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 50,000. |
|
2 |
Accepts an assignment having conflict of interests with the stakeholders. |
Up to Rs. 2,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 1,00,000. |
|
3 |
Fails to maintain records properly relating to any of his assignments. |
Up to Rs. 1,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 50,000. |
|
4 |
Rejects a claim(s) without giving any proper reason while undertaking an assignment or fails to exercise due diligence in claim verification. |
Up to Rs. 2,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 1,00,000 |
|
5 |
Fails to comply with directions issued by Adjudicating Authority or the Appellant Tribunal. |
Up to Rs. 2,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 1,00,000 |
|
6 |
Outsources his duties and obligations. |
Up to Rs. 2,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 1,00,000. |
|
7 |
Fails to appoint registered valuers, wherever required, under the Code or Regulations made thereunder, for conducting valuation. |
Up to Rs. 2,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 1,00,000. |
|
8 |
Fails to supply the information called for or to comply with the requirements of information sought by the IPA, Board, Adjudicating Authority or the Appellant Tribunal or does not cooperate with the inspection or investigating authority. |
Up to Rs. 1,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 50,000. |
|
9 |
Fails to make public announcement in the manner provided for in the relevant Regulations. |
Up to Rs. 2,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 1,00,000. |
|
10 |
Fails to provide notice regarding meetings of creditors. |
Up to Rs. 1,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 50,000. |
|
11 |
Fails to reject resolution plan from ineligible resolution applicants. |
Up to Rs. 2,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 1,00,000. |
|
12 |
Fails to take action in respect of Preferential, Undervalued, Fraudulent or Extortionate transactions. |
Up to Rs. 2,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 1,00,000. |
|
13 |
Enters into contract or agreement with professionals in an incomplete and improper manner. |
Up to Rs. 1,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 50,000." |
|
14 |
Contravenes any provision of the Bye-laws, or Regulations for which no specific penalty has been provided. |
Up to Rs. 1,00,000 or 25% of fee, whichever is higher, subject to a minimum Rs. 50,000." |
It is also instructed that the IPA shall amend its Bye- Laws to incorporate Clause 24(5) of the Schedule to the IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 as inserted by IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) (Third Amendment) Regulations, 2021.
CONCLUSION
The Government has trusted a lot on Resolution Professionals in this Code,2016 and left management of Corporate Debtors in their hand. They will become the head of management of a Corporate Debtor after acceptance of Corporate Insolvency Resolution Process Application by NCLT. Thus it is necessary that all members of an Professional Agency should bind by its Bye-laws and follow ethical behaviours towards all stakeholders involved. The members should be penalised for breach of these bye-laws so that they should not involve in unethical practices or there should not be any conflict between their personal needs and their duties ,while acting as a Resolution Professional. A "IRP" must be impartial and acts for the betterment of the Corporate Debtors and his /her main aim should be to find out best resolution plan with the held of Committee of Creditors ,so that ailing Corporate debtor should be revived not wound up.
DISCLAIMER: The above article is only for information and knowledge of readers. The views expressed here are the personal views of the author and same should not be considered as professional advice. In case of necessity do consult with professionals.
Footnotes:
- https://www.ibbi.gov.in/uploads/legalframwork/c3d5d1bd7b451572b4dea0cfd7bcba3d.pdf
- The Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 - Clause 24(2) The orders that may be passed by the Disciplinary Committee shall include- (d) imposition of monetary penalty;
- Clause 24(5) -provides that "Monetary penalty received by the Agency under the orders of the Disciplinary Committee shall be credited to the Insolvency and Bankruptcy Fund constituted under section 224 of the Code."
CAclubindia
