Guide to the Insolvency Professional Agency (IPA) in India – Role | Regulation | Responsibilities

Table of Contents

1. Background
2. Insolvency Professional Agency (IPA)
3. Insolvency Professional (IP)
4. Panel of Insolvency Professionals to recommend to NCLT as Interim Resolution Professional or Liquidator
5. Insolvency Professional Entities

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1. Background

Insolvency Professional is required to play a key role in implementation of Insolvency Code. This profession will be regulated by IBBI through Insolvency Professional Agency (IPA).

2. Insolvency Professional Agency (IPA)

Work relating to insolvency resolution is expected to be handled by ‘Insolvency Professionals’ (IP). These professionals are required to be registered with ‘Insolvency Professional Agency’ (IPA).

“Insolvency professional agency” means any person registered with the Board (IBBI) under section 201 of Insolvency Code, 2016 as an insolvency professional agency – section 3(20) of Insolvency Code, 2016.

The Insolvency Professional Agencies (IPA) will develop professional standards, code of ethics and be first level regulator for insolvency professionals members. This will lead to development of a competitive industry for such professionals.

2.1 Registration of Insolvency Professional Agency

Insolvency and Bankruptcy Board of India (Insolvency Professional Agency) Regulations, 2016 make provision for registration of Insolvency Professional Agency. Such Agency should be incorporated as section 8 company. It should have minimum net worth of Rs. ten crores and paid up capital of Rs. five crores. It should not be a subsidiary of subsidiary.
Functions of Insolvency Professional Agency have been specified in section 204 of Insolvency Code. These cover:

• granting membership to insolvency professionals
• lay down standards of professional conduct to its members
• monitor performance of members
• safeguard rights, privileges and interests of insolvency professionals
• suspend member or cancel membership
• redress grievances of members and
• publish information about its functions, list of members, performance of its members.

Application for registration as Insolvency Professional Agency (IPA) should be made to IBBI in prescribed form with fees.

Initially, in-principle approval as Insolvency Professional Agency will be granted for one year. Then during that period, application for registration shall be made with IBBI

2.2 Model Bye Laws of Insolvency Professional Agency

Model Buy Laws of Insolvency Professional Agency and provisions relating to Governing Board of Insolvency Professional Agency have been specified in Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agency) Regulations, 2016 as amended upto 18-9-2023.

Insolvency Professional must be ‘professional member’ of such Insolvency Professional Agency.

Duties of Professional Members have been specified in the Regulations.

The Insolvency Professional Agency shall have Grievance Redressal Mechanism.

The Agency can initiate disciplinary proceedings against its professional members.

Disclosure of relationship of Insolvency Professionals with other professionals – Insolvency Professional is required to with disclose his relationship with Insolvency Professional and other professionals. This should be disseminated by IPA the disclosures on its website in the following format, within three working days of the receipt of the disclosures from its professional member: – amendment to clause 6(2) of Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agency) Regulations, 2016 on 31-10-2022.

2.3 Control over Insolvency Professional Agency by Board (IBBI)

IBBI will exercise control over Insolvency Professional Agency (IPA) and Insolvency Professional (IP). Complaints can be made to IBBI under section 217 of Insolvency Code.

IBBI can carry out investigation of Insolvency Professional Agency and Insolvency Professional under section 218 of Insolvency Code. Disciplinary action can be taken against Insolvency Professional Agency or Insolvency Professional by appointing disciplinary committee under section 220 of Insolvency Code.

Disciplinary Action – Disciplinary action against insolvency professional Agency shall be conducted in accordance with provisions of IBBI (Inspection and Investigation) Regulations, 2017 – Regulation 8 of IBBI (Insolvency Professional Agencies) Regulations, 2016 as amended on 31-7-2022.

2.4 Recognised Insolvency Professional Agencies

Following three Insolvency Professional Agencies (IPA) have been recognized. These have been incorporated as section 8 companies.

1. Indian Institute of Insolvency Professionals of ICAI, 1st Floor, ICAI Building, Indraprastha Marg, New Delhi-110002, e-mail – www.iiipicai.in.
2. ICSI Insolvency Professionals Agency, Ist Floor, ICSI House, 22, Institutional Area, Lodhi Road, NEW DELHI – 110003, e-mail – www.icsiipa.com.
3. Insolvency Professional Agency of Institute of Cost Accountants of India, 4th Floor, CMA Bhawan, 3 Institutional Area, Lodhi Road, New Delhi – 110003, e-mail – www.ipaicmai.in.

These Agencies can admit any person who is not member of that Institute e.g. an Advocate can become member of any of the aforesaid Institute. A CA can become member of institute initiated by ICSI or CMA Institute. Vice versa is also permissible.

In fact, changing of membership from one IPA to another is possible with NOC from both IPAs and permission of IBBI.

2.5 Annual Compliance Certificate by IPA

The compliance officer of IPA shall submit to the Board, a compliance certificate annually in the format issued by the Board, verifying that the insolvency professional agency has complied with the provisions referred to in regulation 7(1). The annual compliance certificate shall also be signed by the managing director of the insolvency professional agency – Regulation 7(3) of IBBI (Insolvency Professional Agencies) Regulations, 2016 as amended on 31-7-2022.

Revised format of Annual Compliance Certificate has been issued vide IBBI circular No. IBBI/IPA/54/2022 dated 2-11-2022.

3. Insolvency Professional (IP)

The Insolvency Code, 2016 envisages a very big role for insolvency professionals.

It is envisaged that most of work relating to insolvency and bankruptcy will be handled by insolvency professionals.

“Insolvency Professional” (IP) means a person enrolled under section 206 of Insolvency Code, 2016 with an insolvency professional agency as its member and registered with the Board (IBBI) as an insolvency professional under section 207 of Insolvency Code, 2016 – section 3(19) of Insolvency Code, 2016.

“Insolvency Professional” (IP) means a person enrolled under section 206 of Insolvency Code, 2016 with an insolvency professional agency as its member and registered with the Board (IBBI) as an insolvency professional under section 207 of Insolvency Code, 2016 – section 3(19) of Insolvency Code, 2016.

Insolvency Professional can be

(a) An individual or

(b) Insolvency Professional Entity (IPE) [Company, LLP or Registered Partnership firm].

Till 31-10-2022, only individual could be ‘Insolvency Professional’. Now, IPE can also be registered as Insolvency Professional (IP) w.e.f. 31-10-2022.

The Insolvency Professional should follow code of conduct as specified in section 208(2) of Insolvency Code and in First Schedule to Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016.

Disciplinary Action – Disciplinary action against insolvency professional shall be conducted in accordance with provisions of IBBI (Inspection and Investigation) Regulations, 2017 – Regulation 11 of IBBI (Insolvency Professionals) Regulations, 2016 as amended on 4-7-2022.

Functions of Insolvency Professional – As per section 208 of Insolvency Code (as amended vide IBC (Amendment) Act, 2021 w.r.e.f. 4-4-2021), where any insolvency resolution, fresh start, liquidation or bankruptcy process has been initiated, it shall be the function of an insolvency professional to take such actions as may be necessary, in the following matters, namely: —

(a) a fresh start order process under Chapter II of Part III

(b) individual insolvency resolution process under Chapter III of Part III

(c) corporate insolvency resolution process under Chapter II of Part II

(ca) pre-packaged insolvency resolution process under Chapter III-A (Pre-Packaged insolvency resolution process) of Part II (the clause inserted vide IBC (Amendment) Act, 2021 w.r.e.f. 4-4-2021)

(d) individual bankruptcy process under Chapter IV of Part III; and

(e) liquidation of a corporate debtor firm under Chapter III of Part II.

Functions of insolvency professional prior to initiation of pre-packaged insolvency process – Where the name of the insolvency professional proposed to be appointed as a resolution professional, is approved under section 54A(2)(e) of Insolvency Code, it shall be the function of such insolvency professional to take such actions as may be necessary to perform his functions and duties prior to the initiation of the pre-packaged insolvency resolution process under Chapter III-A (Pre-packaged insolvency resolution process) of Part II of Insolvency Code – Section 208(1A) of Insolvency Code inserted vide IBC (Amendment) Act, 2021 w.r.e.f. 4-4-2021.

NCLT can determine fees payable to professional even if CIRP not admitted – NCLT can determine fees payable to professional even if CIRP not admitted, as per powers under section 60(5)(c) of Insolvency Code – Alok Kaushik v. Bhuvaneshwari Ramanathan [2021] 5 SCC 787.

3.1 Registration of Individual as Insolvency Professional

Provisions relating to registration of individual as Insolvency Professional and Insolvency Professional Entity have been made in Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016.

As per regulation 5 of IBBI (Insolvency Professionals) Regulations, 2016 as amended on 22-7-2021, there are two streams for registration.

CA, CS, CMA or Advocate with ten years experience or graduate with 10 years experience in law or 10 years experience after post graduation in management or 15 years experience in management after graduation – He has to pass Limited Insolvency Examination, enroll with Insolvency Professional Agency as professional member and undergo pre-registration educational course within twelve months from the date of payment of non-refundable application fee under regulation 6, as required by IBBI, before applying for registration with IBBI. He should register as Insolvency Professional within 12 months of passing Limited Insolvency Examination. After Registration, he is required to undergo continuous professional education (CPE) periodically, as prescribed by IBBI
– Regulation 5 of IBBI (Insolvency Professionals) Regulations, 2016. Words in italics inserted w.e.f. 18-9-2023.

Individuals other than above – An individual (other than CA, CS, CMA, Advocate or person experienced in law or management as above), has to pass Limited Insolvency Examination, enroll with Insolvency Professional Agency as professional member and undergo pre-registration educational course within twelve months from the date of payment of non-refundable application fee under regulation 6, as required by IBBI. After that he has to successfully complete either National Insolvency Programme or Post Graduate Insolvency Programme approved by IBBI, before applying for registration with IBBI. He should register as Insolvency Professional within 12 months of passing Limited Insolvency Examination. After Registration, he is required to undergo continuous professional education (CPE) periodically, as prescribed by IBBI. – the word ‘post’ has been inserted in regulation 5(c)(ii) of IBBI (Insolvency Professionals) Regulations, 2016 w.e.f. 20-7-2023. Thords in italics inserted w.e.f. 18-9-2023.

Who can be registered as IP – The individual should be major, resident of India, has passed examination and has experience and training as prescribed. He should not have been convicted of offence and sentenced for seven years or more. He should not be undischarged insolvent or declared as of unsound mind.

Fit and Proper Person – IP should be ‘fit and proper person’. For this, IBBI may take account of any consideration as it deems fit, including but not limited to the following criteria-

(i) integrity, reputation and character

(ii) absence of convictions and restraint orders, and

(iii) competence, including financial solvency and net worth [regulation 4 of IBBI (Insolvency Professionals) Regulations, 2016].

Procedure for registration of IP with IBBI – An individual enrolled with an insolvency professional agency as a professional member may make an application to IBBI through the insolvency professional agency of which he is a member, in Part – II of Form A of the Second Schedule to these Regulations, along with a non-refundable application fee of twenty thousand rupees to the Board – Regulation 6(1) of IBBI (Insolvency Professionals) Regulations, 2016, substituted w.e.f. 18-9-2023.

Insolvency Professional Entity can register as ‘professional member’ – Insolvency Professional Entity (IPE) can be partnership firm or LLP. It can act as ‘professional member’. All partners must be IP.

Pre-registration educational course – An individual, before registration as Insolvency Professional, should undergo 50 hours pre-registration educational course to be con- duced by Insolvency Professional Agency (IPA) after his enrolment as a professional member. [he has to pass online examination also] – IBBI circular No. IPA/011/2018 dated 23-4-2018.

Forwarding application of IP to IBBI by IPA – The insolvency professional agency shall verify and forward the application to the Board within thirty days from the date of payment of fee under regulation 6(1) or 6(1A), as the case may be, excluding the time given by the insolvency professional agency to the professional member for submitting additional documents, information, or clarification, as the case may be – Regulation 6(2A) of IBBI (Insolvency Professionals) Regulations, 2016, inserted w.e.f. 18-9-2023.

Grant of registration by IBBI – The IBBI shall grant certificate of registration within 30 days. The registration will be subject to specified conditions – Regulation 7 of IBBI (Insolvency Professionals) Regulations, 2016, amended w.e.f. 18-9-2023.

Refusal to grant certificate of registration – IBBI can refuse to grant certificate of registration after issuing notice with reasons and after considering the explanation of applicant – – Regulation 8 of IBBI (Insolvency Professionals) Regulations, 2016, amended
w.e.f. 18-9-2023.

IPA to inform specified changes to IBBI in respect of IP – Insolvency Professional Agency (IPA) shall inform IBBI changes within one working day, if IPA

(a) issues or renews authorisation for assignment

(b) suspends or cancels authorisation for assignment

(c) revokes suspension or cancellation of authorisation for assignment

(d) accepts surrender of authorisation of assignment

(e) accepts the application for surrender of membership and strikes the name of the professional member from its registers

(f) expels the professional member or

(g) receives intimation of demise of an individual or winding up or dissolution of a company, limited liability partnership or registered partnership firm and strikes the name of the professional member from its registers

Regulation 10(1) of IBBI (Insolvency Professionals) Regulations, 2016, amended w.e.f. 18-9-2023.

IBBI shall take note of information received under regulation 10(1) – Regulation 10(2) of IBBI (Insolvency Professionals) Regulations, 2016.

Attendance at educational course and continuing education programme online – The course was required to be by physical attendance at the educational course. They are also required to attend continuous education programmes (CEP). However, in view of COVID-19 (Corona virus), it has been decided to conduct online courses without physical presence of students. They can also attend Continuous Education Programmes (CEP) online. – – IBBI (Online Delivery of Educational Course and Continuing Professional Education by Insolvency Professional Agencies and Registered Valuers Organisations) Guidelines, 2020 have been issued by IBBI on 10-7-2020 for this purpose.

These guidelines are valid till further orders (as per press release dated 30-9-2022).

Surrender of certificate of registration by IP – An insolvency professional may surrender its certificate of registration by making a request to IBBI, in writing along with the certificate of registration in original. – – If IBBI is satisfied, it may accept the request for surrender of certificate of registration within thirty days of its receipt and upon acceptance, the registration of such insolvency professional shall stand cancelled. – – On and from the date of cancellation of certificate of registration, the concerned person shall not represent itself to be a holder of the certificate for carrying out the activity for which such certificate had been granted – Regulation 10A of IBBI (Insolvency Professionals) Regulations, 2016, inserted w.e.f. 18-9-2023.

Special procedure for action on surrender, expulsion, cancellation of registration etc.
– While disposing of the matter under regulation 10B, IBBI shall not be bound by the procedure specified in regulation 11 (In respect of disciplinary proceedings). – – On receipt of information under regulation 10(1)(e) and regulation 10(1)(f), the IBBI may issue a notice, if required, to such professional member, calling upon it to explain as to why the certificate of registration, granted under the regulations, should not be cancelled. – – The professional member may make written submission(s), if any, within a period not exceeding 21 days from the date of service of notice [Regulation 10B(3). – – On being satisfied with the submission(s) made under regulation 10B(3), the IBBI may decide to cancel the registration or issue directions to complete the ongoing assignments, make pending compliances including payment of fee, etc. [Regulation 10B(4)] – – IBBI shall communicate its decision under regulation 10B(4) within thirty days from date of receipt of written submissions under regulation 10B(3). – – On receipt of information under regulation 10(1)(g), the registration of such insolvency professional with the Board shall be deemed to have been cancelled from the date of demise or winding up or dissolution, as the case may be. – – On and from the date of cancellation of the certificate of registration, under regulation 10B, the legal heirs or assignee of the insolvency professional shall take steps for delivery of any record(s) or document(s) or assets that may be in its custody or control, within the time period and in the manner, as may be required under the relevant regulations or as may be directed by IBBI – Regulation 10B of IBBI (Insolvency Professionals) Regulations, 2016, inserted w.e.f. 18-9-2023.

3.2 Conditions of registration of IP

The Insolvency Professional should abide by Code, rules, regulations and guidelines of insolvency professional agency. The fees payable are Rs 20,000 for a period of five years if he is individual and Rs two lakhs if insolvency professional is an insolvency professional agency. In addition, he is required to pay fee @ 1% of professional fees earned for services rendered by him as Insolvency Professional in preceding financial year. Fees are to be paid before 30th April with statement in form E. In addition, regulatory fees as prescribed in regulation 31A(2) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 is payable every quarter. He should abide by Code of Conduct. He should maintain proper records of assignment at least for three years after assignment is completed. He should not outsource his duties and responsibilities, except those specifically permitted by IBBI. He is required to undergo continuous professional education (CPE) periodically, as prescribed by IBBI – regulation 7(2) of IBBI (Insolvency Professionals) Regulations, 2016 as amended on 1-10-2022.

Fees payable by Insolvency Professional – Fees payable by Insolvency Professionals (IP) and Insolvency Professional Entities (IPE) w.e.f. 1-10-2022 have been detailed in IBBI circular No. IBBI/IP/56/2022 dated 24-11-2022.

Mode of payment of fees to IBBI – As per IBBI circular No. IBBI/IP/56/2022 dated 24-11-2022, the fees, for which online payment module is not yet implemented, shall be credited to bank account of the IBBI, as per details below:—

Beneficiary Name: Insolvency and Bankruptcy Board of India, Bank: Punjab National Bank A/c No.: 0128002100302250, IFSC: PUNB0112000, Branch: ECE House, Connaught Place, New Delhi-110001, GST Number: 07AAAGI0193K1ZD.

IP can have Partnership only with IP – Insolvency Professional can have Partnership only with IP holding valid registration to sign on behalf of it – amendment dated 3-10- 2022.

IBBI has powers to fix fees payable by IP – In CA Venkata Siva Kumar v. IBBI (2020) 160 SCL 687 = 118 taxmann.com 134 (Mad HC DB), it was held that IBBI has sufficient powers to frame regulations with regard to fees payable by Insolvency Professional and Insolvency Professional Agencies. Fees can be fixed as percentage of annual remuneration received by IP in preceding financial year. Quid pro quo is not a condition precedent for levy of regulatory fee. Broad correlation is sufficient.

3.3 Conduct of Limited Insolvency Examination or National Insolvency Examination

IBBI will conduct examination through a designated agency. The syllabus, format, qualifying marks and frequency of the Limited Insolvency Examination shall be published on the website of the Board at least three months before the examination [regulation 3 of IBBI (Insolvency Professionals) Regulations, 2016 as amended on 27-3-2018]

The examination will be computer based online and will be conducted at various places in India. The examination consists of objective type questions with 25% negative marking for wrong answers. The syllabus and model question paper is available on website of IBBI i.e. www.ibbi.gov.in.

Syllabus as effective from 1-7-2023 has been notified. Theory marks account for only 30% which will be on various corporate and business laws. 70% marks will be on case studies. Passing marks are 60%. Link for syllabus, registration and sample questions is https://ibbi.gov.in/en/examination/view-examination/22.

The Regulation 3 makes provision for National Insolvency Examination but presently that examination is not being conducted.

The examination fees are Rs 5,900 [Rs 5,000 plus GST] w.e.f. 1-10-2022 − Circular No. IBBI/EXAM/52/2022 dated 31-8-2022.

Maximum six attempts for examination in one year – Frequency of attempts in Limited Insolvency Examination shall be determined after taking into account of cooling period of two months between each consecutive attempts − IBBI circular No. EXAM-13016/1/2022-IBBI dated 6-6-2022.

Post Graduate Insolvency Programme by IICA − A 24 month (including internship) residential Post Graduate Insolvency Programme has been introduced by Indian Institute of Corporate Affairs (IICA). Fess are Rs 12.25 lakhs. IICA is situated near Gurugram, a city South West of Delhi – the word ‘post’ has been inserted in regulation 5(c)(ii) of IBBI (Insolvency Professionals) Regulations, 2016 w.e.f. 20-7-2023.

3.4 Code of Conduct of Insolvency Professional

The Code of Conduct of Insolvency Professional prescribes norms of

(a) Integrity and objectivity

(b) independence and Impartiality

(c) Professional Competence

(d) Representation of correct facts and correcting misapprehensions

(e) Timelines

(f) Information Management

(g) Confidentiality

(h) Occupation, employability and restrictions

(i) Remuneration and costs

(j) Gifts and Impartiality

(k) Disclosure of relationship and other professionals appointed by him

First Schedule to Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 amended on 4-7-2022.

Fees payable to him and to professionals engaged by him shall be disclosed to IPA of which he is a member and IPA shall publish that information on its website.

Section 208(2) of Insolvency Code also specified Code of Conduct of IP. The requirements are –

(a) reasonable care and diligence

(b) compliance with bye laws of Insolvency Professional Agency (IPA), allowing inspection of records by IPA, submit copy of records of every proceedings before Adjudicating Authority to IBBI and IPA of which he is a member and perform functions in specified manner.

Guidelines from IBBI in respect of fees to be charged by Insolvency Professional and other expenses – IBBI has issued circular No. IBBI/IP/013/2018 dated 12-6-2018 in respect of fees to be charged by Insolvency Professional and other expenses. The fees should be reasonable. Fees and expenses should be approved by CoC. The fees should be disclosed. The circular also indicates what is includible and what is not in expenses for CIRP.

IBBI has powers to regulate payment of remuneration to RP/IRP – IBBI has jurisdiction to regulate payment of remuneration to RP/IRP, as that is part of CIRP Cost. It can pass regulation for this purpose or issue executive instructions − Sumit Bansal v. Committee of Creditors of JP Engineers (2022) 142 taxmann.com 550 (NCLAT).

No cut from support service provider – An insolvency professional shall not accept/share any fees or charges from any professional and/or support service provider who are appointed under the processes − regulation 7(2) of IBBI (Insolvency Professionals) Regulations, 2016 inserted on 13-9-2022.

Penalty if Code of Conduct is not followed – Insolvency Professional can be penalized if he does not follow Code of Conduct, Insolvency Code and IBBI Regulations – Kamalesh Kumar Singhania, In re [2021] 123 taxmann.com 77 (IBBI).

3.5 Confidentiality of Information relating to processes under the Insolvency Code

IBBI vide circular No. IP(CIRP)/007/2018 dated 23-2-2018 has clarified as follows.

As per clause 21 of the Code of Conduct appended to the First Schedule to the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, the resolution professional is required to maintain confidentiality.

Further, there are specific restrictions on keeping the information confidential or providing information to stakeholders only under confidentiality agreement.

The disclosure of information, except as provided for in the Code, or rules, regulations or circulars issued thereunder, are confidential. Unauthorised access to or leakage of such information has the potential to impact the processes under the Code. An Insolvency Professional, whether acting as Interim Resolution Professional, Resolution Professional or Liquidator, shall-

(i) keep every information confidential; and

(ii) shall not disclose or provide access to information to unauthorised persons.

Failure to ensure confidentiality will attract action under the provisions of the Code and the regulations made thereunder.

3.6 Control over Insolvency Professional (IP) by Board (IBBI)

First tier control over Insolvency Professionals will be of Insolvency Professional Agency (IPA). Final control will be of Board (IBBI).

Complaint can be made to Board (IBBI) against Insolvency Professional under section 217 of Insolvency Code. Disciplinary action can be taken by Board (IBBI) under section 220 of Insolvency Code, after issuing show cause notice under section 219 of the Insolvency Code.

3.7 Procedure for inspection, investigation and disciplinary action

IBBI (Inspection and Investigation) Regulations, 2017 as amended on 14-6-2022 make provisions for inspection, investigation and disciplinary action against the Insolvency Professional, insolvency professional agency/entity and information utility (termed as ‘service provider’).

Inspection can be carried out by Inspecting Authority on direction of IBBI. At least ten days notice will be served on service provider. The Inspecting Authority may submit interim report. Draft of inspection report will be given to service provider for his comments and then final report will be prepared.

IBBI can also order investigation under section 218 of Insolvency Code.

Board of IBBI will consider the inspection report of investigation report and then may issue show cause notice to ‘service provider’. The reply of the service provider will be considered by Disciplinary Committee. Personal hearing will be granted and then order will be issued.

IBBI can appoint inspection agency. Board can pass interim orders – Regulations 10A and 10B of IBBI (Inspection and Investigation) Regulations, 2017 inserted on 14-6-2022.

If restitution is ordered, Board (IBBI) will endeavor to realise the amount of disgorgement expeditiously.

3.8 Insolvency Professional can act as Administrator under SEBI Regulations

Insolvency Professional can be appointed as Administrator to undertake sale of assets for recovering of investors’ money. Recovery Officer can appoint an Administrator if entity is not traceable or not complying with SEBI directives – SEBI (Appointment of Administrator and Procedure for Refunding to the Investors) Regulations, 2018.

IBBI and SEBI have agreed to use a panel of IPs for appointment of administrators. The guidelines have been given in press release dated 5-9-2020.

Preparation of panel to recommend names of Insolvency Professionals (IP) – Insolvency Professionals to act as Interim Resolution Professionals, Liquidators, Resolution Professionals and Bankruptcy Trustees (Recommendation) (Second) Guidelines, 2023 issued on 8-12-2023, giving guidelines and procedure for preparation of panel to recommend name of IP to act as IRP, liquidator, RP or bankruptcy trustee. IBBI will invoice ‘expression of interest’ form Insolvency Professionals. The IP is required to apply in specified form before 25-12-2023. These guidelines are valid for 6 months. As per earlier guidelines issued in June 2023, provisional list of IP was issued by IBBI on 27-6-2023. Now, fresh list will be issued by 29-12-2023, which will be valid after 1-1-2024.

3.9 Resolution Professional does not have adjudication powers

Resolution professional has no adjudication powers. He has administrative powers and no quasi judicial powers. He cannot decide claim of one or the other party – Swiss Ribbons
v. UOI (2019) 4 SCC 17 = 152 SCL 365 = 101 taxmann.com 389 (SC) * Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [2019] 111 taxmann.com 234 = (2020) 8 SCC 531 (SC 3 member bench).

Resolution professional has no adjudication powers. He has administrative powers and no quasi judicial powers. He cannot decide claim of one or the other party – Swiss Ribbons
v. UOI (2019) 4 SCC 17 = 152 SCL 365 = 101 taxmann.com 389 (SC) * Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [2019] 111 taxmann.com 234 = (2020) 8 SCC 531 (SC 3 member bench).

This was followed in Roma Enterprises v. Martin S K Mulla (2019) 155 SCL 110 = 108 taxmann.com 192 (NCLAT), where it was held that during CIRP, Resolution Professional cannot reject (or accept) claim of one or other party. He has to only collate the claims. Creditor can raise claim after moratorium period is over.

3.10 Meaning of ‘pending disciplinary proceedings’

Various sections use the words ‘disciplinary action pending against Resolution Professional’.

A disciplinary proceeding shall be considered as pending against the professional member from the date he has been issued a show cause notice by the Agency or the Board, as the case may be, till its disposal by the Disciplinary Committee of the Agency or the Board, as the case may be − Explanation to Regulation 23A of Insolvency and Bankruptcy Board of India (Insolvency Professional Agency) Regulations, 2016 inserted on 31-10-2022.

3.11 Filing of documents under MCA-21 by IP or RP

MCA has issued circular No. 8/2020 dated 8-3-2020 (superseding earlier Circular No. 04/2020 dated 17-02-2020), clarifying various issues relating to filing of forms in the Registry (MCA-21) by the Insolvency Professional (Interim Resolution Professional (IRP) or Resolution Professional (RP) or Liquidator) appointed under Insolvency Bankruptcy Code, 2016 (IBC, 2016).

The following clarification is issued for statutory compliances in respect of companies under Corporate Insolvency Resolution Process (CIRP).

(i) The IRP/RP/Liquidator would have to first file the NCLT order approving him as the IRP/RP/Liquidator in Form INC-28 by selecting the drop down box in field 5(a)(iii) by selecting the appropriate section of IBC 2016. After filling in the form, the IRP/RP/Liquidator while affixing his DSC, shall choose his designation as “CEO” in the declaration box for the purpose of filing only and choose “Others” from the Drop down Menu.

(ii) The Master Data for change in the status of the company from “Active”/“Inactive” to CIRP/Liquidation or CIRP/Liquidation to “Active” shall be effected on the basis of Formal Change Request Form submitted by IBBI to e-governance Cell, MCA(HQ). Since this function has been centralized, Registrars of Companies shall not raise and forward CRF either to the e-gov cell or to service provider for the above mentioned purpose.

(iii) The IRP/RP/Liquidator shall be responsible for filing all the e-forms in the MCA portal and sign the form in the capacity of CEO in order to meet filing protocol in the existing forms architecture. However, this shall in no way affect his legal status as IRP/RP/Liquidator. All filings of e-forms including AOC-4 and MGT-7 shall be filed through e-form GNL-2 by way of attachments till the company is under CIRP. In the existing field No. 3 of form No. GNL-2, IRP/RP/Liquidator will choose radio button “Filings under IBC”.

(iv) Against date of event and Board Resolution in INC-28 and GNL-2, date of order of NCLT/NCLAT/Court may be mentioned.

Filing documents to e-form GNL-2 – It is further clarified that in respect of companies which are marked under CIRP in the Registry, Annual Return (e-form No. MGT-7) and Financial Statement (e-form AOC-4) and other documents under the provisions of the Companies Act, 2013, in accordance with directions issued by the NCLT/NCLAT/Courts, shall be filed as attachments with e-form GNL-2 against the payment of one time normal fee only, till such time the company remains under CIRP. Separate GNL-2 forms shall be filed for each such document, by the IRP/RP.

It is also clarified that the concerned IRP/RP of every company which was under CIRP prior to the issue of this circular, shall also file e-form INC-28 for such companies and thereafter proceed to file other documents/fact/information as required under the Act and Rules thereunder through e-form GNL-2.

Signing of forms relating to charges – Form Nos. CHG-1, CHG-4, CHG-8 and CHG-9 shall be signed by Insolvency Professional, Resolution Professional or liquidator of companies for companies under resolution or liquidation – Rule 13 of Companies (Registration of Charges) Rules, 2014 as inserted on 29-8-2022.

Authentication of documents filed with ROC in case of company under Insolvency – e-forms wherever applicable shall be signed by Insolvency Resolution Professional or resolution professional or liquidator of companies under insolvency or liquidation, as the case may be, and filed with Registrar of Companies with fees as specified in table to the Rules – Rule 8A of Companies (Registration Offices and Fees) Rules, 2014 inserted w.e.f. 24-1-2023.

3.12 Insolvency Professional is ‘public servant’

In Sanjay Kumar Agarwal v. CBI (2023) 177 SCL 511 = 149 taxmann.com 146 (Jhar-HC), the Insolvency Professional was found taking bribe to favour a party. It was held that IP is ‘public servant’ within the meaning of section 2(c)(viii) of Prevention of Corruption Act and hence Prevention of Corruption Act is applicable to him. As what he is doing is ‘public duty’.

3.13 Cases of disciplinary action against Insolvency Professional

In Mukesh Mohan, In Re [2018] 147 SCL 568 = 92 taxmann.com 362 (IBBI), the insolvency professional had attempted to mislead Committee of Creditors (CoC), the AA, and the Board, outsourced his responsibilities to a third person, acted beyond his authority without approval of CoC and acted for and on behalf of one of creditors. The disciplinary committee held that he has contravened provisions in sections 21(8), 23(1), 25(2)(h), 30(2)(i), 70(2), 235A of the Code and regulation 7(2)(i) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulation, 2016 and clauses 1, 2, 3, 5, 9, 12, 13 and 14 of the Code of Conduct under First schedule of these regulations. He was debarred from undertaking any new assignment, either as an Interim Resolution Professional, Resolution Professional, Liquidator or otherwise, under the Code.

In Balaknath Bhattacharyya In re [2021] 165 SCL 162 = 125 taxmann.com 177 (IBBI), the Insolvency Professional intimated in progress report about avoidance of preferential transactions but did not file application under section 43(1) of Insolvency Code. He was debarred from accepting any assignment or render any service for six months.

In Bhavna Sanjay Ruia, In re [2018] 95 taxmann.com 193 (IBBI), the IRP quoted fee of Rs
13.75 crores, which was abnormally high and had no justification. It was held that IRP had contravened Code of Conduct for Insolvency Professionals. Registration of IRP was to be suspended for a period of one year.

In Kapil Goel In re (2018) 150 SCL 231 = 97 taxmann.com 406 (IBBI), the Insolvency Professional incorporated a LLP with name ‘IBBI Insolvency Practitioners LLP’. It was held that this gave misleading impression to stakeholders that the LLP has been incorporated by IBBI. The IP was asked to remove name of LLP from master data and his registration was suspended for three months.

In Jaswant Singh In re (2022) 170 SCL 42 = 134 taxmann.com 118 (IBBI), penalty was imposed when the IRP had outsourced his primary duty of verification of claims to another professional.

In Balaknath Bhattacharyya In re (2021) 165 SCL 162 = 125 taxmann.com 177 (IBBI), the Insolvency Professional intimated in progress report about avoidance of preferential transactions but did not file application under section 43(1) of Insolvency Code. He was debarred from accepting any assignment or render any service for six months.

In Ashwini Mehra, In re (2020) 117 taxmann.com 564 (IBBI), Resolution Professional shared confidential document with an intended party prior to Invitation of Expression of Interest. Further, he paid to lender’s legal counsel and Auditor from IRP costs, despite IBBI bar on allowing expenses incurred by member of CoC or professional engaged by them. Hence, registration of RP was suspended for six months.

In Tarun Jaggi, In re (2020) 162 SCL 402 = 117 taxmann.com 181 (IBBI), penalty of Rs. 1,00,000 was imposed when liquidator failed to make public announcement within five days as required and continued with same auditors.

In Martin S K Golla In re (2018) 151 SCL 299 = 99 taxmann.com 174 (IBBI), registration of Insolvency Professional was cancelled as he connived with parties to allow One Time Settlement in garb of resolution plan and allowed ineligible Resolution Applicant to submit One Time Settlement plan. He did nothing to run business of corporate debtor or to run CIRP.

In Sandeep Kumar Gupta, In re (2018) 151 SCL 101 = 100 taxmann.com 299 (IBBI), the resolution professional did not make efforts to see that CoC takes decision in 180 days, due to which the corporate debtor was pushed into liquidation. Penalty equal to file was imposed on the resolution professional. He was ordered to undergo pre-registration educational course.

In Mahender Kumar Khandelwal, In re (2020) 157 SCL 580 = 112 taxmann.com 298 (IBBI), the disciplinary committee had imposed penalty of Rs 19.24 lakhs on IP and recovery of Rs 12.09 crores paid to advocate, when he approved payment of Rs 12.09 crores to financial creditor’s legal counsel though it was not part of IRPC and did not disclose his interest in Insolvency Professional Entity (which was also appointed by CoC), where he was partner.

In Koteswara Rao Karuchola, In re (2020) 160 SCL 653 = 117 taxmann.com 615 (IBBI), the Insolvency Professional had engaged another Insolvency Professional Entity (IPE) to verify claims of creditors, which was indeed his own primary duty and paid Rs 3 lakhs to the IPE. A penalty of Rs one lakh was imposed on him.

In Vijay Kumar Garg, In re (2020) 161 SCL 74 = 118 taxmann.com 145 (IBBI), the Insolvency Professional appointed a company to provide support services and thus siphoned off funds of ailing company. Penalty equal to 25% of his fees was imposed on him.

In Mohan Lal Jain, In re (2020) 160 SCL 838 = 118 taxmann.com 111 (IBBI), the Insolvency Professional continued payment to one Corporate Debtor after commencement of CIRP. This was with consent of CoC but was in preference to other Creditors. It was held that RP has compromised his independence and penalty equal to 25% of his fees was imposed.

Once disciplinary proceedings commenced, NCLT cannot quash them – Once IBBI commences disciplinary proceedings, NCLT cannot quash them, even if the disciplinary proceedings were initiated at the instance of NCLT itself – IBBI v. Rishi Prakash Vyas (2019) 154 SCL 561 = 107 taxmann.com 437 (NCLAT).

Names of insolvency professionals against whom disciplinary proceedings are pending cannot be disclosed – Names of insolvency professionals against whom disciplinary proceedings are pending cannot be disclosed under RTI Act as it will impede investigation process due to unwarranted public attention. The proceedings are quasi judicial in nature. Mere issue of SCN does not mean that the person is guilty of misconduct. Disclosure of his name at that stage will harm his reputation – Nipun Singhvi v. CPIO IBBI (2019) 156 SCL 241 = 108 taxmann.com 103 (IBBI).

4. Panel of Insolvency Professionals to recommend to NCLT as Interim Resolution Professional or Liquidator

As per section 16(3)(a) of Insolvency Code, IBBI is required to recommend name of IP if Operational Creditor has applied for Corporate Insolvency Resolution Process [CIRP] but has not proposed IRP. As per section 34(4) of Insolvency Code, Adjudicating Authority (AA) requires Adjudicating Authority (AA) to replace resolution professional, if plan submitted by him is rejected or IBBI recommends his replacement. In that case, IBBI has to propose name of another IP.

IBBI will form panel of IPS for each Bench of NCLT. The NCLT bench may pick up any one. IBBI will invite express of interest from IP in form A to act as an IRP or Liquidator. Each IP will get score on basis of ongoing assignments with him. An IP with maximum ongoing assignments will get zero score. Panel prepared will be valid for six months. IP which has no ongoing assignment will get 100 score.

Preparation of panel to recommend names of Insolvency Professionals (IP) – Insolvency Professionals to act as Interim Resolution Professionals, Liquidators, Resolution Professionals and Bankruptcy Trustees (Recommendation) (Second) Guidelines, 2023 issued on 8-12-2023, giving guidelines and procedure for preparation of panel to recommend name of IP to act as IRP, liquidator, RP or bankruptcy trustee. IBBI will invoice ‘expression of interest’ form Insolvency Professionals. The IP is required to apply in specified form before 25-12-2023. These guidelines are valid for 6 months. As per earlier guidelines issued in June 2023, provisional list of IP was issued by IBBI on 27-6-2023. Now, fresh list will be issued by 29-12-2023, which will be valid after 1-1-2024.

4.1 Adjudicating Authority can change IP if not satisfied

In Sandeep Kumar Gupta v. Stewarts & Lloyds of India Ltd. [2018] 146 SCL 591 = 91 taxmann.com 409 (NCLAT), it has been held that if Adjudicating Authority is not satisfied with performance of Insolvency Resolution Professional (IRP), it could engage another person as resolution professional or liquidator.

4.2 IP should be unbiased, but mere past employee does not mean bias

In State Bank of India v. Metenere Ltd. (2020) 118 taxmann.com 143 (NCLAT), the Interim Resolution Professional (IRP) proposed to be appointed was ex-employee of the Bank which had proposed him as IRP. NCLT directed Bank to change IRP as there was apprehension of bias and that IRP may not act fairly and independently. NCLAT supported the view – followed in Kanakabha Ray v. Narayan Chandra Saha [2021] 163 SCL 728 = 123 taxmann.com 184 (NCLAT).

However, in State Bank of India v. Metenere Ltd. [2021] 1 SCC 191 = (2020) 162 SCL 504
= 119 taxmann.com 239 (SC), it was held that merely because resolution professional was earlier remained in service of creditor bank and was getting pension, he could not be disentitled to be resolution professional.

5. Insolvency Professional Entities

IBBI can recognize an ‘Insolvency Professional Entity’ (IPE). The Insolvency Professional Entity can be LLP, registered partnership firm or a company.

As per regulation 12(1) of IBBI (Insolvency Professionals) Regulations, 2016 (amended on 27-3-2018), a company, a registered partnership firm or a limited liability partnership may be recognised as an insolvency professional entity, if following conditions are satisfied—

(a) its objective is to provide support services to insolvency professionals or to carry on the activities of an insolvency professional or both [amendment dated 28-9-2022].

(b) it has a net worth of not less than one crore rupees. Net worth means (a) Net worth as per section 2(57) of Companies Act in case of company (b) sum of partners’ contribution and accumulated profits net of accumulated loss in case of partnership firm or LLP [amendment dated 22-7-2021]

(c) majority of its equity shares and voting rights are held by insolvency professionals, who are its directors, in case it is a company [amendment dated 28-9-2022].

(d) majority of capital contribution is made by insolvency professionals, who are its partners, in case it is a limited liability partnership firm or a registered partnership firm;

(e) majority of its partners or directors, as the case may be, are insolvency professionals;

(f) majority of its whole time directors are insolvency professionals, in case it is a company; and

(g) none of its partners or directors is a partner or a director of another insolvency professional entity.

Responsibility of members of IPE – Members of the Insolvency and Professional Entity would be jointly and severally liable for acts or omissions of its partners of directors during such partnership or directorship.

Conditions for recognition as Insolvency Professional Entity – The conditions for recognition as Insolvency Professional Entity are specified in regulation 13(2) of IBBI (Insolvency Professionals) Regulations, 2016 (amended on 22-7-2021). They have to pay prescribed fees, inform changes in partners/directors, comply with regulations and file compliance certificate in form H every year before 15th October. They have to inform changes in their directors and partners within 30 days.

Change of directors/partners of Insolvency Professional Entity to be informed – Change of directors/partners of Insolvency Professional Entity to be informed within 30 days – Regulation 13(2) of IBBI (Insolvency Professionals) Regulations, 2016.

Annual fees – Annual fees are payable by Insolvency Professional Entity – Regulation 13(2) of IBBI (Insolvency Professionals) Regulations, 2016.

Fees payable by Insolvency Professionals (IP) and Insolvency Professional Entities (IPE)
w.e.f. 1-10-2022 have been detailed in IBBI circular No. IBBI/IP/56/2022 dated 24-11- 2022.

Registration as Insolvency Professional Entity – An insolvency professional entity eligible for registration as an insolvency professional under regulation 4(2) may make an application to IBBI through the insolvency professional agency of which it is a member, in Part-II of Form AA of Second Schedule to these Regulations, along with a non-refundable application fee of two lakh rupees IBBI – Regulation 6(1A) of IBBI (Insolvency Professionals) Regulations, 2016, substituted w.e.f. 18-9-2023.

Mode of payment of fees to IBBI – As per IBBI circular No. IBBI/IP/56/2022 dated 24-11-2022, the fees, for which online payment module is not yet implemented, shall be credited to bank account of the IBBI, as per details below:—

Beneficiary Name: Insolvency and Bankruptcy Board of India, Bank: Punjab National Bank A/c No.: 0128002100302250, IFSC: PUNB0112000, Branch: ECE House, Connaught Place, New Delhi-110001, GST Number: 07AAAGI0193K1ZD.

Insolvency Professional Entity can register as ‘professional member’ – Insolvency Professional Entity can register as ‘professional member’. All partners must be IP. The Entity should apply for registration in form AA – amendment dated 28-9-2022. The Insolvency Professional Entity can register as Insolvency Professional with Insolvency Professional Agency – amendment dated 3-10-2022.

5.1 Member of IPA can accept assignment only if he has ‘authorisation for assignment’ from IPA

Insolvency Professional (IP) can accept assignment only if he has ‘authorisation for assignment’ issued by Insolvency Professional Agency (IPA) of which he is a member – regulation 7A of IBBI (Insolvency Professionals) Regulations, 2016 as amended on 23-7- 2019.

Criteria has been specified in regulation 12A of Model Bye-Laws.

One of essential conditions for undertaking any assignment by an Insolvency Professional (IP) is that he should have a valid Authorisation For Assignment (AFA) – S. Rajagopal, In re [2021] 123 taxmann.com 56 (IBBI).

In Abhay Narayan Manudhane In re (2021) 164 SCL 598 = 125 taxmann.com 13 (IBBI), penalty was imposed when resolution professional accepted assignment without valid Authorisation for Assignment (AFA).

Validity of the provision has been upheld in CA V. Venkata Sivakumar v. IBBI [2020] 121 taxmann.com 69 (Madras HC DB). It was held that these measures are intended to regulate profession and not to deprive a person of right to practice profession. Hence, Articles 14, 19 and 21 of Constitution of India are not violated.

IP above age of 70 cannot obtain ‘authorisation for assignment’ as provided in bye-laws
– Kishan Gopal Somani, In re [2021] 123 taxmann.com 79 (IBBI) * Arun Rajabhau Joshi, In re [2021] 123 taxmann.com 60 (IBBI).

Assignment means any assignment of IP as interim resolution professional, resolution professional, liquidator, bankruptcy trustee, authorised representative or any other role under the Insolvency Codes – – regulation 2(1)(a) of IBBI (Insolvency Professionals) Regulations, 2016 as amended on 23-7-2019.