Taxmann's Insolvency & Bankruptcy Code Ready Reckoner

l.4iQ4SSm (a5O\A<:m5 m /3gP3TTm(a5O83^CUT\m ( m"^: m ,3L<\m m$3YI<^CT?m m m&=em*VB_4Jm*V4; m&=em =KBD m m S;D4m (AUT< m m 1<6\E`<m m f _4iQ4SS 9VQm R3EMm m ]4K=] _4hQ4SS 9VQ +<?: m '>8<m m m2=]_m)bSH47Dm 4@B m&=em =KBD m m S;D4m <c<LUW<:m5km .4Sm)ZDS_]m S;D4 m)d_ m#_; m m!Q m%DK=m-_VS= m&4_FVS4Km D@Be4j m*VB_4Jm*V4;m 0DNK4@=m*VB4; m D]__ m B4HH4[m 4[j4S4 m S;D4m R3Gm m ]4K=] _4SXZDS_] 9VQ C\8L3CP<Ym : 2AC 27C" 6C ,C+ C70C :0# C 22026C02C0+#66#0,6C#,C7"#6C19 (# 7#0, C ,C61#7 C0 C7"#6 C 22026C+ AC 2 1C#, C -AC+#67 & C 2202C02C 6 2 1 , AC,07 C+ AC C 209 "7C70C092C,07# C <"# "C6" )(C C7 & ,C 2 C0 C#,C7" C, @7C #7#0, C 7C#6C,07# C7" 7C, #7" 2C7" C19 )#6" 2C,02C7" C 97"02C02C6 )( 2C?((C C2 610,6# ( C 2C ,AC + C02C(066C0 C 7#0,C70C ,AC0, C0 C ,AC'#, C#,C ,AC+ ,, 2 C7" 2 0+ C 7C#6C69 67 C7" 7C70C :0# C ,AC 09 7C7" C2 2C6"09* C 2066 " &C )(C 7" C 76 C ( =C , C 0,7 ,76C 0 C7" C 19 )# 7#0,C ?7"C 03#!. (C 0: 5+ ,7C 19 )# 7#0,C 02C ,07# 7#0,6 C 0C1 27C0 C7"#6C 00&C+ AC C2 120 9 C02C 01# C#,C ,AC 2+C02C AC ,AC + ,6C 2 1"# C ( 720,# C02C+ " ,# ( C$. (9 #, C1"070 01B, C2 02 #, C7 1#, C02C#, 2+ 7#0,C2 74 : (C 6A67 +6 C 02C 2 120 9 C 0,C ,AC #6 C 7 1 C 1 2 2 7 C + # C 02C 07" 2C #, 2+ 7#0,C 6702 C ;# C 7 C>#7"097C8 C=2#77 ,C1 2+#66#0,C0 C7" C19 )#6" 26 C 2 "C0 C7"#6C 0, #7#0,C#6C(# ( C 2C( (C 7#0, C ((C #6197 6C 2 C69 % 7C70C ("#C%92#6 # 7#0,C0/A C

Chapter-Heads

PAGE u

Contents

I-9

u

Acronyms

I-23

u

Section Index

I-27

CHAPTER 1 DECLINING STAGE OF AN ORGANISATION

1

CHAPTER 2 INSOLVENCY PROFESSIONAL

41

CHAPTER 3 INSOLVENCY RESOLUTION OF CORPORATE PERSONS

58

CHAPTER 4 CONDUCTING CORPORATE INSOLVENCY RESOLUTION PROCESS

104

CHAPTER 5 RESOLUTION PLAN BY RESOLUTION APPLICANT

152

CHAPTER 6 FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

187

CHAPTER 6A PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS (PPIRP)

I-5

189

CHAPTER-HEADS

I-6 PAGE

CHAPTER 6B PROCEDURE FOR PPIRP AFTER ADMISSION OF APPLICATION

213

CHAPTER 6C SUBMISSION AND APPROVAL OF RESOLUTION PLAN UNDER PPIRP

235

CHAPTER 7 LIQUIDATION OF CORPORATE PERSON

255

CHAPTER 8 ADMISSION AND PROOF OF CLAIMS BY LIQUIDATOR

273

CHAPTER 9 REALISATION AND DISTRIBUTION OF ASSETS BY LIQUIDATOR

286

CHAPTER 10 PAYMENT OF DUES TO STAKEHOLDERS AFTER LIQUIDATION OR DURING FORMULATION OF RESOLUTION PLAN

293

CHAPTER 11 VOLUNTARY LIQUIDATION OF COMPANIES

303

CHAPTER 12 ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

310

CHAPTER 13 CROSS BORDER INSOLVENCY AND BANKRUPTCY

318

CHAPTER 14 OFFENCES AND PENALTIES IN RELATION TO CORPORATE INSOLVENCY

320

I-7

CHAPTER-HEADS PAGE

CHAPTER 15 BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

327

CHAPTER 16 FRESH START PROCESS

330

CHAPTER 17 INSOLVENCY RESOLUTION OF INDIVIDUAL AND FIRM

336

CHAPTER 18 BANKRUPTCY ORDER FOR INDIVIDUALS AND FIRMS

350

CHAPTER 19 BANKRUPTCY TRUSTEE

363

CHAPTER 20 SETTLEMENT OF CLAIMS AGAINST BANKRUPT

374

CHAPTER 21 COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS

378

CHAPTER 22 REGISTERED VALUERS

392

CHAPTER 23 REMOVAL OF NAME OF COMPANIES FROM REGISTER OF MEMBERS

400

CHAPTER 24 NCLT AND NCLAT

411

CHAPTER 25 RECOVERY OF DEBTS AND BANKRUPTCY ACT, 1993

423

CHAPTER 26 SARFAESI ACT

446

CHAPTER-HEADS

I-8 PAGE

CHAPTER 27 RBI DIRECTIONS ON RESOLUTION OF STRESSED ASSETS SUBJECT INDEX

511 517

Contents PAGE u

Chapter-heads

I-5

u

Acronyms

I-23

u

Section Index

I-27

1 DECLINING STAGE OF AN ORGANISATION

1.1

Background

1

1.2

Overall scheme of the Insolvency and Bankruptcy Code

7

1.3

Insolvency Code has overriding effect

12

1.4

Limitation Act applies to proceedings before NCLT or NCLAT

14

Provisions in Companies Act, 2013 relating to winding up are applicable to the extent not contrary to Insolvency Code

21

1.6

Insolvency and Bankruptcy Board of India (IBBI)

21

1.7

Adjudicating Authority (AA) and Appellate Authorities

25

1.8

Information Utility (IU)

25

1.9

Insolvency and Bankruptcy Fund

27

1.5

1.10 Winding up provisions under Companies Act revamped

27

1.11 Transitory provisions for shifting from winding up proceedings to Insolvency

28

1.12 Lenders may apply under SARFAESI and DRT and in addition they can go for Insolvency resolution

30

1.13 Parallel proceedings under SARFAESI/RDBA, Civil Court and Insolvency Code permissible

30

1.14 Income tax provisions for corporate debtors where application for CIRP has been admitted

32

I-9

CONTENTS

I-10 PAGE

1.15 Promoter/director can be Resolution applicant if Corporate Debtors is MSME

33

1.16 Special provisions under GST relating to companies under Insolvency Process

37

1.17 Institution and/or continuation of proceedings under FTDR against companies against whom proceedings have been instituted under Insolvency Code

40

1.18 Role of Government and its agencies in CIRP and Liquidation Process

40

2 INSOLVENCY PROFESSIONAL

2.1

Background

41

2.2

Insolvency Professional Agency (IPA)

41

2.3

Insolvency Professional (IP)

43

2.4

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

54

Insolvency Professional Entities

55

2.5

3 INSOLVENCY RESOLUTION OF CORPORATE PERSONS

3.1

Background

58

3.2

Initiation of corporate insolvency resolution process

58

3.3

Who can initiate insolvency resolution process

67

3.4

Initiation of proceedings by financial creditor

70

3.5

Insolvency proceedings can be initiated against corporate guarantor or personal guarantors

82

3.6

Initiation of insolvency resolution by operational creditor

85

3.7

Initiation of insolvency resolution process by corporate applicant himself

97

3.8

Appointment of Interim Resolution Professional

100

3.9

Further procedure before NCLT

102

I-11

CONTENTS PAGE

3.10 Withdrawal of application after admission with approval of 90% voting by CoC

103

4 CONDUCTING CORPORATE INSOLVENCY RESOLUTION PROCESS

4.1 4.2

Background Moratorium and public announcement

104 108

4.3

Public announcement of corporate insolvency resolution process

117

4.4

Appointment and tenure of interim resolution professional

118

4.5

Submission of proof of claims to interim resolution professional

123 127

4.8

Committee of Creditors (CoC) Appointment of resolution professional in first meeting of CoC Powers and functions of Committee of Creditors (CoC)

4.9

Duties of resolution professional

141

4.6 4.7

4.10 Prior approval of committee of creditors for certain actions by resolution professional 4.11 Preparation of information memorandum 4.12 Protection to insolvency resolution professional in respect of earlier transactions 4.13 Special Provisions in respect of NBFC with assets of Rs. 500 crore or more

135 137

145 146 147 147

5 RESOLUTION PLAN BY RESOLUTION APPLICANT

5.1

Background

152

5.2 5.3

Ineligible Resolution Applicant Invitation for expression of interest

153 161

5.4

Submission of resolution plan by resolution applicant to insolvency professional

162

5.5

Insolvency resolution process costs

170

5.6 5.7

Approval of resolution plan by Committee of Creditors Submission of plan to Adjudicating Authority

173 177

CONTENTS

I-12 PAGE

5.8 5.9 5.10 5.11 5.12

5.13 5.14

Assistance of district administration in implementing the resolution plan Effect if resolution plan rejected by NCLT Appeal against order of adjudicating authority Immunity from prosecution of corporate debtor after approval of CIRP No action against property of corporate debtor in respect of offence committed prior to CIRP if there was change in management or sale of assets Corporate debtor and new management to provide assistance to investigating agency Preservation of records of CIRP by RP

182 182 182 182

184 186 186

6 FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

6.1 6.2 6.3

Speedy process for insolvency resolution Application for fast track process Procedure for fast track process

187 187 188

6A PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS (PPIRP)

6A.1 Background of the PPIRP (Pre-Packaged Insolvency Resolution Process)

189

6A.2 Basic design of Pre-Packaged Insolvency Resolution Process (PPIRP)

193

6A.3 Application of provisions of CIRP to PPIRP

197

6A.4 Priority to PPIRP over CIRP, except where CIRP proceedings have already commenced

199

6A.5 Eligibility and conditions to apply for PPIRP

201

6A.6 Initiation of PPIRP by Corporate Debtor

203

6A.7 Duties and authorities of Insolvency Professional proposed to be appointed as Resolution Professional

205

6A.8 Procedure prior to application to AA for approval to initiate PPIRP

207

6A.9 Filing of application by Corporate Applicant with Adjudicating Authority

209

I-13

CONTENTS PAGE

6A.10 Admission or rejection of application by Adjudicating Authority (NCLT)

211

6A.11 Moratorium during PPIRP period

212

6B PROCEDURE FOR PPIRP AFTER ADMISSION OF APPLICATION

6B.1 Formal process of PPIRP starts only after admission of application

213

6B.2 Conduct of PPIRP by Resolution Professional

214

6B.3 Powers of Resolution Professional during initial stages of PPIRP

216

6B.4 Filing of Application for avoidance of transactions

217

6B.5 Prior approval of Committee of Creditors (CoC) for certain actions by corporate debtor

219

6B.6 Information to be supplied by financial institutions to Resolution Professional

221

6B.7 Submission of List of claims and its updation in PPIRP

221

6B.8 Conduct of business of Corporate Debtor during PPIRP

224

6B.9 Constitution and functioning of Committee of Creditors in PPIRP

225

6B.10 Meeting of Committee of Creditors in PPIRP

228

6C SUBMISSION AND APPROVAL OF RESOLUTION PLAN UNDER PPIRP

6C.1 What is a resolution plan

235

6C.2 Submission of Base Resolution Plan by RP to CoC

239

6C.3 Invitation to Resolution Applicants if CoC does not approve base resolution plan or operational creditors cannot be satisfied

241

6C.4 Furnishing of information to Resolution Applicants

243

6C.5 Submission of resolution plan by resolution applicant and its evaluation

245

6C.6 Submission of Resolution Plans by Resolution Professional to CoC

246

CONTENTS

I-14 PAGE

6C.7 Submission of Resolution Plan approved by CoC for approval by AA

249

6C.8 Termination of PPIRP which ultimately results in liquidation of corporate debtor

251

6C.9 CoC may terminate PPIRP if corporate debtor eligible for CIRP

253

7 LIQUIDATION OF CORPORATE PERSON

7.1

Initiation of Liquidation

255

7.2

Appointment of Liquidator and his fees

259

7.3

Powers and duties of Liquidator

262

7.4

Liquidation Estate

266

7.5

Realization of security interest by secured creditor

268

7.6

Distribution of unsold assets

269

7.7

Liabilities of contributory in liquidation

270

8 ADMISSION AND PROOF OF CLAIMS BY LIQUIDATOR

8.1 8.2 8.3

Liquidator has powers to access information Ascertaining claims against corporate debtor Avoidance of preferential transactions by liquidator

273 274 277

8.4

Avoidance of undervalued transactions

280

8.5

Action if corporate debtor had defraud creditors

281

8.6

Protection to corporate debtor against extortionate credit transactions

282

Position of secured creditor in liquidation proceedings

283

8.7

9 REALISATION AND DISTRIBUTION OF ASSETS BY LIQUIDATOR

9.1

Realisation of assets by Liquidator

286

9.2

Mode of sale

286

9.3

All money to be paid into bank account except petty cash

287

I-15

CONTENTS PAGE

9.4

Distribution of assets

287

9.5

Distribution of cash to stakeholders

290

9.6

Completion of liquidation within one year

291

9.7

Final report by Liquidator prior to dissolution

291

9.8

Unclaimed proceeds of liquidation or undistributed assets to be transferred to Corporate Liquidation Account

291

Dissolution of corporate debtor

292

9.9

10 PAYMENT OF DUES TO STAKEHOLDERS AFTER LIQUIDATION OR DURING FORMULATION OF RESOLUTION PLAN

10.1 Insolvency Code is complete code in respect of distribution of assets

293

10.2 Money held in trust has priority over all dues

294

10.3 Statutory dues under other laws

295

10.4 Workmen’s portion of Workmen’s dues previous for two years have overriding priority

296

10.5 Provisions relating to secured creditors

299

10.6 Priority of tax dues in winding up over secured creditors

299

10.7 Preferential Payments under Companies Act

301

10.8 Distribution of surplus amount members

302

10.9 Tax liability under Income Tax in respect of distribution of assets to equity shareholders

302

11 VOLUNTARY LIQUIDATION OF COMPANIES

11.1 Voluntary liquidation by corporates with no default

303

11.2 Procedure for Voluntary Liquidation

303

11.3 Notification to Registrar after resolution

304

11.4 Application to NCLT after assets wound up

304

11.5 Procedure for voluntary liquidation

304

11.6 Claim by various creditors Proof of claim

305

11.7 Realisation of Assets

307

CONTENTS

I-16 PAGE

11.8 Completion of liquidation

307

11.9 Cases where voluntary liquidation was allowed

309

12 ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

12.1 Adjudicating Authority in relation to insolvency resolution and liquidation for corporate persons

310

12.2 Appeals and Appellate Authority

312

12.3 Appeal to Supreme Court on question of law

314

12.4 Civil Court not to have jurisdiction where NCLT or IBBI has jurisdiction

314

12.5 Expeditious disposal of applications

315

12.6 Penalty for fraudulent or malicious initiation of proceedings

315

12.7 Penalty of carrying on business fraudulently to defraud traders

316

13 CROSS BORDER INSOLVENCY AND BANKRUPTCY

13.1 Enabling provisions for cross border transactions 13.2 Agreements with foreign countries

318 318

13.3 Letter of request to a country outside India in respect of assets

318

14 OFFENCES AND PENALTIES IN RELATION TO CORPORATE INSOLVENCY

14.1 Punishments for offences

320

14.2 Punishment for concealment of property

320

14.3 Punishment for transactions defrauding creditors

321

14.4 Punishment for misconduct in course of corporate insolvency resolution process

322

14.5 Offences by insolvency professional

323

14.6 Punishment for falsification of books of corporate debtor

323

I-17

CONTENTS PAGE

14.7 Punishment for wilful and material omissions from statements relating to affairs of corporate debtor

323

14.8 Punishment for false representations to creditors

323

14.9 Punishment for contravention of moratorium or the resolution plan

323

14.10 Punishment for false information furnished in application

324

14.11 Punishment for non-disclosure of (a) dispute, or (b) payment of debt by operational creditor

324

14.12 Punishment for providing false information in application made by corporate debtor

324

14.13 Residual punishment of fine for violation of provisions of Insolvency Code

325

14.14 NCLT can ask Government to investigate and Government can file complaint before Special Court

325

14.15 Punishment for providing false information in Pre-Packaged Insolvency Resolution Process

325

14.16 Punishment in case of contravention of provisions of Chapter III-A (Pre-Packaged Insolvency Resolution Process)

326

14.17 When the application shall be deemed to be false in material particulars

326

15 BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

15.1 Background

327

15.2 Adjudicating Authority

328

15.3 Civil Court not to have jurisdiction

329

15.4 Appeal against order of DRT

329

15.5 Appeal to Supreme Court

329

16 FRESH START PROCESS

16.1 Introduction

330

16.2 Interim moratorium

332

16.3 Procedure after receipt of application

332

16.4 Objections by creditor

333

16.5 Discharge order

334

CONTENTS

I-18 PAGE

17 INSOLVENCY RESOLUTION OF INDIVIDUAL AND FIRM

17.1 What is insolvency resolution?

336

17.2 Creditor can initiate insolvency resolution process

337

17.3 Interim moratorium

338

17.4 Admission or rejection of application by Adjudicating Authority

339

17.5 Moratorium if application is admitted by Adjudicating Authority

340

17.6 Registering of claims by creditors after public notice

340

17.7 Repayment plan by debtor in consultation with resolution professional

341

17.8 Summoning of meeting of creditors

341

17.9 Rights of secured creditors in relation to repayment plan

342

17.10 Approval of repayment plan by creditors by more than 75% voting

343

17.11 Order of Adjudicating Authority on repayment plan

343

17.12 Report of Completion of repayment plan

344

17.13 Discharge order

345

17.14 Special provisions for insolvency resolution for personal guarantors of corporate debtors

345

18 BANKRUPTCY ORDER FOR INDIVIDUALS AND FIRMS

18.1 Bankruptcy if insolvency resolution process fails

350

18.2 Interim moratorium as soon as application is filed

351

18.3 Bankruptcy order by Adjudicating Authority

352

18.4 Statement of financial position by bankrupt

353

18.5 Settlement of claims of creditors

354

18.6 Administration and distribution of estate of bankrupt

355

18.7 Discharge order

355

18.8 Modification or recall of bankruptcy order

356

18.9 Disqualification of bankrupt from bankruptcy commencement date till he is discharged

356

I-19

CONTENTS PAGE

18.10 Bankruptcy process for personal guarantors to Corporate Debtors

357

19 BANKRUPTCY TRUSTEE

19.1 Standard of conduct of bankruptcy trustee

363

19.2 Release of bankruptcy trustee

364

19.3 Administration and distribution of estate of bankrupt by bankruptcy trustee

364

19.4 Approval of creditors for certain acts to be done by bankruptcy trustee

366

19.5 Estate of bankrupt

366

19.6 Onerous property of bankrupt can be disowned

368

19.7 Challenge against disclaimed property

369

19.8 Undervalued transactions

370

19.9 Preference transactions

371

19.10 Extortionate credit transactions

372

19.11 Proceedings continue even if bankrupt dies

372

20 SETTLEMENT OF CLAIMS AGAINST BANKRUPT

20.1 Proof of debt

374

20.2 Distribution of interim dividend

375

20.3 Distribution of property among creditors

375

20.4 Final dividend

375

20.5 Claims of creditors who had not proved their debt

376

20.6 Priority of payment of debts

376

21 COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS

21.1 Background

378

21.2 Application to NCLT

380

21.3 Sections 230 to 240 is complete code of ‘single window clearance’

382

CONTENTS

I-20 PAGE

21.4 Merger and Amalgamation

383

21.5 Procedure to be followed

385

21.6 Simplified fast track procedure in case of small companies or holding/subsidiary companies

388

21.7 Cross border mergers

389

21.8 Takeover of another company by purchasing 100% of shares

389

21.9 Compromise or arrangement may include takeover

390

21.10 Compulsory offer to purchase of minority shareholding if acquirer already holds 90% or more equity shares

391

21.11 Power to Central Government to order compulsory amalgamation

391

22 REGISTERED VALUERS

22.1 Background

392

22.2 Qualifications and eligibility and registration as valuer

395

22.3 Methods of valuation

399

22.4 Liability of valuer is as ‘expert’

399

23 REMOVAL OF NAME OF COMPANIES FROM REGISTER OF MEMBERS

23.1 Removal of name - Short cut to winding up

400

23.2 Striking off name of a company

400

23.3 Company may itself request for removal of its name from register of companies

402

23.4 NCLT can issue winding up order even if name of struck off the register

404

23.5 Restrictions in applying for removal of name

405

23.6 Effect if company is dissolved by removing name from register

405

23.7 Effect if company carries on business even after name is struck off the register

406

23.8 Fraudulent application for removal of name

406

23.9 Appeal before NCLT against removal of name of company

406

I-21

CONTENTS PAGE

23.10 When NCLT can restore name of company

408

23.11 Restoration of name of company if application made within 20 years

410

24 NCLT AND NCLAT

24.1 Background

411

24.2 Constitution of Tribunal (NCLT)

414

24.3 National Company Law Appellate Tribunal

415

24.4 Provisions common to NCLT and NCLAT

416

24.5 Procedural aspects of NCLT and NCLAT

418

24.6 Appeal to Supreme Court against order of NCLAT

421

25 RECOVERY OF DEBTS AND BANKRUPTCY ACT, 1993

25.1 Background of RDB Act

423

25.2 Debt Recovery Tribunal

430

25.3 General provisions relating to DRT and DRAT

434

25.4 Procedure at Debt Recovery Tribunal

435

25.5 Appeal against order of DRT

439

25.6 Further appeals after order of DRAT

441

25.7 Court decree can be executed by DRT

443

25.8 Recovery Powers after issue of certificate

443

26 SARFAESI ACT

26.1 Overview

446

26.2 Enforcement of Security Interest

452

26.3 How to enforce security interest

460

26.4 How the secured creditor can exercise his right?

466

26.5 Other related provisions

467

CONTENTS

I-22 PAGE

26.6 Procedure for sale of asset

473

26.7 Takeover of management of defaulting borrower

484

26.8 Application, Appeals and Penalty

486

26.9 Securitisation

493

26.10 Asset Reconstruction Companies

495

26.11 Acquiring financial assets by ARC from Bank/FI

500

26.12 Central Registry under SARFAESI Act

504

26.13 Asset Reconstruction

509

27 RBI DIRECTIONS ON RESOLUTION OF STRESSED ASSETS

27.1 Background

511

27.2 RBI Directions on Prudential Framework for Resolution of Stressed Assets

512

27.3 Framework for Resolution of Stressed Assets as directed

by RBI

512

27.4 Provisioning in case of delayed Implementation of Resolution Plan

514

27.5 Prudential Norms

515

27.6 Supervisory Review by RBI

515

27.7 Disclosures by lenders in financial statements

515

27.8 Exceptions to the directions for stressed assets

515

SUBJECT INDEX

517

C

H

A

P

T

E

R

2

Insolvency Professional 2.1 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).

2.2 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.

2.2-1 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 - (a) granting membership to insolvency professionals (b) lay down standards of professional conduct to its members (c) monitor performance of members (d) safeguard rights, privileges and interests of insolvency professionals (e) suspend member or cancel membership (f) redress grievances of members and (g) 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.

41

Para 2.2

INSOLVENCY PROFESSIONAL

42

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 2.2-2 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.

2.2-3 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.

2.2-4 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.

43

INSOLVENCY PROFESSIONAL

Para 2.3

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. 2.2-5 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.

2.3 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

Para 2.3

INSOLVENCY PROFESSIONAL

44

(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.

2.3-1 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

45

INSOLVENCY PROFESSIONAL

Para 2.3

inserted in regulation 5(c)(ii) of IBBI (Insolvency Professionals) Regulations, 2016 w.e.f.

20-7-2023. Words 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. See para 2.5 and para 2.5-1 of this book for details in respect of IPE. Pre-registration educational course - An individual, before registration as Insolvency Professional, should undergo 50 hours pre-registration educational course to be conduced 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

Para 2.3

INSOLVENCY PROFESSIONAL

46

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 Covid19 (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.

47

INSOLVENCY PROFESSIONAL

Para 2.3

2.3-2 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 3-102022.

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.

2.3-3 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

Para 2.3

INSOLVENCY PROFESSIONAL

48

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.

2.3-4 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

49

INSOLVENCY PROFESSIONAL

Para 2.3

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).

2.3-5 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.

2.3-6 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.

2.3-7 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.

Para 2.3

INSOLVENCY PROFESSIONAL

50

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.

2.3-8 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.

2.3-9 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.

2.3-10 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

51

INSOLVENCY PROFESSIONAL

Para 2.3

Bankruptcy Board of India (Insolvency Professional Agency) Regulations, 2016 inserted on 31-10-2022.

2.3-11 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

Para 2.3

INSOLVENCY PROFESSIONAL

52

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.

2.3-12 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’.

2.3-13 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 stake-holders 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.

53

INSOLVENCY PROFESSIONAL

Para 2.3

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).

Para 2.4

INSOLVENCY PROFESSIONAL

54

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).

2.4 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.

2.4-1 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.

2.4-2 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).

55

INSOLVENCY PROFESSIONAL ENTITIES

Para 2.5

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.

2.5 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.

Para 2.5

INSOLVENCY PROFESSIONAL

56

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 24-112022.

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.

2.5-1 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 23-72019.

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.

57

INSOLVENCY PROFESSIONAL ENTITIES

Para 2.5

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.

Insolvency & Bankruptcy Code Ready Reckoner AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO NO. OF PAGES BINDING TYPE

: : : : : : :

V.S. DATEY TAXMANN JANUARY 2024 2024 EDITION 9789357782265 568 PAPERBACK

Rs. 1495 | USD 50

Description This book is a comprehensive, topic-wise commentary on laws governing Insolvency & Bankruptcy in India. This book covers an analysis of the following Laws: 

Insolvency and Bankruptcy Code, 2016 (IBC)



Recovery of Debts and Bankruptcy Act, 1993



Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFESI Act)

The book intends to answer the practical issues professionals face on a routine basis. It provides complete and accurate information about all Insolvency and Bankruptcy Laws provisions.

This book will be helpful for Legal Professionals, Corporate Lawyers, Company Secretaries, Cost Management Accountants, Chartered Accountants, Financial Experts, Academics and Students in Law and Finance.

The Present Publication is the 2024 Edition, authored by V.S. Datey, updated till 20th December 2023, with the following noteworthy features:  

[Topic-wise Commentary on 25+ Topics] of IBC [Cross-referenced Analysis] of the IBC with relevant Rules/Regulations, Judicial Pronouncements, Circulars and Notifications

ORDER NOW