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Handbook on Ethics

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CONTENTS
ABSTRACT...............................................................................................................................................3
PROLOGUE..............................................................................................................................................4
OVERVIEW OF THE EXISTING ETHICAL & REGULATORY FRAMEWORK FOR
INSOLVENCY PROFESSIONALS........................................................................................................6
CODE OF CONDUCT FOR INSOLVENCY PROFESSIONALS.....................................................11
INTERPRETATION AND......................................................................................................................17
BEST PRACTICES FOR.......................................................................................................................17
INSOLVENCY PROFESSIONALS......................................................................................................17
INTEGRITY AND OBJECTIVITY.....................................................................................................18
INDEPENDENCE & IMPARTIALITY...............................................................................................28
REPRESENTATION OF CORRECT FACTS AND CORRECTING MISAPPREHENSIONS. .38
TIMELINESS.......................................................................................................................................45
PROFESSIONAL COMPETENCE...................................................................................................55
CONFIDENTIALITY...........................................................................................................................67
OCCUPATION, EMPLOYABILITY AND RESTRICTIONS..........................................................74
INFORMATION MANAGEMENT.....................................................................................................80
REMUNERATION AND COSTS......................................................................................................85
GIFTS AND HOSPITALITY..............................................................................................................95
GLOBAL BEST PRACTICES (UK LAWS).........................................................................................97
ABBREVIATIONS..................................................................................................................................99
BIBLIOGRAPHY..................................................................................................................................100

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ABSTRACT

Success of the new regime of various insolvency resolution processes/mechanism outlined

under the Insolvency & Bankruptcy Code, 2016 rests on the efficient discharge of the duties &
functions by the Insolvency Professionals, whether as Interim Resolution Porfessional, as
Resolution Professional or as Authorised Representative of creditors in the CoC.

Apart from carrying on the routine affairs of the Debtor to preserve the Debtor as a going
concern, the appointed Resolution Professional is also tasked with preparation of an Information
Memorandum to attract the best resolution plans from interested & eligible parties. This requires
unearthing of all avoidance transactions to present a true picture of the company’s financial
performance, and of its assets & liabilities. The Insolvency Professional is therefore empowered
to hire specialized professionals to carry-out detailed examination of Debtor’s transactions,
accounts, and other documents. The scope of such examination spans well beyond a typical
forensic audit under RBI Guidelines or in a statutory audit under Company’s Act, 2013.

All such activities of/by the Insolvency Professionals are also tightly regulated through a new
legal framework. Therefore, the Insolvency Professionals are required to play as generalists,
while being mindful of legal framework that regulates all & every aspect of their conduct. These
twin aspects of wide-array of responsibilities and the regulated conduct therefore necessitate a
definitive body of knowledge to guide & improve the productivity of the Insolvency Professionals.

It is in keeping with this objective, that the IBBI has developed a standardized text on Standards
of Ethics for reference by Insolvency Professionals to render efficient insolvency resolution
services, while avoiding certain pitfalls.
In the era of super specialty, the success or failure of any professional’s depends upon their
quality, efficiency and good governance. Professionals are persons who in addition to
possessing domain knowledge, and expertise, carry a responsibility, fiduciary or otherwise, to
their clients and other stakeholders. A code of professional conduct is a necessary component
of any profession to support the framework of practice and act as guiding lights to maintain
standards of performance. It imbeds accountability and responsibility into the profession thereby
generating public trust for the profession and the system which the profession supports.

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The Insolvency Professionals form a crucial pillar upon which rest the effective, timely
functioning as well as credibility of the entire edifice of the insolvency and bankruptcy resolution
process. Accordingly, it is essential that the insolvency representative be appropriately qualified
and possess the knowledge, experience and personal qualities that will ensure not only effective
and efficient conduct of proceedings but also inspire confidence in the insolvency regime.

The focus of this handbook is on development and percolation of standards of professional and
ethical conduct for IPs, in addition to their compliance with the regulatory provisions with utmost
care and diligence, to improve and sustain highest levels of performance with the help of
meaningful interpretations, numerous general and situation specific examples, best practices
followed in UK.

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PROLOGUE

With the enactment of the Insolvency & Bankruptcy Code, 2016 (the IBC-2016), Tthe
professiona of insolvency resolution profession has evolved considerably in the short span of 3+
years since 2016 with almost 3,000 Insolvency Professionals (IP’s) as on 31st March 2020
registered with the Insolvency and Bankruptcy Board of India (IBBI).

Under the IBC-2016, Tthe IP is pivotal to the new “cCreditor-in-Ccontrol” process and acts as a
bridge between the Adjudicating Authority, the CoC and other stakeholders. Being vested with
the powers of Bboard of Ddirectors (albeit with limited scope) and responsible for the
management of affairs of the corporate debtor, an IP plays a key role in through the various
stages of the lifecycle of corporate insolvency resolution processes (CIRP) as outlined in the
IBC-2016.

A profession, eventually, is only as good as its members. While the powers vested with the IP
are necessary to conduct an effective creditor-in-control bankruptcy process to maximize the
enterprise value, it is also essential to administer discretion in the use of such powers to ensure
the CIRP is run in a fair and unbiased manner to protect the commercial interests of all
stakeholders. The strength and efficacy of bankruptcy regime in India will remain undiluted only
if the IPs observe high standards of professional ethics. A profession, eventually, is only as
good as its members.

Therefore, the Code of Conduct has two parts to it – the Ethical Conduct, and the Diligence to
give maximum value to those who avail the services of the Insolvency Professional. These
ethical & professional norms serve as reference of the benchmark for the of righteousness of
the actions under given circumstances and at a given point of time that align with expectations
of the profession as well as the society at large.

The Insolvency Professional Agencies (IPAs) under the Insolvency & Bankruptcy Code, 2016
(“CodeIBC-2016”) are professional bodies mandated to promote the professional development
and first-tier regulation of IPs. The IPAs develop professional standards and code of ethics
under the CodeIBC-2016, audit the functioning of their members, discipline them and take
actions against them if necessary. IPAs are also entrusted with the responsibility to make bye

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laws consistent with the model bye-laws as specified approved by Insolvency and Bankruptcy
Board of India (“IBBI” or “Board”).
Therefore, the IPs are to work to the highest standards of professionalism, attain the highest
levels of performance and at all times comply with the provisions of the Code of Ethics, and
regulations made thereunder, as also terms and conditions specified in the bye-laws of the IPAs
of which he is a professional member and take reasonable care and diligence while performing
the duties.

As far as the IPs are concerned, the code of conduct has been codified in writing and enforced
with penalties in various countries. The code of ethics aims to help IPs or practitioners meet
their professional obligations.

In India, Currently, the IPs are governed by the regulations and Code of Conduct defined
under the IBBI (Insolvency Professional) Regulations, 2016 (“IP regulation”), which . and has
been adopted in substantially similar terms by all the IPAs in India. All IPs are required to
adhere to the Code of Conduct so laid down by their concerned IPA’s and in particular to the
spirit of the CodeIBC-2016, in all their professional activities. and fFailure to observe utmost
diligence implied under the Code of Conduct do so might bring discredit upon themselves, or
the IPA and the IBC-2016 itself.

A Code of Conduct is generally derived from Codes of ethics. These ethical norms are
benchmark of right actions at a given point of time which the society or the system expects from
an individual and are responsible for evolution of the mankind and strengthening the legal
system.

As far as the IPs are concerned, the code of conduct has been codified in writing and enforced
with penalties in various countries. The code of ethics aims to help IPs or practitioners meet
their professional obligations.

In the United Kingdom (UK), the “Code of Ethics” for insolvency practitioners details how the
code should be applied in specific circumstances. It lays down following five fundamental
principles which guide how IPs should act in the course of their work:

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• IPs should be straightforward and honest in all professional relationships (Integrity);

• IPs should not allow any bias or conflict of interest to cloud their decisions (Objectivity);
• IPs have a duty to maintain professional knowledge and skill based on the latest
developments in practice, legislation and techniques (Professional competence and due
care);
• IPs should respect the confidentiality of the information acquired as a result of professional
and business relationships and not disclose such information to third parties
(Confidentiality)
• IPs should comply with relevant laws and regulations and conduct themselves with courtesy
and consideration when performing their work (Professional behavior).

Therefore, the IPs are to work to the highest standards of professionalism, to attain the highest
levels of performance and at all times comply with the provisions of the Code and regulations
made thereunder as also terms and conditions specified in the bye-laws of the IPAs of which he
is a professional member and take reasonable care and diligence while performing the duties.

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OVERVIEW OF THE EXISTING ETHICAL &

REGULATORY FRAMEWORK FOR
INSOLVENCY PROFESSIONALS

Overview of the Existing Ethical and Regulatory

Framework for Insolvency Professionals
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The CodeIBC-2016 lays down effective and a de-centralised ecosystem of processes and
institutions under a tight legal framework for regulation of their powers, functions & duties, for
effective implementation of the provisions of the CodeIBC-2016 as intended by the Legislature.
The IBC-2016 which consists ofprovides for insolvency resolution through following pillars,
namely,

(i) five pillars, viz., the ‘Committee of Creditors’ comprising all eligible creditors and not
just banks & financial institutions,
(ii) the (Adjudicating Authorityies (the National Company Law Tribunals and Debt
Recovery Tribunals), to provide legal force to enforceability of the resolution,
(iii) the Service Providers - Insolvency Professionals (IPs), Insolvency Professional
Entities (IPEs) and Information Utilities (IUs), to support the development of
resolution plan itself
(iv) the Catalysts – the Insolvency Professional Agencies (IPAs) and Registered
Valuer Organisations to render support to the IP’s, the Regulator and the
Adjudicating Authorities in efficient discharge of their functions
(v) the Regulator, Insolvency and Bankruptcy Board of India (IBBI), to frame
guidelines for & regulate the conduct of the insolvency resolutions provided under
the IBC-2016, with aid & advice from the representatives of the stakeholders such as
Government, reputed professionals, large business houses, academia and
prominent lenders in India, .

A. Insolvency and Bankruptcy Board of India (IBBI)

 IBBI is the key institutional pillar of the insolvency and bankruptcy institutional resolution
infrastructure, acting as the . It was envisioned as the supervisor of the institution of
insolvency professionals, as well as other regulatory entities, for the overall insolvency
and bankruptcy processes in the country.
 It is the custodian of the IBC law-2016 and is responsible foraids Government in
consolidation and amendment of the provisions contained in any law for the time being in
force in India , as may be required, and has regulatory oversight over the Insolvency
Professionals, Insolvency Professional Agencies, Insolvency Professional Entities and
Information Utilities. It also acts as a Rregulator that is empowered to prescribe writes
Overview of the Existing Ethical and Regulatory
Framework for Insolvency Professionals
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down the granular details of applicable norms by way of framing & amending regulations
for the insolvency resolution and bankruptcy process but does not per se partakeitself play
an active role in any of the steps involved in various insolvency resolution processes.
 The processes under the CodeIBC-2016 are private affairs of concerned creditors and the
defaulting corporates and/or individuals. IBBI IBBI is the key pillar of the
does not get into any financial or strategic insolvency and bankruptcy
business decisions of either the persons in institutional framework
distress (the debtors) or the ones whose financial
exposure is in distress (the creditors). However, it facilitates smooth conduct and
processes for the stakeholders by making regulations, within the secondary legislative
powers offered by the CodeIBC-2016.
 By registering the professionals and monitoring their performances during the processes,
and taking measures for professional development and expertise for the market players
through education, examination, training and continuous professional education IBBI
exercises executive functions.
 It carries out investigation and inspection of the insolvency professionals and professional
entities for alleged violations of the law, and for ensuring their orderly growth,
development and functioning, thereby discharging adjudicatory functions.
 While disciplining the professionals who contravene the regulations during the process,
IBBI assumes quasi-judicial functions as well. Needless to mention that the IP should, at
all times, expedite co-operation and timely provision of information as required by the
IBBI.
 IBBI exercises Legislative function, in : mMaking regulations for market intermediaries
(service providers) and processes;
 TIn a nutshell, the IBBI largely performs 3 key functions:
- Executive: Registering and regulating service providers (monitoring their performances
during the processes for the insolvency process and taking measures for professional
development and expertise for the market players through education, examination,
training and continuous professional education;
- Quasi-judicial: Adjudication of service providers for ensuring their orderly growth,
development and functioning.
- Legislative: Making regulations for market intermediaries (service providers) and
processes;

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B. Insolvency Professional Agencies

 At present, there are 3 IPAs, one each promoted by the regulators of three professions of
Chartered Accountancy (the ICAI), the Company Secretaryship (the ICSI) and the Cost
Accountancy (the ICMAI). promoted by the Institute of Chartered Accountants of India, the
Institute of Company Secretaries of India and the Institute of Cost Accountants of India
respectively.
 IBC-2016 mandates monitoring performance of IPs with respect to legal compliance and
empowers IPAs to call for information and records. IPAs develop professional standards
and code of ethics under the CodeIBC-2016, audit the functioning of their members,
discipline them and take actions against them if where necessary.
 The Code mandates monitoring performance of IPs with respect to legal compliance and
empowers IPAs to call for information and records.
 As part of thisAccordingly, an IP, inter alia, is required to file the following key disclosures
with respect to each of his on-going assignments:
- Status Update: Monthly- end disclosuresprogress reports on the status / progress of
CIRP (progress reports)
- Disclosure of any potential ‘Conflicts of Interest’: Relationship disclosures (vide IBBI
Circular no. No. IP/005/2018) with legal counsel, creditors, resolution applicants,
valuers, other appointed professionals etc, at various milestones of the CIRP

C. Insolvency Professional (IP)

 An IP is a person who is enrolled with an IPA as a member and registered with the IBBI
after qualifying Limited Insolvency Examination. Any eligible person having the required
experience and qualifications including a chartered accountant, cost accountant, company
secretary, advocate, managerial person can appear for a Limited Insolvency Examination,
and thereafter undergo prescribed training to become eligible for seek registration
enrolment with an IPA and thereafter registration with the IBBI after meeting the
requirements of the regime.
 The Code has provided for a two-tier regulation of IPs, in that:
- The first-tier regulation of IPs is conducted by the IPAs who administer the registration
of IPs and promote and overview their continuous development

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- The second-tier regulation is conducted by the IBBI which maintains a panel of IPs who
have no disciplinary proceedings pending or against them and who hold Authorisation
for Assignment or consented for assignments. This saves judicial time in appointments.
 Success of Insolvency Resolution Processes outlined in IBC-2016 hinges to a very great
extent on the efficient and ethical functioning of the Insolvency Professional, as the IP
carries forward maintains business continuity of defaulting enterprise, and appoints &
supervises specialized professionals (such as lawyers, chartered accountants, valuers,
etc.) for presenting true & complete picture of the assets, liabilities & state of affairs in the
Information Memorandum, which is crucial for invitation of an implementable Resolution
Plan. Thus, an IP is a crucial pillar responsible for the effective, timely and credible
functioning of the entire edifice of the insolvency and bankruptcy resolution process. In
administering the resolution outcomes, the role of the IP encompasses a wide range of
functions, which include adhering to procedure of the law, as well as general management
and finance related functions.
 The IP is required to adhere to a strict code Code of Conduct while performing his
obligations under the CodeIBC-2016. while also ensuring there are adequate procedures
and policies laid down and implemented by his team deployed on any ongoing CIRP.

D. Insolvency Professional Entity (IPE)

 Several IPs can come together and pool their
IPEs are neither
resources and capabilities to form an IPE so as to
enrolled as member of
handle insolvency proceedings involving very high IPA nor registered as IP
stakes or where complex & inter-twined issues of with Board.
law, finance, accounts or other practical difficulties
are involved.
 However, IPEs are neither enrolled as member of an IPA nor registered as IP with the
Board. They cannot act as IPs under the Code but can provide support services to their
directors/ partners who are IPs.
 IPEs should also be mandated under IBC-2016 to put in place a robust Code of
Ethics for compliance by the concerned IP’s as well as the staff of the IPE.
deploy necessary review policies and procedures to ensure the conduct of its IPs
are reviewed on a timely basis and necessary guidance or actions are

Overview of the Existing Ethical and Regulatory

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administered to perfect compliance with the Code and its rules and regulations
from time to time.

E. Information Utilities (IU)

 The objective behind information utilities is to provide There is only 1 IU so far
high-qualitystructured & , authenticated information namely National e-
about debts and defaults, . India has the unique Governance Services
Ltd (NeSL)
distinction of having an IU to cater to the informational
needs of stakeholders under the insolvency and bankruptcy regime.
Information available with the utility which can be used as evidence in bankruptcy
casesproceedings before the IBBI or the National Company Law Tribunal. Moreover, It
would also make debtors cautious as credit information available with the IU the database
and records maintained by them would help lenders in taking informed decisions about
credit transactions. It would also make debtors cautious as credit information is available
with the utility.
 While Section 215(2) of the CodeIBC stipulates that a financial creditor shall submit
financial information and information relating to assets in relation to which any security
interest has been created,
 Section 215(3) of the CodeIBC-2016 suggests that operational creditors may also submit
financial such information relating to operational debt to the IU. There is only 1 IU so far,
namely, the National e-Governance Services Ltd (NeSL) which has collected over 94 lac
loan records amounting to INR 79 Lac crore of financial debt (as on 31st March 2020).

 Vide regulation 38(1) of the IBBI (Information Utilities) Regulations, 2017 an IP may also
submit reports, registers and minutes in respect of any insolvency resolution, liquidation or
bankruptcy proceedings to an IU for storage.
 There is only 1 IU so far namely National e-Governance Services Ltd (NeSL) which has
collected over 94 lac loan records amounting to INR 79 Lac crore of financial debt (as on
31st March 2020).

F. Disciplinary Committee
 The IBBI, after receiving a complaint, may in accordance with the Insolvency and
Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017 cause for an

Overview of the Existing Ethical and Regulatory

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inspection or investigation of the insolvency professional to be conducted within a fixed

period of time.
 IBBI has constituteds a Disciplinary Committee to consider and evaluate any
contravention of the Code by IPs, IPAs or IUs. No authority except the disciplinary
committee appointed by IBBI is authorised to initiate, hear and or dispose- off disciplinary
proceedings against insolvency professionals and insolvency professional entities.
 IP/IU/IPA is duty bound to provide appropriate documentation / information and timely
responses to the Show-Cause Notices issued by the Disciplinary Committee with respect
to any matter being investigated / inspected.
 These committees are constituted under various provisions of the Code and shall act on
the basis of the findings of an investigation or inspection conducted by the Investigating
Authority have the power to impose penalties or suspend or cancel the registration of the
IPs/ IPAs/ IUs (as the case may be), if they are satisfied that sufficient cause exists.
 The IBBI, after receiving a complaint, may cause for an inspection or investigation of the
insolvency professional to be conducted within a fixed period of time in accordance with
the Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations,
2017.
 The Disciplinary Committee shall act on the basis of the findings of an investigation or
inspection conducted by the Investigating Authority. IP is duty bound to provide
appropriate documentation / information and timely responses to the Show Cause Notices
issued by the Disciplinary Committee with respect to any matter being investigated /
inspected.
 If the disciplinary committee is satisfied that sufficient cause exists, it may impose a
penalty on, or suspend or cancel the registration of, the insolvency professional.

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CODE OF CONDUCT FOR INSOLVENCY
PROFESSIONALS
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The First Schedule of the Insolvency and Bankruptcy Board of India (Insolvency Professionals)
Regulations, 2016 (‘IP Regulations’ for short) provides for the Code of Conduct for Insolvency
Professionals, as reproduced below:

Integrity and objectivity.

1. An insolvency professional must maintain integrity by being honest, straightforward, and
forthright in all professional relationships.
2. An insolvency professional must not misrepresent any facts or situations and should
refrain from being involved in any action that would bring disrepute to the profession.
3. An insolvency professional must act with objectivity in his professional dealings by
ensuring that his decisions are made without the presence of any bias, conflict of interest,
coercion, or undue influence of any party, whether directly connected to the insolvency
proceedings or not.
3A. An insolvency professional must disclose the details of any conflict of interests to the
stakeholders, whenever he comes across such conflict of interest during an assignment.
4. An insolvency professional appointed as an interim resolution professional, resolution
professional, liquidator, or bankruptcy trustee should not himself acquire, directly or
indirectly, any of the assets of the debtor, nor knowingly permit any relative to do so.

Independence and impartiality.

5. An insolvency professional must maintain complete independence in his professional
relationships and should conduct the insolvency resolution, liquidation or bankruptcy
process, as the case may be, independent of external influences.
6. In cases where the insolvency professional is dealing with assets of a debtor during
liquidation or bankruptcy process, he must ensure that he or his relatives do not knowingly
acquire any such assets, whether directly or indirectly unless it is shown that there was no
impairment of objectivity, independence or impartiality in the liquidation or bankruptcy
process and the approval of the Board has been obtained in the matter.
7. An insolvency professional shall not take up an assignment under the Code if he, any of
his relatives, any of the partners or directors of the insolvency professional entity of which
he is a partner or director, or the insolvency professional entity of which he is a partner or

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director is not independent, in terms of the Regulations related to the processes under the
Code, in relation to the corporate person/ debtor and its related parties.

8. An insolvency professional shall disclose the existence of any pecuniary or personal

relationship with any of the stakeholders entitled to distribution under sections 53 or 178 of
the Code, and the concerned corporate person/ debtor as soon as he becomes aware of
it, by making a declaration of the same to the applicant, committee of creditors, and the
person proposing appointment, as applicable.
8A. An insolvency professional shall disclose as to whether he was an employee of or has
been in the panel of any financial creditor of the corporate debtor, to the committee of
creditors and to the insolvency professional agency of which he is a professional member
and the agency shall publish such disclosure on its website.
9. An insolvency professional shall not influence the decision or the work of the committee of
creditors or debtor, or other stakeholders under the Code, so as to make any undue or
unlawful gains for himself or his related parties, or cause any undue preference for any
other persons for undue or unlawful gains and shall not adopt any illegal or improper
means to achieve any mala fide objectives.

Professional competence.
10. An insolvency professional must maintain and upgrade his professional knowledge and
skills to render competent professional service.

Representation of correct facts and correcting misapprehensions.

11. An insolvency professional must inform such persons under the Code as may be required,
of a misapprehension or wrongful consideration of a fact of which he becomes aware, as
soon as may be practicable.
12. An insolvency professional must not conceal any material information or knowingly make
a misleading statement to the Board, the Adjudicating Authority or any stakeholder, as
applicable.

Timeliness.
13. An insolvency professional must adhere to the time limits prescribed in the Code and the
rules, regulations and guidelines thereunder for insolvency resolution, liquidation or

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bankruptcy process, as the case may be, and must carefully plan his actions, and
promptly communicate with all stakeholders involved for the timely discharge of his duties.

14. An insolvency professional must not act with mala fide or be negligent while performing
his functions and duties under the Code.

Information management.
15. An insolvency professional must make efforts to ensure that all communication to the
stakeholders, whether in the form of notices, reports, updates, directions, or clarifications,
is made well in advance and in a manner which is simple, clear, and easily understood by
the recipients.
16. An insolvency professional must ensure that he maintains written contemporaneous
records for any decision taken, the reasons for taking the decision, and the information
and evidence in support of such decision. This shall be maintained so as to sufficiently
enable a reasonable person to take a view on the appropriateness of his decisions and
actions.
17. An insolvency professional must not make any private communication with any of the
stakeholders unless required by the Code, rules, regulations and guidelines thereunder, or
orders of the Adjudicating Authority.
18. An insolvency professional must appear, co-operate and be available for inspections and
investigations carried out by the Board, any person authorised by the Board or the
insolvency professional agency with which he is enrolled.
19. An insolvency professional must provide all information and records as may be required
by the Board or the insolvency professional agency with which he is enrolled.
20. An insolvency professional must be available and provide information for any periodic
study, research and audit conducted by the Board.

Confidentiality.
21. An insolvency professional must ensure that confidentiality of the information relating to
the insolvency resolution process, liquidation or bankruptcy process, as the case may be,
is maintained at all times. However, this shall not prevent him from disclosing any
information with the consent of the relevant parties or required by law.

Occupation, employability and restrictions.

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22. An insolvency professional must refrain from accepting too many assignments, if he is
unlikely to be able to devote adequate time to each of his assignments.

23. An insolvency professional must not engage in any employment when he holds a valid
authorisation for assignment or when he is undertaking an assignment.
23A. Where an insolvency professional has conducted a corporate insolvency resolution
process, he and his relatives shall not accept any employment, other than an employment
secured through open competitive recruitment, with, or render professional services, other
than services under the Code, to a creditor having more than ten percent voting power,
the successful resolution applicant, the corporate debtor or any of their related parties,
until a period of one year has elapsed from the date of his cessation from such process.
23B. An insolvency professional shall not engage or appoint any of his relatives or related
parties, for or in connection with any work relating to any of his assignment.
23C. An insolvency professional shall not provide any service for or in connection with the
assignment which is being undertaken by any of his relatives or related parties.
Explanation.- For the purpose of clauses 23A to 23C, “related party” shall have the same
meaning as assigned to it in clause (24A) of section 5, but does not include an insolvency
professional entity of which the insolvency professional is a partner or director.]
24. An insolvency professional must not conduct business which in the opinion of the Board is
inconsistent with the reputation of the profession.

Remuneration and costs.

25. An insolvency professional must provide services for remuneration which is charged in a
transparent manner, is a reasonable reflection of the work necessarily and properly
undertaken, and is not inconsistent with the applicable regulations.
25A. An insolvency professional shall disclose the fee payable to him, the fee payable to the
insolvency professional entity, and the fee payable to professionals engaged by him to the
insolvency professional agency of which he is a professional member and the agency
shall publish such disclosure on its website.
26. An insolvency professional shall not accept any fees or charges other than those which
are disclosed to and approved by the persons fixing his remuneration.
27. An insolvency professional shall disclose all costs towards the insolvency resolution
process costs, liquidation costs, or costs of the bankruptcy process, as applicable, to all

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relevant stakeholders, and must endeavour to ensure that such costs are not
unreasonable.

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Gifts and hospitality.

28. An insolvency professional, or his relative must not accept gifts or hospitality which
undermines or affects his independence as an insolvency professional.
29. An insolvency professional shall not offer gifts or hospitality or a financial or any other
advantage to a public servant or any other person, intending to obtain or retain work for
himself, or to obtain or retain an advantage in the conduct of profession for himself.

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 INTERPRETATION AND
BEST PRACTICES FOR
INSOLVENCY PROFESSIONALS

INTEGRITY AND OBJECTIVITY

Integrity and Objectivity are among the fundamental principles of ethics for Insolvency
Professionals. As per the First Schedule of the IP Regulations, an IP is required to:
 Maintain integrity by being honest and straight forward in all professional relationships
 Not misrepresent facts and refrain from actions that bring disrepute to the profession
 Be objective in his dealings i.e. decisions be made without conflict of interest, bias,
coercion, or undue influence of any party, whether direct or indirect
 Disclose conflict of interest as soon as he comes to know of it
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 Refrain from himself

acquiring, whether directly or indirectly,
the assets of the CD or knowingly permit
his relatives to do so

Integrity envisages being straightforward and

honest in all professional and business
relationships. It implies fair dealing and
truthfulness. The most important attribute of a
professional for which he is accountable is
integrity in character and conduct.

Integrity, reputation and character are also pre-

requisites for being considered as ‘fit and proper’
for registration as IP under regulation 4 of the ‘IP
Regulations’. A profession is only as good as its
members. Thus, it is necessary to ensure that a
person with clean hands only can enter this
profession to manage the operation of the CD and conduct the insolvency resolution process.

In the matter of rejection of application for registration as an IP on the ground that the applicant is
not a fit and proper person as criminal proceedings were pending against him, the Board
observed1:

“… What is material is that what others feel about the applicant who
has been charge sheeted for offences such as criminal conspiracy,
cheating … Does such a person inspire confidence of the stakeholders
who can entrust him with property of lakhs of crores for management
under corporate insolvency resolution process? Pendency of serious
criminal proceedings against the applicant adversely impacts his
reputation and makes him not a person fit and proper to become an
IP.”

A professional's reputation once dented, not only impairs his own ability to render professional
services, but also tarnishes the image of the entire profession. Accordingly, while every profession
1
Order dt. 26.02.2018 passed by Whole Time Member of IBBI
Integrity & Objectivity
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should have tight stringent & objective entry criteria which allow only 'fit and proper' persons to
become its members, it should also have procedures in place to regularly screen its members to
determine whether they continue to meet the 'fit and proper' criteria.

An IP should not knowingly be associated with reports, returns, applications, communications or

other information where the IP believes that the information:
 Contains a materially false, unverified or misleading statement / information;
 Contains statements or information provided recklessly; or
 Omits or obscures required information where such omission or obscurity would be
misleading.

When an IP becomes aware of having been associated with information as described above, the
IP shall take all steps in his capacity to be dis-associated from that information. Further, the IPs
should not bring disrepute to the profession when undertaking marketing or promotional activities,
ensuring honesty and truthfulness, and shall refrain from:
 Charging exaggerated claims for the services offered, or the
 Making false or exaggerated claims on qualifications or experience of, the IP; or
 Making Disparaging references or unsubstantiated comparisons to the work of others. 2

An IP should consider himself an ambassador of the ecosystem as a whole and perform his duties
towards his clients, being mindful of his larger responsibility towards the ecosystem. At no point
should his individual interests or the interests of his clients, or any stakeholder involved be placed
above the letter and spirit of the standards and laws governing the profession.
Objectivity requires IP not to compromise professional or business judgements because of
bias, coercion, conflict of interest or undue influence of others, whether directly or
indirectly. Objectivity is the state of mind which has regard to all considerations relevant to the task
in hand but no other.
An IP shall not undertake a
An IP shall not undertake a professional activity if a professional activity if a
circumstance or relationship unduly influences (or is circumstance or
likely to influence) the IP’shis/her professional judgement relationship unduly
regarding that activity.3 The IP must visibly demonstrate influences the IP’s
professional judgement
his impartiality and lack of bias by:
regarding that activity
- Ethics Code for Members, Insolvency
Practitioners Association of UK, March 2020
2
Ethics Code for Members issued by the Insolvency Practitioners Association of UK, dated March 2020 (Insolvency
Practitioners Association March 2020)
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 being transparent in all his interactions and decisions,

 being collaborative and consultative with all participants of the CoC, and
 ensuring that all decisions are arrived at by active consensusas per the procedure prescribed
for such decision under IBC-2016 and are not bull-dozed by a dominant participant or by the
IP himself.

All actions of the office of the IP must speak for themselves as being honest, without free of fear
orand favour and keeping the best interests of all concerned.

This was also aptly captured in the Order of the Disciplinary Committee of IBBI, dated April 17,
20194, where the Committee opined that:

“When relationship triumphs over merits in professional matters, there

is no place for independence, integrity and impartiality. A professional
must not only be impartial, but also appear to be impartial… Any
conduct, whether explicitly prohibited in the law or not, is unfair if it
impinges on independence, integrity and impartiality of an IP or
inconsistent with the reputation of the profession.”

A conflict of interest creates threats to compliance with the principle of objectivity. An IP should not
allow a conflict of interest to compromise his professional or business judgement. The environment
in which IPs work and the relationships formed in their professional and personal lives can also
lead to threats to the fundamental principle of objectivity. Objectivity may also be threatened if:
any individual within the firm, or,
the any close or immediate family of an individual within the firm or
the firm itself,
has or has had such a professional or personal relationship that which relates to the insolvency
professional’s appointment being considered.

It is therefore necessary that before accepting an insolvency appointment, an IP takes reasonable

steps to identify circumstances (including any relationships) that might create a conflict of interest,
and therefore a threat to compliance with objectivity or other fundamental principles of the Code of
Conduct. Such steps shall include identifying:
 the nature of the relevant interests and relationships between all stakeholders; and

3
Ethics Code for Members issued by the Insolvency Practitioners Association of UK, dated March 2020
4
IBBI Disciplinary Committee Case No. IBBI/DC/16/2019
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 the nature, extent and timing of any prior work for the entity or connected entities and its
implication for all stakeholders.

Timely disclosure of any conflict identified above, whether identified prior to appointment or during
the performance of duties under the appointment to all stakeholders is critical. This might also
require consent from various stakeholders such as CoC, creditors, etc to continue the
appointment.

Upon appointment, if the IP realises assets or sells business of the CD shortly

after his appointment on pre-agreed terms, this could also lead to an actual or perceived threat to
objectivity. The sale could be seen as a threat to objectivity by creditors or others not involved in
the prior agreement. It is therefore important for the IPs to ensure that their decision-making
processes are transparent, understandable and readily identifiable to all third parties who could be
affected by a sale or proposed sale.

THREAT FOR NON-COMPLIANCE

There are several factors and circumstances that could lead to threat for the IP to uphold his
integrity and objectivity. While an exhaustive list of circumstances cannot be produced, it is
necessary for the IP to actively assess and identify such circumstances and such IP’s response /
actions towards them.

An IP faces several challenges in fulfilling duties prescribed under the Code. While due powers are
vested with the RP in this regard, there could be instances where lack of support or undue
influence of other interested parties could compel IP to act in a manner that could pose a threat to
his integrity and objectivity.

In cases where operating cash flows is not sufficient to meet operating expenses, the IP could
often face a challenge in prioritising expenditure, especially employee salaries. This could result in
lack of active support from the employees of the CD, and the IP might resort to making false
promises or seek coerced support or deal with employees in a manner which is not
straightforward.

Likewise, the IP could act with bias against top management and suspended directors suspecting
they would continue to remain loyal to promoters and create circumstances posing difficulties for
the IP to operate the business of CD.
Integrity & Objectivity
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An IP is also responsible to ensure all regulatory compliances by the CD Debtor. However, he

could be faced with lapses in past compliance in certain matters which pose a hurdle in fulfilling his
duties towards ongoing compliance. While IP should seek support from existing employees and
concerned Ddirectors, the IP may face undue influence from interested parties and act under
threat of adverse actions.

Examples of circumstances that might create a conflict of interest include where a

significant relationship has existed with the defaulting entity or someone connected with the entity,
or where an IP:
 has to deal with conflicting or competing interests between entitles over for supervision of
whom, he, or another IP in their firm, is appointed.
 or another insolvency practitioner in their firm has previously acted as an insolvency office
holder to a company with a common director, or common directors. Where the IP has been
appointed officeholder to a number of insolvent companies with the same dDirector or
Ddirectors, there will be an increased risk of a conflict of interest arising.
 has, or others in their firm have, previously carried out one or more assignments for an
entity and / or its wider group and they are appointed as an insolvency office holder to the
entity or its connected entities.
 has, or others in their firm have, previously carried out one or more assignments for an
entity’s charge holders or stakeholders and the insolvency practitioner is appointed as an
insolvency office holder to the entity or its connected entities.

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CASE ILLUSTRATIONS

Case Illustration I
Resigned as RP after various non-compliances under the Code and without permission of AA5

Contravention
 IP did not conduct the CIRP as required under the CodeIBC-2016.
o He did not make public announcement.
o He Convened the CoC meeting with inadequate notice and invited resolution plan only
from the sole member of the CoC, without providing information memorandum, asking
him to submit resolution plan in four days.
 IP did not run the CDs operations as going concern,
 The IP neither did he took take-over the management of the CD, nor seek directions from AA if
he did not receive co-operation from the CD
 IP resigned as RP from the two CIRPs without prior permission of the AA

Submission by IP
 The IP submitted that he did not have funds to make public announcement, he did not get co-
operation from the CD and he was not well.
 As regards resignation, he has stated in the letter of resignation that he resigned on personal
reason while in his response to the AA he mentioned that he resigned because he did not get
fee and CD did not co-operate.

Findings
 Excuses towards non-cooperation from CD are not An IP is not just another
acceptable as there was no evidence that the IP wanted to professional. He is
or tried to take over the management of the CD. Nor was dealing with a CD in
this brought to the notice of the AA for any appropriate distress. He needs to go
directions.
beyond the call of duty
to address the distress
 While prolonged sickness could be an excuse, it is not
justified to indefinitely delay the CIRP until the IP recovers. Further the sickness could be
communicated on time to the AA which may have appointed other IRP.

5
IBBI Disciplinary Committee Case No. IBBI/DC/14/2018; Order dt. January 28, 2019
Integrity & Objectivity
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 DRAFT

 The IPs excuse for resignation also had no merit. He had been appointed by the AA with a
solemn objective and a statutory responsibility. He cannot run away just because he did not
receive the fee.
 Accordingly, the IP has violated provisions of sections 18, 20, 23, 25(2)(g), 25(2)(h), 29, 208(2)
(a), and 208(2)(e) of the Code and regulation 7(2)(a) and 7(2)(h) of the IP Regulations and had
failed to maintain integrity and did not act with objectivity.

Case Illustration II
Appointment of third valuer at the instance of CoC6

Contravention
 RP appointed third valuer to determine fair value and liquidation value of the CD at the desire
of CoC.

Submission by IP
 The RP submitted that the third valuation was done for the satisfaction of the stakeholders
only.
 The decision of the CoC to get a third valuation done was in exercise of its commercial wisdom
to better equip the CoC to take a final call on resolution plans.
 That the conduct of the third valuation at the desire of the CoC does not invalidate the
decisions or actions taken by the RP and has not, in any way, affected the acceptance or
rejection of resolution plan.

Findings
 As per regulation 35(1) of the CIRP regulations, the third valuer is to be appointed only if in the
opinion of the RP the estimates submitted by the two valuers appointed earlier are significantly
different
 Thus, the act of RP in appointing third valuer at the instance of the CoC shows that he
abdicated his authority in favour of the CoC. Further, the fee incurred on the third valuer is an
added financial burden on an already ailing CD which is entangled in a web of debts.
 Accordingly, the RP has violated Section 208(2)(a) and (e) of the Code and Regulation 7(2)(a)
and 7(2)(h) of the IP Regulations and failed to act with objectivity by taking decisions under the
influence of CoC.
6
IBBI Disciplinary Committee Case No. IBBI/DC/22/2020; Order dt. April 21, 2020
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Case Illustration III

Continuing to draw same remuneration even during liquidation7

Contravention
 The IP continued to the draw the same remuneration in his capacity as the liquidator as he did
in his capacity as the RP even after the CD is taken into liquidation.

Submission by IP
 The IP submitted that the fee as RP was charged only until the units of the CD were kept as
going concern and no fee has been charged as RP post the units were closed and that the IP
reserved the right to charge the remaining fee to be reimbursed out of the Liquidation Estate

Findings
 In cases where the fee of liquidator has not been decided by the CoC, the liquidator should
draw fee in accordance with the table provided in Regulation 4(3) of IBBI (Liquidation Process)
Regulations, 2016
 The claim of the RP was immaterial as the provision of
the Regulation clearly provides for a separate structure of The RP(s) have been given
immense powers under the
fees for the Liquidator.
Code, but they also have
 Accordingly, the RP has violated Section 208(2)(a) and the corresponding
(e) of the Code and Regulation 7(2)(a) and 7(2)(h) of the responsibility to abide by
IP Regulations and had contravened Clause 2 of the the Code, rules, regulations
and guidelines at all times.
Code of Conduct.

Case Illustration IV
Failure to represent on behalf of the CD in an arbitration proceeding8
Contravention
 Arbitration petition was filed by an insurance company against the CD. Matter was heard
during CIRP and was awarded in favour of the CD. Consequently, the insurer handed a
cheque of ~INR 8.3 crs in the hands of the ex-director of the CD, who accepted it as full and
final settlement of the claim (thus foregoing an amount of ~INR 2.3 crs)
7
IBBI Disciplinary Committee Case No. IBBI/DC/22/2020; Order dt. April 21, 2020
8
ibid
Integrity & Objectivity
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 The amount of INR 8.3 crs was duly deposited by the ex-director in the accounts of the CD.
Only after the Investigating Authority raised its concern in this issue the RP filed application
before NCLT claiming an additional amount of INR 2.3 crs from insurer and initiated
appropriate actions against the ex-director and promoter of the CD u/s 66 and 67 of the Code

Submission by IP
 The IP submitted that the ex-director and promoter never informed the RP regarding
settlement of the insurance claim and had filed necessary affidavits in this regard in a wrongful
and clandestine manner keeping the RP in dark. Dealings with the insurer in this regard were
without the prior knowledge, consent or permission of the RP
 Upon being aware of the claim settlement, RP took necessary actions to file claims against the
insurer and promoter and ex-director, claiming the amount of INR 2.3 crs
 That the amount of INR 8.3 crs was deposited by the ex-director in the company’s account
without RP’s knowledge and the entire sum so received by the CD was utilised to maintain
going concern

Findings
 Section 17 of the Code vests the management and control of the CD with the RP and Section
25(2)(b) of the Code obligates the RP to represent and act on behalf of the CD with third
parties, exercise rights on behalf of CD in judicial, quasi-judicial or arbitration proceedings
 There was no reasonable ground as to why arbitration proceeding was not within the
knowledge of the RP as the notices / order / correspondence in the matter would be addressed
to the CD at its registered address as against the residential address of its ex-director or
promoter.
 RP having taken effective control on the records and documents of the CD cannot assert that
proceedings were kept away from him in a wrongful or clandestine way.
 That the RP was ignorant of the award of insurance claim when an amount of INR 8.3 crs was
received in the bank account was unfathomable and reflects that RP failed to take due
diligence in finding the reasons for the receipts, which is per se untenable under provisions of
the Code
 This issue has been called for further investigation.

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RESPONSES TO THREATS
Where an IP identifies or determines any threat or event of non-compliance or breach of integrity
or objectivity, he should take necessary action to:
 Eliminate the circumstances, including interests or relationships, that are creating threats;
or
 Apply safeguards, where available and capable of being applied, to reduce the threats to
an acceptable level.

In cases where an IP determines that the threats of non-compliance or breach cannot be

eliminated or the safeguards available are not adequate to reduce the threats to an acceptable
level, the IP should not accept the insolvency appointment or undertake appropriate measures to
disclose the issues and dissociate from / terminate the appointment.

It may be noted that consultation with various stakeholders does not relieve the IP from his
responsibility to exercise professional judgment to resolve the threat or, if necessary, and unless
prohibited by law or regulation, disassociate from the matter creating the threat.

Examples of actions that might be safeguards to address threats to objectivity towards assets of
the Corporate Debtor include:

 obtaining an independent valuation of the assets or business being sold;

 considering other potential purchasers.

An IP shall always consider the perception of others while determining a threat to his integrity or
objectivity in an insolvency appointment. The IP should consider, if a reasonable and informed
third party would weigh up all the specific facts and circumstances of the IP and consider it as a
threat to his integrity and objectivity. Accordingly, the IP should document:
 the facts,
 any communications with, and parties with whom the matters were discussed,
 the courses of action considered, the judgements made and the decisions that were
taken,
 the safeguards applied to address the threats when applicable,
 how the matter was addressed, and
 where relevant, why it was appropriate to accept or continue the insolvency appointment.

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INDEPENDENCE & IMPARTIALITY

The Code of Conduct for Insolvency Professionals under the Code read with the Insolvency and
Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, provides that in the
performance of his functions, a professional member shall inter alia; be independent and impartial
with the highest standards of professional competence and professional ethics. As per the First
Schedule of the IP Regulations, an Insolvency Professional (IP) is required to:
 maintain complete independence in his professional relationships & conduct the processes
independent of external influences.
 ensure that the IP or his relatives do not knowingly, whether directly or indirectly, acquire
assets of the CD, unless it is evidenced that there was no impairment of objectivity,
independence and impartiality and necessary approval is obtained from the Board.
 avoid assignment where he or his relative or the IPE of which he is a partner or director or the
partners or directors of such IPE are not independent of the CD and its related parties.
 disclose the existence of any pecuniary or personal relationship with any of the stakeholders
entitled to distribution under the Code, as soon as the IP becomes aware of it.
 disclose to the COC and the IP’s IPA and as to whether he was an employee of or has been in
the panel of any financial creditor of the CD.
 not influence the decision or the work of the COC or other stakeholders to make any undue or
unlawful gains and shall not adopt any illegal or improper means to achieve any mala fide
objectives.

The Interim RP before accepting the appointment needs to ensure that he has submitted his
consent in Form 2 to the Creditors for submitting to the Adjudicating Authority and he is having has
a valid registration with the Board (at the time of submission of his consent in Form 2), to act as
the RP/IP. He further needs to ensure that:
 his appointment is properly approved by the applicant;
 his remuneration has been approved by the applicant and confirming confirmed that he will pay
the same from his own funds;
 he has made disclosures at the time of his appointment and thereafter in accordance with the
Code of Conduct.
 he is eligible for appointment as the Resolution Professional under Regulation 3 of a corporate
debtor, if he and all partners and directors of the IP entity of which he is a partner or director,
are independent of the corporate debtor.

Independence & Impartiality

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Any non-compliance of the regulatory

PROFESSIONAL / PERSONAL RELATIONSHIPS OF
requirement could lead to the breach of IP CAUSING THREAT TO INDEPENDENCE &
Independent and Impartiality principle. IMPARTIALITY

 The entity; senior management or any director

THREAT FOR NON-COMPLIANCE or shadow director of the entity; shareholders
or Persons of Significant Control of the entity;
The environment in which insolvency any principal or employee of the entity;
practitioners work and the relationships business partners of the entity
formed in their professional and personal  Companies or entities controlled by the entity;
lives can lead to threats to the fundamental companies which are under common control

principle of impartiality.  Potential purchasers

 Creditors
An IP may encounter situations in which no  Funders; including shareholders; private equity
or no reasonable safeguards can be houses and debenture holders of the entity;
debtors of the entity
introduced to eliminate a threat arising from
a professional or personal relationship, or to  Close or immediate family of the entity (if an
individual) or its officers (if a corporate body)
reduce it to an acceptable level. In such
 Others with commercial relationships with the
situations, the relationship in question will
firm or personal relationships with an individual
constitute a significant professional within the firm.
relationship or a significant personal
relationship.

Example: the principle of impartiality may be threatened if any individual within the practice, the
close or immediate family of an individual within the practice/firm or the practice itself, has or has
had a professional or personal relationship which relates to the insolvency appointment being
considered. Where this is the case, the IP should conclude that it is not appropriate to take up the
insolvency appointment. The substance of every such relationship should be considered.

An IP shall not accept multiple appointments in cases where he has dealt with claims between the
separate and conflicting interest of entities over which he is appointed, unless he is satisfied that
he would be able to take steps to minimise potential conflicts and that his overall integrity and
objectivity would be, and seen to be, maintained. For example, the IP must be aware of the
difficulties likely to arise from the existence of inter-company transactions or guarantees in group,
associated or “family-connected” company situations.

Independence & Impartiality

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Thus, an Insolvency Professional should not accept an appointment in connection with the estate if
his (or a related party’s) relationship with the directors of the company or any of the stakeholders
would give rise to a possible or perceived lack of independence.

IP has to be conscious of the role he plays as a IRP or RP or Liquidator, as the case may be
where, for example There is a succession of or sequential appointments, for example, where :
Tthe Interim Resolution Professional is continued as a Resolution Professional and then is further
continued as Liquidator in liquidation proceedings. and hence, such IP has to be conscious of the
role he plays as a IRP or RP or Liquidator, as the case may be.

It is likely that there will be a perception that independence and / or impartiality has been
breached, even if it has not in fact been breached. Hence, Independence should be considered
both as a matter of fact and from the perspective of an informed observer. It should be considered
with reference to jurisdictional guidance, whether legislative, professional or code-based, but the
key tenet underlying the principle of independence should be ensuring that Insolvency
Professional’s conduct is seen to be, not unfairly or improperly biased towards any party.

CASE ILLUSTRATIONS

Case Illustration I
Inclusion of fee payable to lender’s legal counsel in IRP Cost9

Contravention
RP included the fee payable to lender’s legal counsel while calculating IRPC.

Submission by IP

 The RP cited his reservation on the aspect of fees of lender’s legal counsel in forming part of
CIRP Cost 18th CoC meeting but the CoC decided to route appointment of such legal counsel
and payment thereof through RP and with an assurance that upon receipt of resolution plan,
fees payable to lender’s legal counsel to be negotiated with resolution applicant.
 Part of the payment to legal counsel pertains to services rendered by the lenders legal counsel
for the period prior to the Insolvency Commencement Date (ICD).
 Resolution passed by members of the CoC that if IBBI does not allow this arrangement, the
amount will be recovered on pro rata basis from upfront cash recovery amount to be paid to
9
IBBI Disciplinary Committee Case No. IBBI/DC/15/2019-20; Order dt. November 14, 2019
Independence & Impartiality
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 DRAFT

lenders and CoC may negotiate with resolution applicant to pay the fee amount out of their
cash flows.

Findings
 In view of admission by RP of having charged lender’s legal counsel fee from IRPC and
specifically for the services rendered prior to the Insolvency Commencement date of CD, RP
has contravened Section 208 (2) (a) of the Code and also Regulation 7(2)(a) and 7(2)(h) of the
IP Regulations and had failed to maintain complete independence in his professional
relationships and during his conduct in the insolvency resolution process.

Case Illustration II
IRP entering into term sheet with CIRP Applicant (OC, in this case) for appointment as RP 10

Contravention
 The IRP signed a term sheet with the applicant of the CIRP knowing very well that such
applicant OC has no role in the appointment of the RP nor in fixation of fee of the RP and
thereby attempted to deprive the CoC of its legitimate right to appoint a RP of its choice and fix
the remuneration.

Submission
 It was submitted by the RP that he did not conceal
Transparency is welcome.
anything in this regard. He placed the term sheet,
But it cannot be used to
which provides for fee as RP, before the AA. override the explicit
 After taking over as IRP, he found that the CD has statutory provisions. No
some more creditors and hence he sought approval amount of transparency can
of CoC for a higher fee. justify illegal conduct.

Findings
 As an IP, he knows well that a RP is appointed only by the CoC. Yet contracted with the
operational creditor, who is not legally competent to appoint RP. This is an attempt to lock in
his appointment as RP before the competent authority, that is, CoC is born and denude the
competent authority of its rights to choose an IP of its choice as RP and fix his fees. An
agreement with the applicant establishes his collusion, indicating compromise of professional
independence.

10
IBBI Disciplinary Committee Case No. IBBI/DC/16/2019; Order dt. April 17, 2019
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 DRAFT

 Therefore, contravened the provisions of sections 22, 208(2)(a) and (e) of the Code,
regulations 33 and 34 of the CIRP and regulations 7 (2) (a) and (h) of the Insolvency
Professional Regulations, 2016 and had not maintained complete independence in his conduct
during the CIRP and was dependent on external influences so as to make any undue or
unlawful gains for himself or his related parties and had adopted illegal or improper means to
achieve mala fide objectives.

Case Illustration III

Failure to publish invitation for EoI11

Contravention
 The RP failed to publish brief particulars of the invitation for expression of interest (EoI) in Form
G of the Schedule to the CIRP Regulations, as required under regulation 36A(5) of the said
Regulations.

Submission by IP
 It was submitted by the RP that the requirement of Form G came into effect from February 6,
2018. The requirement of publishing Form G was not applicable to the ongoing CIRP, where
less than 37 days were available for submission of resolution plans as on 6 February, 2018.
Therefore, the allegation is not tenable.

Findings
 The RP cannot assert that the requirement of Form G was not applicable, yet he sought
approval of the CoC for the same. His conduct implies that the requirement of Form G was
applicable.
 Further, basis the examination of the facts the submission that less than 37 days were
available for submission of resolution plans is not correct and the requirement of Form G was
squarely applicable in this matter.
 Thus, the RP contravened the provisions of section 25(2)(h) of the Code, regulation 36A of the
CIRP Regulations, and regulation 7(2)(a) and (h) of the IP Regulations and had not maintained
complete independence in his conduct during the CIRP and was dependent on external
influences so as to make any undue or unlawful gains for himself or his related parties and had
adopted illegal or improper means to achieve mala fide objectives.

11
IBBI Disciplinary Committee Case No. IBBI/DC/12/2018; Order dt. November 12, 2018
Independence & Impartiality
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Case Illustration III

Approval sought for extension of IRP period by making false statement to AA12

Contravention
 RP sought an extension of time to the AA, on the ground that he and the promoter were
actively seeking out investors to formulate resolution plan and talks were in very advanced
stage.
 However, there was no such talk except the effort by the RA to reach an OTS with sole FC.
Therefore, RP obtained approval for extension of time by making a false statement to the AA.

Submission by IP
 The RP submitted that he had taken all steps to lead to an amicable resolution of the
insolvency of the CD.

Findings
 The Code envisages that the RP invites resolution plans, RAs submit competing resolution
plans in response, and the CoC chooses the best of them. It does not envisage a mechanism
for any kind of amicable settlement. Further, there is no evidence whatsoever to the effect that
either he or the promoter was seeking out investors to formulate a resolution plan, contrary to
the contention of RP.
 Therefore, RP contravened the provisions of sections 25(2)(h) and 208(2)(a) of the Code and
regulations 36A and 37 of the CIRP Regulations, and regulation 7(2)(a) and (h) of the IP
Regulations and had not maintained complete independence in his conduct during the CIRP
and was dependent on external influences so as to make any undue or unlawful gains for
himself or his related parties and had adopted illegal or improper means to achieve mala fide
objectives.

Case Illustration IV
RP’s submission to AA that S.29A of the Code is not applicable13

Contravention
 In the written submission before the AA, RP submitted that section 29A is not applicable to the
CIRP.

12
IBBI Disciplinary Committee Case No. IBBI/DC/12/2018; Order dt. November 12, 2018
13
Ibid
Independence & Impartiality
38
 DRAFT

Submission by IP
 The RP submitted that the AA has treated his submission as correct law, and that this cannot
be visited in disciplinary proceeding.
 RP submitted before the AA that section 29A was inserted into the Code through the
Insolvency and Bankruptcy Code (Ordinance), 2017 (Ordinance) promulgated on 23
November, 2017 to provide for ineligibility at the time of submission of resolution plan.
 He further submitted that it is not possible for the legislature to make a law that affects the
rights that accrued to the parties on the date of commencement of CIRP, before the
promulgation of the Ordinance.

Findings
 Section 29A of the Code prohibits an ineligible person from submitting a resolution plan.
 The RP not only rejected the explicit unambiguous mandate of the law, but also questioned the
authority of legislature to make such a law.
 Thus, RP ensured that RA, who is undesirable and ineligible under section 29A of the Code,
submits a resolution plan and takes over the CD belonging to his wife and son, against the
explicit mandate of the parliament, thereby contravening the provisions of section 29A and
30(2)(e) of the Code and regulation 7(2)(a) and (h) of the IP Regulations and had not
maintained complete independence in his conduct during the CIRP and was dependent on
external influences so as to make any undue or unlawful gains for himself or his related parties
and had adopted illegal or improper means to achieve mala fide objectives.

Case Illustration V
Collusion of RP with CoC and RA14

Contravention
 RP sought extension of time to enable FC and RA to work out a settlement. The OTS was
approved by the FC on March 27, 2018 and RP issued notice the next day to hold the 3 rd
meeting of the CoC on April 5, 2018.
 He promised to explore every possibility to treat the OTS as resolution plan and thereby
compromised his independence and sided with the parties and vitiated the entire CIRP.

14
IBBI Disciplinary Committee Case No. IBBI/DC/12/2018; Order dt. November 12, 2018
Independence & Impartiality
39
 DRAFT

Submission by IP
 The insolvency of a CD has the most chance of being resolved if the RP, the CoC and the RA
work closely to identify common ground and the best way forward.
 Acting with the stakeholders cannot be called as ‘siding with the parties’ or compromising
independence.

Findings
 The RP did nothing till expiry of normal IRP period. He obtained extension of time as the
approval of the OTS by the CD was under process. Thus, the resolution plan was approved
even before invitation for EoI was drawn up and the steps taken after the approval of resolution
were mere formality. It is not just lack of independence as a RP; it is active collusion of RP with
the RA and the CoC to vitiate the process and frustrate the solemn objective of the Code.
 Therefore, RP contravened the provisions of sections 208(2)(a) and regulation 7(2)(h) of the IP
Regulations read and had not maintained complete independence in his conduct during the
CIRP and was dependent on external influences so as to make any undue or unlawful gains
for himself or his related parties and had adopted illegal or improper means to achieve mala
fide objectives.

RESPONSES TO THREATS
If the IP or the firm has a relationship with the third party, for example a family connection or an
automatic referral arrangement, there are clear self-interest or familiarity threats and the
connection shall be disclosed. The disclosure shall include any potential benefit, whether direct or
indirect, they, or others will receive.

Instance: Business or personal relationships

• When taking steps to assess the nature of any such relationship, the IP should have regard to
conflicts of interest and professional and personal relationships.
• While the IP might regard a relationship as not being a cause for concern, the perception of
others could differ. It is necessary to consider perception on the basis of a reasonable and
informed third party, weighing up all the specific facts and circumstances available to the IP at
that time.
• The requirement to disclose includes situations where in substance there is a one-to-one
relationship between the IP and the third party (for example, the IP is the only IP in the area
and the third party is the only solicitor), as this implies automatic referral.]
Independence & Impartiality
40
 DRAFT

Recommendatory Practices an IP should follow in parallel to avoiding conflict of interest and

maintaining transparency:
• An IP should take reasonable steps to identify the circumstances that could pose a conflict of
interest as wherever the conflict of interest arises, there preservation of confidentiality will be of
paramount importance.
• An IP should have procedure in place to check that no conflict of interest exist between the
professionals appointed for assistance and other stakeholders of the Corporate Debtor.
• IP should obtain Declaration of Independence from the appointed professionals.
• In case of large corporate groups, an IP should identify if there is any possibility of conflict of
interest with the parent company and other companies of the group.
• An IP shall exercise transparency throughout his/her appointment.
• An IP should engage independent professionals for his assistance in fair and transparent
manner and such appointments shall be at arm’s length price.
• In case of existence of any kind of relationship between IP and other professionals or between
the other professionals and corporate debtor, IP shall at the earliest report such relationship to
the Insolvency Professional
• Agency with whom he/she is enrolled, IBBI and the Committee of Creditors of the corporate
debtor.
• IP should be vigilant throughout the process to identify fraudulent, preferential, onerous and
extortionate credit transactions and reporting of the same to Adjudicating Authority.
• IP should record details of every meeting conducted with any stakeholder(s) of the Corporate
Debtor.
• IP should not take advantage of staff discounts or special payment terms, as doing so may
impair, or be perceived to impair, independence. Bribery or payment or receipt of secret
commissions in order to receive work or provide work to others should be unacceptable

Thus, every professional must, to the best of his abilities, avoid any and all conflicts of interest.
Even the barest hint of conflict may taint his reputation as a professional and, by extension, that of
his profession. A professional must not only be independent, impartial and free of any conflict, he
must also demonstrably appear to be so.

Every professional must be held accountable to the highest standards of independence with
respect to the matter at hand. It is the professional's responsibility and duty to not only actively and

Independence & Impartiality

41
 DRAFT

consciously meet such standards, but to also ensure that no aspersion can be cast on him or his
profession.

Independence & Impartiality

42
 DRAFT

REPRESENTATION OF CORRECT FACTS AND CORRECTING

MISAPPREHENSIONS
A Resolution Professional (RP) assumes the powers of the Board of Directors of the corporate
debtor and hence becomes akin to key information pertaining to the corporate debtor. The Code
mandates the RP to prepare an Information Memorandum which will help the prospective
resolution applicants to make an informed decision. Apart from this, the RP shall also act as the
Chairperson of the meeting of CoC where the RP brings to the table certain information to obtain
various approvals from CoC. In addition to this, the RP also files various forms with the IBBI to
keep it informed of the developments in the CIRP of the corporate debtor and to ensure
transparency of the process. From this, we can infer that various stakeholders rely on the
information disseminated by the RP.

However, during the CIRP either on the own

While there is no bright line rule
analysis of the RP or on the forensic audit
as to what information is
report submitted by the forensic auditor, the RP considered as “material
may become aware of any misapprehension or information”, it can be explained
wrongful consideration of any fact. In that case, as such information which would
as per the code of conduct, the RP is expected cause a substantial impact on the
decision making of the user of
to duly inform the same to the concerned
such information
stakeholder. Also, while disseminating
information to stakeholders like CoC, RA, IBBI etc. the RP shall not conceal any material
information or make any misleading statements. As an Officer of the Court, the RP is expected to
be unbiased and diligent.

As per the First Schedule of the IP Regulations, an IP is required to:

 Inform of a misapprehension or wrongful consideration of a fact of which he becomes
aware to such persons under the Code as may be required, as soon as practicable.
 Must not conceal or obscure any material information or knowingly make a misleading
statement to the Board, or to the Adjudicating Authority or to any stakeholder.

THREAT FOR NON-COMPLIANCE

Representation of correct facts and
Correcting misapprehensions
43
 DRAFT

The following circumstances may create threat for non-compliance / breach of code of conduct
pertaining to representation of correct facts and correcting misapprehensions:
 RP along with the CoC hides material facts to get better offers from resolution applicants
 RP not initiating applications for avoidance transactions to gain personal favours from the
promoters or concerned stakeholders
 Not disclosing the red flags raised in the forensic audit report to the CoC

The RP should not become a scapegoat in such circumstances and rather show his integrity and
objectivity to disclose the material information to the concerned stakeholders and not hide /
conceal such information from their reach.

CASE ILLUSTRATIONS

Case Illustration I
Used the word “IBBI” as part of LLP name15

Contravention
 An IP incorporated an LLP with the name “IBBI Insolvency Practitioners LLP” and its website
“www.ibbi-ip.com” without any prior authorisation from the Board and gave a misleading
impression that LLP has been incorporated by IBBI or in some way related to IBBI.

Submission by IP
 The IP submitted that use of the words “IBBI” was without any intention or motive to gain
material benefits

Findings
 Such act was prima facie not acceptable from a qualified Chartered Accountant and a
registered IP as he is well aware of the implications of using the name IBBI which has been
used to refer to the Board, a statutory body, for any purpose under the code by custom and
practice.

15
IBBI Disciplinary Committee Case No. IBBI/DC/09/2018; Order dt. September 6, 2018
Representation of correct facts and
Correcting misapprehensions
44
 DRAFT

 Thus, the IP had violated provisions of section 208 of the Code read with regulations 7(2)(a)
and 7(2)(b) of the IP Regulations and had attempted to misrepresent by failing to change the
name of the LLP even after repeated intimations by the Board. The IP was further ordered not
to accept any assignments without change in name of the LLP and his registration has been
suspended for three months.

Case Illustration II
Misrepresented facts on company website16

Contravention
 A director of a company had applied for IP registration with IBBI and during the scrutiny of
testimonials pertaining to his experience, it was found that the Company’s website stated, "We
are promoted by qualified Insolvency Professionals with accreditation from Insolvency and
Bankruptcy Board of India” and “Empanelled with top financial institutions of India for recovery
and insolvency related matters” which was misrepresentation of facts as none of the directors
had obtained for IP registration.

Submission
 The respective director submitted that the website was undergoing change and managed by a
new vendor who uploaded trial versions directly on the website during the
development stage for testing the user interface without any consent of directors.
 The website was to come live only after successful IBBI registration and declared that the
erroneous statement caused no commercial gains or losses to the company.

Findings
 In absence of registration of any of the directors of the said company as an insolvency
professional and the IBBI not being accrediting agency, the aforesaid statement on the website
is obviously misleading and prima facie misrepresentation.
 The profession of IP is of recent origin unlike other professions as medical, hence vendor
promoting website cannot make such a statement on his own unless specifically instructed.

16
Disciplinary Committee Order No. IBBI/ Disc. Com./2017/1 (F. No. IBBI/IP/DC/2017/29/1)
Representation of correct facts and
Correcting misapprehensions
45
 DRAFT

Case Illustration III

Failure to submit records of every proceeding before the AA17

Contravention
 The IP as an RP of one of the Corporate Debtors had approached the AA for extension of the
CIRP period and for approval of resolution plan, however he did not submit copies of these
proceedings with IBBI.

Submission by IP
 The IP submitted that there were no proceedings before the AA that were required to be
reported to the Board. Only miscellaneous application was filed by him for approval of
resolution plan.

Findings
 The IP acted in violation of Section 208(d) of the code which states that every IP shall submit a
copy of the records of every proceeding before the Adjudicating Authority to the Board as well
as to the IPA of which he is a member.
 Also, the IP made misleading statements to the Board during investigation knowing very well
that he approached the AA for extension of CIRP period but failed to submit such proceedings
with the Board.

Case Illustration IV
Failure to make disclosure to IPA with respect to appointments of professionals18

Contravention
 The RP failed to disclose the appointments of professionals including IPE to the IPA within the
stipulated timelines as per the IBBI Circular dated January 16, 2018.

Submission by IP
 The RP submitted that as per the IBBI Circular, RP is required to disclose ‘relationship’ if any
with the parties prescribed and since the appointment did not fall under the definition of
‘relationship’ he was not required to submit any disclosure to IPA.
17
IBBI Disciplinary Committee Case No. IBBI/DC/12/2018; Order dt. November 12, 2018
18
IBBI Disciplinary Committee Case No. IBBI/DC/15/2019-20; Order dt. November 14, 2019
Representation of correct facts and
Correcting misapprehensions
46
 DRAFT

 It was further submitted that the approval of CoC for appointment of IPE was unanimous and
was done along with the appointment of IP.

Findings
 The act of non-disclosure to the IPA about taking services from an LLP of which RP was a
partner is in violation of Section 208(2)(a) of the Code and Regulation 7(2)(a) and 7(2)(h) of the
IP Regulations and he made misleading statements to the Board by submitting that such
appointment was not in contravention of IBBI Circular.

Case Illustration V
Missed recording of facts in Minutes of the CoC Meeting by oversight19

Contravention
 The CD initiated CIRP against its debtors for their defaults. The RP of the CD proposed to
appoint his wife as IRP in all the 15 CIRP Applications. Upon being investigated for this
decision of the RP, it was submitted by him to the AA that the CoC decided to recuse his wife
as proposed IRP. However, the Inspecting Authority did not find any such decision in the
minutes of the CoC.

Submission by RP
 The RP submitted that he missed to record this decision of the CoC in the minutes by oversight
and he has apologised for the same.

Findings
 IP is often defending himself on pretexts such as typographical error, wrong reporting, wrong
classification, mistake, oversight, failure to provide records, reliance on stale information, etc. It
is difficult to grant benefit of doubt to the IP for all such pretexts and if the IP is an embodiment
of all these pretexts, it is doubtful if he deserves to continue as an IP.
 The RP is said to have contravened Section 208(2)(a) and (e) of the Code, regulations 7(2)(a),
(b) and (h) of the IP Regulations and had breached the Code of Conduct by making
misrepresentation and submitting misleading statements to AA.

19
IBBI Disciplinary Committee Case No. IBBI/DC/16/2019; Order dt. April 17, 2019
Representation of correct facts and
Correcting misapprehensions
47
 DRAFT

Case Illustration VI
Submission of different excuses for resignation as RP before different fora20

Contravention
 The IP resigned as RP from the CD. Before the IBBI, he submitted that it was due to his
personal and health issues whereas in his resignation to the CoC it was stated that he was
resigning as the bills of service providers are not paid. While on the other hand, before the
NCLAT he stated that he was resigning due to preoccupation.
 He resigned from four CIRPs almost at the same time.

Submission by IP
 The RP submitted that he resigned from the CD only due to his personal and health issues and
that his resignation was accepted by the AA without any adverse comments on his
professional capacity.

Findings The only hope for a

 The RP ran away from all the four CIRPs jeopardising sinking ship is its
the life of four corporate debtors and the interests of their
Captain. He cannot run
away leaving the sinking
stakeholders. The act of the RP in misleading different
ship in the mid-sea. The
fora by stating different excuses is found to be in Code provides for an IP
contravention of Sections 17, 20 and 23 of the Code, to run a CD in distress.
regulation 7(2)(a) of the IP Regulations and the Code of He cannot run away from
Conduct. the CD when it needs the
IP the most.

Case Illustration VII

Misleading IBBI and Adjudicating Authority (“AA”)21

Contravention
 The RP issued invitation for EoI with a requirement that the eligibility of resolution applicants
shall be certified by a Chartered Accountant (“CA”). However, such a requirement was never
approved by the CoC but was approved by only one financial creditor holding 83% voting
share.

20
IBBI Disciplinary Committee Case No. IBBI/DC/07/2018; Order dt. August 23, 2018
21
ibid
Representation of correct facts and
Correcting misapprehensions
48
 DRAFT

Submission by IP
 The RP submitted that the Creditors who constitute CoC have given post-facto approval after
issue of invitation for EoI and that law does not require prior approval of invitation for EoI.
 The approval of the only secured financial creditor with 83% voting power is adequate.
 In support of his argument that requiring a CA certificate certifying eligibility of resolution
applicants is the best market practice, the RP submitted the invitations for EoI of Essar Steel
India Limited, Ferro Alloys Corporation Limited, Admiron Lifesciences Private Limited, James
Hotels Limited and Monnet Ispat and Energy Limited.

Findings
 The Code and regulations made thereunder does not empower a secured creditor or a creditor
with a certain threshold of voting power to substitute the CoC.
 The Code provides for an institutional mechanism in the form of CoC to take decisions and
prescribes that such decision shall be taken in a meeting of the CoC.
 The action of the RP is such that he has sided with the largest financial creditor and termed its
decision as the decision of the CoC.
 With respect to the requirement of CA certification, none of the invitations for EoI of the above
stated corporate debtors require any certification from a CA for eligibility of resolution
applicants.
 The above acts of the RP are attempts to mislead the IBBI and the AA and hence is in
contravention of sections 25(2)(h), 29A and 208(2)(a) of the Code, regulation 7(2)(h) of the IP
Regulations and the Code of Conduct.

Representation of correct facts and

Correcting misapprehensions
49
 DRAFT

TIMELINESS
As per the First Schedule of the IP Regulations, an IP is required to:
 Adhere to the time limits prescribed in the Code and the rules, regulations and guidelines
thereunder for insolvency resolution, liquidation or bankruptcy process, and must carefully plan
his actions, and promptly communicate with all stakeholders involved for the timely discharge
of his duties.
 Not act with mala fide intentions or be negligent while performing his functions and duties
under the Code

The legal framework for insolvency and bankruptcy prior to the enactment of the Code was
inadequate and ineffective. There have been undue delays in resolution of issues despite special
laws being in place for the recovery actions by creditors, for example, in case of corporates, the
Recovery of Debts Due to Banks and Financial Institution Act, 1993, the Securitisation and
Reconstruction of Financial Assets and Enforcement of Securities Interests Act, 2002, the Sick
Industrial Companies (Special Provisions) Act, 1985 and the winding up provisions under the
Companies Act, 2013, and also the non-statutory corporate debt restructuring mechanism, such as
Strategic Debt Restructuring (SDR), Corporate Debt Restructuring (CDR) and Joint Lenders
Forum , while in case of individuals, the Presidential Towns Insolvency Act, 1909 and the
Provincial Insolvency Act,1920 had been enacted.

The Code was enacted to deal effectively with insolvency and bankruptcy and as also for
development of credit markets in the country and improving ease of doing business to facilitate
investments. Time is the essence of the processes under the Code as outcomes are calculated in
terms of time, value and money. The Bankruptcy Law Reforms Committee provides the rationale
as:

“Speed is of essence for the working of the bankruptcy code, for two
reasons.

First, while the ‘calm period’ can help keep an organisation afloat,
without the full clarity of ownership and control, significant decisions
cannot be made. Without effective leadership, the firm will tend to
atrophy and fail. The longer the delay, the more likely it is that
liquidation will be the only answer.
Timeliness
50
 DRAFT

Second, the liquidation value tends to go down with time as many

assets suffer from a high economic rate of depreciation. From the
viewpoint of creditors, a good realisation can generally be obtained if
the firm is sold as a going concern.

Hence, when delays induce liquidation, there is value destruction.

Further, even in liquidation, the realisation is lower when there are
delays. Hence, delays cause value destruction. Thus, achieving a high
recovery rate is primarily about identifying and combating the sources
of delay.”

According to a World Bank Report of 2014, the time taken in recovery of debts and rate of
recovery is a matter of grave concern while determining ease of doing business in any place. The
Code is India’s answer to these concerns which contemplates special class of Insolvency
Professionals from various streams of professions to form an effective pillar in realisation of this
goal.

The institution of IP stands on conduct and

The role of the Insolvency
capability of the professionals. The capability
Practitioner is to administer an
needs to be enhanced continuously because of insolvency outcome within the
evolving legal and regulatory framework as also legislation and to ensure a fair,
jurisprudence and evolution of best practices efficient and quick redistribution
including use of technology. Every function which of assets.
an IP is required to perform under the Code - Centre for Economics and Business Research, UK

requires highest level of professional excellence

including financial engineering and value maximising management.

At several points IBBI has noted that compliance of law after the time prescribed by the CodeIBC-
2016 cannot be treated as ‘compliance’ of law. An IP is not just another professional. They are
dealing with a corporate debtor in distress and need to go beyond the call of duty to address the
distress. IPs must endeavour to build and safeguard the reputation of the profession which should
enjoy the trust of the society and inspire confidence of all the stakeholders.

Section 12 of the Code thus mandates that the CIRP of a CD must conclude within the corporate
insolvency resolution period (180, 270, 330 days, as the case may be) from the insolvency
Timeliness
51
 DRAFT

commencement date, which is ordinarily 180 days, which may be extended by a maximum of 90
days, without counting the period of proceedings before the adjudicating authority. . This period
may extend to of 330 days which shall includes the following:
(a) normal CIRP period of 180 days
(b) one-time extension, if any, up to 90 days of such CIRP period granted by the
Adjudicating Authority, and
(c) the time taken in legal proceedings in relation to the CIRP of the CDbefore the AA.
Besides an overall timeline for the process, the Code also mandates an outer timeline for various
stages or sub-processes such as, inter alia, publishing a public announcement of insolvency,
conducting valuation of the corporate debtor, conducting transaction audit of the corporate debtor,
etc..

Bye-law 13 of the Model Bye-laws of an IPA, as specified by the IBBI under Schedule to
Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of
Insolvency Professional Agencies) Regulations, 2016, states that an IP must perform duties as
quickly and efficiently as reasonable, subject to the timelines under the Code.

Resolution process requires consensus among multiple stakeholders such as creditors, resolution
applicant, Adjudicating Authority which can become a challenge in a strict timeframe. In order to
ensure timeliness, an IP needs to run a tight process with adequate preparedness and
handholding at all levels to ensure value of the asset is preserved and maximised. Any negligence
of duty can impact going concern and thus compromises both value of the and integrity of the IP.

THREATS FOR NON-COMPLIANCE

While time is considered to be the essence of the Code, it has been observed that during the
journey of three years since the Code was enacted, there have been situations where meeting the
laid down timelines has been a challenge.

With a new law in vogue, stakeholders have frequently knocked the doors of the judiciary seeking
clarifications and decisions on various aspects of the Code. While these litigations have brought
about clarity in interpretations of various provisions of the Code, it has also resulted in some
delays in approval of resolution plans. Extension of timeline in the CIRP, under the Code, due to
exclusion of time spent in litigation and consideration of the timeline provided in the Code as a
directory provision, has also resulted in delays in admission. The pronouncement by the Apex
Court that the timelines provided in sections 7, 9 and 10 of the Code, for deciding a matter within
Timeliness
52
 DRAFT

14 days as well as the time to remove a defect within 7 days, are directory and not mandatory 22,
brought about a big shift in adherence of timelines provided in the Code.

Delay of over 450 days has been observed on account of litigation in several marquee cases, it
must be noted that litigation (not withstanding its major role) is not the sole reason for the delay in
the CIRP. Sometimes lack of adequate planning and deploying enough resources within timelines
by the IP (as noted in several cases) may also impede the chances of an effective resolution.
Delay caused at any stage due to even a minor negligence at the end of the IP can cause an
adverse domino effect on the timelines of the entire CIRP. Therefore, lack of knowledge of the
requirements of the Code or professional competence, integrity and intent in the IP are all the right
ingredients for non-realisation of the goals of the Code.

CASE ILLUSTRATIONS

Case Illustration I
Delay in making public announcement by Liquidator23

Contravention
 The Voluntary Liquidation of the CD commenced on January 15, 2018 while the liquidator
made the public announcement in newspapers on June 27, 2019 i.e. after a delay of 18
months (approx.) and hence failed to adhere to prescribed timelines.

Submission by IP
 The Liquidator admitted that he inadvertently missed making the public announcement in the
newspapers.

Findings
 An IP is required to conduct the entire CIRP/
Compliance of law made
Liquidation proceedings following his appointment for after the time as
the benefit of all stakeholders. He must diligently stipulated by the Code
perform his duties and must adhere to the timelines cannot be treated as
prescribed under the provisions of the Code and the ‘compliance’ of law in the
regulations made thereunder.
strict sense.
22
M/s Surendra Trading Company Vs. M/s Juggilal Kamlapat Jute Mills Company Ltd. & Ors. (Civil Appeal No.
8400/2017)
23
IBBI Disciplinary Committee Case No. IBBI/DC/20/2020; Order dt. March 20, 2020
Timeliness
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 DRAFT

 As per Regulation 14(1) read with Regulation 14(3)(a) of IBBI (Voluntary Liquidation Process)
Regulation 2017, liquidator is required to make public announcement within five days from his
appointment in one English and one regional language newspaper.
 The Liquidator displayed utter misunderstanding of the provisions of the Code and Regulations
made thereunder.
 The Liquidator was imposed a penalty of INR 1,00,000/- and he is debarred from performing
any action under the code until the penalty was deposited.

Case Illustration II
Failure to invite resolution plans and other non-compliances24

Contravention
In two insolvency resolution cases with the same IP, the following requirements of IBC were not
complied with / were complied with after the prescribed time limit:
 Submit a complete progress report to Adjudicating Authority
 Make public announcement
 Appoint registered valuers
 Prepare and circulate information memorandum
 Invite resolution plans under section 25(2)(h) of the Code; rather, he invited resolution plan
only from the sole member of the CoC, without providing information memorandum, asking
him to submit resolution plan in 4 days.
 Convene the meetings of CoC with adequate notice, etc.
 Take over management of the corporate debtor and run it as a going concern
 Resignation from the case without prior permission of the Adjudicating Authority
 Co-operate with the subsequent IP in terms of sharing data of the corporate debtor

Submission by IP
The IP submitted the following in his defence:
 he did not have funds to make public announcement
 he did not get co-operation from the CD
 he was not well for some time during the CIRP

Findings

24
IBBI Disciplinary Committee Case No. IBBI/DC/14/2018; Order dt. January 28, 2019
Timeliness
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 DRAFT

 The sole purpose of CIRP is development, consideration and approval of the most efficient &
practically implementable resolution plan to resolve insolvency and the IP failed to invite
resolution plans and did not even prepare or provide the required information to prospective
resolution applicants.
 As regards his excuse of non-co-operation from CDs to manage the operations of the CDs as
a going concern, there is absolutely no evidence that he wanted to take over management of
the CDs. For the sake of formality, he wrote a few letters to the CDs seeking certain
documents.
 The RP never brought it to the notice of the AA under section 19 of the Code that he was
having any non-co-operation from the CDs. He did not make any effort whatsoever to run the
CDs as a going concern.
 His excuse for resignation has also no merit. He has been appointed by the AA with a solemn
objective and a statutory responsibility. He cannot run away just because he did not receive
fee.
 The RP was directed to undergo the pre-registration educational course to enhance his
understanding of the Code.

Case Illustration III

Appointment of RP and Fixation of RP’s proposed as two separate resolutions before CoC25

Contravention
 The IP sought approval from CoC for two resolutions, namely, (a) appointment of self as RP,
and (b) the amount of fee to be paid to him as RP. Resolution (a) was approved, while
resolution (b) was not.
 Consequently, there was no decision and repeated meetings and waste of resources.

Submission by IP
 There was no precedent at the relevant time, and he felt it better to have debates in the CoC
on two different aspects of a proposal.
Findings
 If only one resolution proposing Mr. X as RP along The IBBI is extremely
with fee was submitted, the CoC would have either particular about judicious
approved or rejected it. Therefore, the IP wasted use of time and resources
resources and frustrated timelines for CIRP.
of all stakeholders
involved in the CIRP
25
IBBI Disciplinary Committee Case No. IBBI/DC/16/2019; April 17, 2019
and expects diligenceTimeliness
of
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all times.
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 This was left to market practice, though breaking a substantive resolution into many
resolutions is not encouraged which has the potential to create indecision, delay and wastage
of resources.

Case Illustration IV
26
Taking extra-ordinary time to file an application under section 66 of the Code

Contravention
 In the 3rd CoC meeting dated November 16, 2017, it was decided that forensic audit should
be conducted to find out the money trail of the CD.
 The forensic auditor was appointed on April 5, 2018 (i.e. approximately 4 months later) and
the forensic audit report was submitted on July 6, 2018. Thereafter the application under
section 66 was filed on October 29, 2018 i.e. after 115 days from receiving the forensic audit
report.
 Thus, the application under section 66 of the Code was filed after 412 days from the date of
commencement of CIRP i.e. 12.09.2017.

Submission by IP
 The RP submitted that the application u/s 66 of the Code cannot be filed on mere suspicion of
fraud and took reasonable time to find onerous agreements and thereupon immediately filed
the application before the Adjudicating Authority.
 The RP further contended that the timelines prescribed in the Code are only directory in nature
and it lies in the discretion of the IP to file an application under section 66 of the Code when he
deems fit.

Findings
 The RP took extra-ordinary time to file an application under section 66 of the Code after the
forensic audit report was submitted to him even though an IRP/RP has the highest
professional responsibility during CIRP.
 However, in the absence of any statutory mandate prescribing definite timelines for filing
application under section 66 of the Code, the RP could not be held liable for filing the
application belatedly. However, it cannot be disputed that he acted negligently and failed to
acknowledge the importance of timelines during CIRP.

26
IBBI Disciplinary Committee Case No. IBBI/DC/18/2020; February 27, 2020
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Case Illustration V
Outsourcing the responsibility of Verification of Claims27

Contravention
 The RP outsourced this responsibility of verifying claims of creditors to another firm.

Submission by IP
 The RP submitted that he did not outsource work of verification of claims to another entity and
only obtained support services/assistance from the entity.
 He further stated that the same was only recommendatory in nature and that upon receipt of
claims, they were examined by him as to their validity and correctness and thereafter, were
sent to the other entity.

Findings and conclusion

 The appointment letter of the other entity, the minutes of the CoC meeting as well as an email
dated March 1, 2020 sent by the other entity to the RP proves the fact that the former was
appointed for verification of claims, which was the core duty of the RP.
 Further, it was observed that payment of Rs. 3,00,000/- plus GST has been paid for
verification of claims which could have been saved, had the verification been done by the RP
himself.
 Pursuant to regulation 13 (1) of the CIRP Regulations, it is the duty of the IP to verify every
claim received by him. An IP cannot outsource any of his duties and responsibilities under the
Code as per IBBI Circular dated January 3, 2018.
 An IP can take support by appointing accountants, legal or other professionals as may be
necessary. However, he cannot outsource duties assigned to himself under the regulations.
 A penalty of INR 1,00,000 was imposed on the IP.

Case Illustration VI
Non-Consideration of claims and failure to respond28
Contravention
 The CIRP of the corporate debtor commenced on July 21, 2017 and the IRP issued a
public announcement on July 21, 2017 inviting claims by August 4, 2017.

27
IBBI Disciplinary Committee Case No. IBBI/DC/21/2020; Order dt. April 20, 2020
28
IBBI Disciplinary Committee Case No. IBBI/Ref-Disc.Comm./02/2018; April 13, 2018
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 In response to the public announcement, a proprietorship firm, submitted a claim on August

16, 2017. The IRP neither included the claim in the list of operational creditors nor did he
respond to the claimant. The claimant resubmitted the same claim on October 3, 2017 and
met the same fate.
 The IRP failed and neglected to consider the claim and that led the claimant to file a
complaint with the Board seeking a direction under section 196(g) of the Code.

Submission by IP
 The IRP submitted that the claim of the claimant was a subject matter of an ongoing legal
proceedings and he filed an application on January 9, 2018 before the Adjudicating
Authority seeking guidance on admission of disputed claims.
 Based on the directions of the Adjudicating Authority, the IRP admitted the claim.

Findings
 The IRP did not consider the claim of the claimant. He did not even respond to him. He was
subsequently appointed as RP on August 21, 2018. As RP, he neither considered the claim
nor responded to the complainant and by that act he disregarded the claim of the claimant
and remained incommunicative.
 Further the CIRP was estimated to close on January 16, 2018 and the RP only sent a mail
on January 22, 2018 that is, after the estimated closure date of CIRP, to the claimant,
based on guidance of the Adjudicating Authority.
 Failure to consider a claim not only deprives the claimant of his rights, but also deprives the
potential resolution applicants to have complete information required to submit a complete
resolution plan. While implementing the resolution plan, if the resolution applicant discovers
a liability to a claimant which has not been factored into the plan, the resolution plan will be
frustrated.
 The IP disregarded his statutory duty under section 18(1)(b) of the Code, which mandates
him to receive and collate all claims and the timeline provided under the Code and thereby
contravened clause 13 of the Code of Conduct which mandates him to adhere to timeline.
This failure on the part of the IRP was considered serious dereliction of the duty cast on an
IP and a penalty equal to one tenth of the total fee payable to him as IRP and RP in the
case is imposed.

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RESPONSES TO THREATS
An IP is an officer of the court Court and an effective resolution of a CIRP rests on his shoulders.
Accordingly, an IP is duty bound to implement all possible safeguards to complete the process
effectively within set regulations and timelines. A few safeguard measures to achieve the same are
as follows:
[a.] Understand the requirements of the Code assignment and assess / determine ensure if &
whether adequate time is available to perform duties as an IP under the Code IBC-2016
prior to accepting appointment
a.[b.] Since a resolution process is dependent upon many stakeholders, an IP must maintain
effective and timely communication with all of them and set expectations at the time of
accepting the appointment to avoid any delays at a later point
[c.] Prepare a detailed daily, weekly, monthly plan for completion of various activities and share
with the execution team and including all other stakeholders involved for day 1 / month 1
and the entire resolution process and ensure A-best in class implementation to run a tight
process
b.[d.] Continuously update all stakeholders including regulators on the progress in the matter
and seek assistance as necessary to ensure strict adherence to timelines
c.[e.] Avoid litigation as much as possible and rely upon existing jurisprudence to avoid
consuming significant CIRP time in court room battles

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PROFESSIONAL COMPETENCE
The Oxford Dictionary of English defines a profession as 'a paid occupation, especially one that
involves prolonged training and a formal qualification'. Hence, the word profession is derived from
the notion of an 'occupation' that one 'professes' to be skilled in.

An IP shall self asses his competence to handle that particular assignment in terms of
infrastructure, manpower, technology, skill set, professional bandwidth and sectoral knowledge in
which corporate debtor is working in order to efficiently handle a particular case. An IP shall not
accept an assignment in case of inadequate infrastructure.

Apart from the above an IP shall maintain his professional competence through continuous
awareness and understanding of the developments in insolvency regime, prevailing critical issues
and ideal safeguards to address the same.

An insolvency professional must maintain and upgrade his professional knowledge and skills to
render competent professional service.

Insolvency professionals play the role of regulator's 'eyes and ears' into the workings of the
assignments and thus shoulder immense responsibility and are accountable not only to the
immediate user of their services but also to a wider stakeholder group, including regulators and the
society as a whole.

Attributes of Insolvency Professionals:

The quality of any insolvency profession and its membership is influenced by the criteria for
qualification and continuance as a professional. Only 'fit and proper' persons should be admitted
as members of any IPA. A professional is also expected to employ 'state-of-the-art' tools in
delivering his services.

He is accountable for discharging his services effectively and efficiently. This would include the
use of the latest and best knowledge of management to keep himself abreast of the current
developments. Further, he should be technologically 'literate' and avoid being 'technology myopic'
and should not underestimate the capacity of technology to disrupt his profession.

The number of assignments a professional takes up should be within his capacity so as to enable
him to effectively deliver his services. The quality of his services delivered would be affected if he
accepts too many assignments that are beyond his capacity to complete.

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Every profession should institute capacity building measures to ensure that the profession is
equipped to meet the expectation of its users. Whilst building capacity, measures must also be
taken to ensure proliferation of healthy competition within a profession to provide wider choices to
its users. Competition stimulates and sustains quality as users of professional services will have
the opportunity to seek the best service provider rather be compromised in accepting from a
limited choice.

In summary, every professional should be endowed with the requisite 'Mindset, Skillset and
Toolset'. He should possess a high-quality service mindset with attributes of empathy and
understanding of his users' needs, contemporary skills required by his profession and a repertoire
of tools to efficiently and effectively deliver his services.

THREAT FOR NON-COMPLIANCE (UNDER THE UK REGIME)

In UK legal parlance, the fundamental principles of ‘Professional Competence’ and ‘Due Care’
are as follows:

 Attain and maintain professional knowledge and skill at the level required to ensure that a
client or employing organization receives competent professional service, based on current
technical and professional standards and relevant legislation; and
 Act diligently and in accordance with applicable technical and professional standards.29

Insolvency Professionals are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.

The fundamental principle of professional competence and due care requires that an Insolvency
Professionals only accepts an insolvency appointmentassignment when the insolvency practitioner
has or can acquire sufficient/requisite expertise.

For example, a self-interest threat to the fundamental principle of professional competence and
due care is created if the insolvency practitioner professional or the insolvency professional entity
team does not possess or cannot acquire the competencies necessary to carry out the insolvency
appointment. Acquiring in this context includes obtaining the expertise from elsewhere by
employing experts or additional resources.

This section sets out specific requirements and application material relevant to applying the
conceptual framework in such circumstances.

29
Fundamental General Principles, Insolvency Practitioners Association - Ethics Handbook - UK - May2020
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 An insolvency practitioner professional shall not intentionally mislead an employing

organisation as to the level of expertise or experience possessed.
- The principle of professional competence and due care requires that an insolvency
practitioner professional only undertake significant tasks for which the insolvency
practitioner has, or can obtain, sufficient training or experience.
- A self-interest threat to compliance with the principle of professional competence and
due care might be created if an insolvency practitioner has:
o insufficient time for performing or completing the relevant duties;
o incomplete, restricted or otherwise inadequate information for performing the
duties;
o insufficient experience, training and/or education;
o inadequate resources for the performance of the duties.
- Factors that are relevant in evaluating the level of such a threat include:
o the extent to which the insolvency practitioner is working with others;
o the relative seniority of the insolvency practitioner in the firm;
o the level of supervision and review applied to the work.
- Factors to be considered in evaluating expertise include:
o an appropriate knowledge and understanding of the entity, its owners, managers
and those responsible for its governance and business activities;
o an appropriate understanding of the nature of the entity’s business, the
complexity of its operations, the specific requirements of the engagement and the
purpose, nature and scope of the work to be performed;
o knowledge of relevant industries and subject matters;
o possessing or obtaining experience of relevant regulatory and reporting
requirements;
o availability of sufficient staff with the necessary competencies; f) access to
experts where necessary;
o complying with quality control policies and procedures designed to provide
reasonable assurance that specific engagements are accepted only when they
can be performed competently.
- Maintaining and acquiring professional competence requires a continuing awareness
and understanding of relevant technical and professional developments.
- Examples of actions that might be safeguards to address such threats include:
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o obtaining assistance or training from someone with the necessary expertise.

o ensuring that there is adequate time available for performing the relevant duties.
 If a threat to compliance with the principle of
professional competence and due care cannot be “The success of the
addressed, an insolvency practitioner shall process is contingent
upon the competence of
determine whether to decline to perform the duties
the IRP and the CoC.”
in question or accept or continue the insolvency
- Supreme Court of India
appointment. If the insolvency practitioner
determines that declining to accept the insolvency appointment is appropriate, the
insolvency practitioner shall communicate the reasons.
 The insolvency practitioner shall keep under review the expertise required throughout the
insolvency appointment.30

The Hon'ble Supreme Court observed31:

“… this Court should follow the discipline of the IBC which has
been enacted by Parliament specifically to streamline the
resolution of corporate insolvencies. Matters involving corporate
insolvencies require expert determination. The legislature has
made specific provisions which are conceived in public interest
and to facilitate good corporate governance. The Court should
not take upon itself the burden of supervising the intricacies of
the resolution process.”

CASE ILLUSTRATIONS

Case Illustration I
Issue of EoI without the approval of CoC32

Contravention
 The RP issued the invitation of EoI without the approval of the CoC.

30
Acting with sufficient expertise- professional competence, Requirements and Application Material, Insolvency Practitioners
Association - Ethics Handbook - UK - May2020
31
Chitra Sharma and Ors. Vs. Union of India and Ors. [WP (Civil) No. 744 of 2017 & connected WPs & SLPs]
32
IBBI Disciplinary Committee Case No. IBBI/DC/12/2018; Order dt. November 12, 2018
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Submission by IP
 The RP circulated the EoI via e-mail to the CoC and the only FC, approved the draft EoI.
The same was published and was ratified in the meeting of the CoC.

Findings
The DC finds the submission of the RP as untenable:
 The minutes of the meeting of the CoC has no mention whatsoever of invitation of EoI. The
submission that the EoI was ratified is false.
 The submission of Mr. RP that he sent an e-mail to the CoC is misleading. The invitation of EoI
was approved by the sole FC by e-mail and not by the CoC in a meeting.
 The Code provides for an institutional mechanism in the form of CoC to take decisions and
prescribes that such decisions shall be taken in a meeting of the CoC in accordance with
regulations 18 to 26 of the CIRP Regulations.
 The conduct of RP is in contravention of the provisions of section 25(2)(h) of the Code,
regulations 18 to 26 and 36A of the CIRP Regulations and regulation 7(2)(a) and (h) of the IP
Regulations.
 Further, the RP has contravened the code of conduct principle of the professional competence
and due care while handling the CIRP of the CD.

Case Illustration II
Charging abnormally high fees33

Contravention
 The RP contracted a consolidated professional fee of INR 50 lakh plus out-of-pocket
expenses, with the applicant who had a claim of INR13.76 lakh only. It was alleged that this
defied logic and indicated intention of Insolvency Professional to inflate expenses.

Submission
 The RP has made a bald statement that the amount of fee was clear reflection of work that he
has to undertake as an IRP.

33
IBBI Disciplinary Committee Case No. IBBI/DC/16/2019; Order dt. April 17, 2019
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Findings
 The RP attempted to charge abnormally high fee in relation to the services. Besides, he acted
malafide by seeking increase of his fee after approval of fee by the AA and displayed
professional incompetence by using stale information for decision making.
 Therefore, RP violated sections 20, 208(2)(a) and (e) of the Code, regulation 33 of the CIRPR
and regulations 7 (2) (a) and (h) of the IP Regulations and had also contravened the code of
conduct principle of the professional competence and due care while handling the CIRP of the
CD.

Contravention III
Failure to publish invitation for EoI34

Contravention
The RP failed to publish brief particulars of the invitation in Form G of the Schedule to the CIRP
Regulations, as required under regulation 36A(5) of the said Regulations.

Submission by IP
 The requirement of Form G came into effect from 6 th February, 2018. The requirement of
publishing Form G was not applicable to the ongoing CIRP, where less than 37 days were
available for submission of resolution plans as on 6 th February 2018. Therefore, the allegation
is not tenable.

Findings
 The submission of RP is not consistent with his conduct. He cannot assert that the requirement
of Form G was not applicable, yet he sought approval of the CoC for the same.
 Form G carries brief particulars of invitation of resolution plans. As per regulation 36A(1) of the
CIRP Regulations, the RP needs to allow at least one month from the issue of Form G to
prospective RAs to submit resolution plans. The CoC approved Form G, obviously to receive
resolution plans at the earliest.
 The submission that less than 37 days were available for submission of resolution plans is not
correct and the requirement of Form G was squarely applicable in this matter.
34
IBBI Disciplinary Committee Case No. IBBI/DC/12/2018; Order dt. November 12, 2018
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 Thus, the IP contravened the provisions of section 25(2)(h) of the Code, regulation 36A of the
CIRP Regulations, and regulation 7(2)(a) and (h) of the IP Regulations.
 Further, the RP failed to comply the code of conduct principle of the professional competence
and due care while handling the CIRP of the CD.

RESPONSES TO THREATS

The fundamental principle of professional competence and due care imposes an obligation on an
insolvency professional to only accept an appointment that the insolvency professional is
competent to perform. For example, a self-interest threat to professional competence and due care
is created if the insolvency team does not possess or cannot acquire the competencies necessary
to properly carry out the appointment. Expertise will include appropriate training, technical
knowledge, knowledge of the entity and the business with which the entity is concerned.

If any appointment necessitates the employment of agents, an insolvency professional shall

exercise care to retain overall control of the conduct of the engagement.

An insolvency professional shall not accept any insolvency or liquidation work as agent of another
insolvency professional unless satisfied that he has been employed on this basis and the other
insolvency professional has retained overall control of the conduct of the engagement.

Prior to accepting an appointment an insolvency professional, to the extent reasonably possible,

shall ensure that the following matters have been taken into consideration:

 Obtaining knowledge and understanding of the entity, its owners, managers and those
responsible for its governance and business activities.
 Acquiring an appropriate understanding of the nature of the entity’s business, the
complexity of its operations, the specific requirements of the engagement and the purpose,
nature and scope of the work to be performed.
 Acquiring knowledge of relevant industries or subject matters.
 Possessing or obtaining experience with relevant regulatory or reporting requirements.
 Assigning sufficient staff with the necessary competencies.
 Using experts where necessary.
 Complying with quality control policies and procedures designed to provide reasonable
assurance that specific engagements are accepted only when they can be performed
competently.

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Maintaining and acquiring professional competence requires a continuing awareness and an

understanding of relevant technical, professional and business developments, including:

 An IP must adhere to the time limits prescribed in the Code and the rules, regulations and
guidelines thereunder for insolvency resolution, liquidation or bankruptcy process, as the
case may.
 An IP must provide all information and records as may be required by the Board or the IPA
with which he is enrolled and must co-operate and be available for inspections and
investigations carried out by the Board or such IP agency.
 An IP must ensure that he maintains written contemporaneous records for any decision
taken, the reasons for taking the decision, and the information and evidence in support of
such decision.
 An IP must not conduct business which in the opinion of the Board is inconsistent with the
reputation of the profession or brings disrepute to the profession.
 An IP must provide services for remuneration which is a reasonable reflection of the work
necessarily and properly undertaken.

Requirements under the UK regime

 Professional competence requires the exercise of sound judgement in applying
professional knowledge and skill when undertaking professional activities.
 Continuing professional development enables an insolvency practitioner to develop and
maintain the capabilities to perform competently within the professional environment.
 Diligence encompasses the responsibility to act in accordance with the requirements of an
assignment, carefully, thoroughly and on a timely basis.
 In complying with the principle of professional competence and due care, an insolvency
practitioner shall take reasonable steps to ensure that those working in a professional
capacity under the insolvency practitioner’s authority have appropriate training and
supervision.
 Where appropriate, an insolvency practitioner shall make users of the insolvency
practitioner’s services or activities or their employing organisation aware of the limitations
inherent in the services or activities.35

35
Requirements under the Professional Competence and Due Care, Insolvency Practitioners Association - Ethics Handbook -
UK - May2020

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Moreover, every individual that earns his bread from this ecosystem, should feel personally
responsible for cultivating and improving the ecosystem further to keep the ball rolling. Any
professional rendering a service should consider himself as an ambassador of the ecosystem as a
whole, and perform his duties towards his respective clients, being mindful of his larger
responsibility towards the ecosystem. At no point should his individual interests or the interests of
his clients, or any stakeholder involved be placed above the letter and spirit of the standards and
laws governing his profession. Each professional is responsible and accountable to each
stakeholder who may be affected or impacted by his actions.

ASSET MANAGEMENT

Role of the Insolvency Professional during Asset Management

While handling an insolvent company, the IP becomes the nodal agency to ensures the going-
concern nature of the insolvent during the resolution process, preserves assets and enhances the
value of assets by challenging questionable transfers of assets or creation of obligations.

The “UNCITRAL Legislative Guide on Insolvency Law” recognizes the role of an “insolvency
representative” as follows:

“However appointed, the insolvency representative plays a central role in the effective
and efficient implementation of an insolvency law, with certain powers over debtors
and their assets and a duty to protect those assets and their value, as well as the
interests of creditors and employees, and to ensure that the law is applied effectively
and impartially. Accordingly, it is essential that the insolvency representative be
appropriately qualified and possess the knowledge, experience and personal qualities
that will ensure not only the effective and efficient conduct of the proceedings and but
also that there is confidence in the insolvency regime.”36

Section 18 requires the interim resolution professional to take control and custody of any asset
over which the corporate debtor has ownership rights and section 20 obliges the interim resolution
professional to make every endeavour to protect and preserve the value of the property of the
corporate debtor. Again, section 25 states that it shall be the duty of the resolution professional to
preserve and protect the assets of the corporate debtor, including the continued business
operations of the corporate debtor. The Code has also amended section 429 (1) of the Companies
Act, 2013 empowering the NCLT to pass instructions to executory authorities for taking control and
custody of assets, in case the RP is facing difficulties in doing so.
36
UNCITRAL Legislative Guide on Insolvency Law
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Objective of the Provisions

The custody and control of the assets needs to be moved from the directors to the IRP/RP for the
purpose of adequate monitoring and not as a pre-disposal measure and to keep the assets of the
debtor with honesty and transparency.37

It is pertinent to mention that “Due Diligence” is a key challenge when acquiring an asset under
Insolvency and Bankruptcy Code. During Due Diligence process, the RP must take stock of all the
Assets whether in possession or not by looking at all the company data (including banking
transactions, books of accounts, emails & correspondence, etc.), walking around sites for physical
verification of assets shown on the books, and doing third party due diligence which is considered
to be one of the most critical areas of any, but is often considered as customary and left to
advisers.

For an effective resolution, assembling the assets of the CD is a principal task. In this respect, the
Code provides enough protection to the assets of the CD. During the process of resolution, a
'moratorium' on proceedings against the CD is afforded, providing a 'calm period' for a resolution to
be explored. While such a 'stay' is secured, no assets of the CD can be invaded upon or attached
by any authority. Also, when an order for liquidation of a CD has been passed, no legal proceeding
can be instituted by or against the CD. Moreover, during liquidation, the liquidator is expected to
take into custody or control all the assets, property, effects and actionable claims of the CD. The
applicability of moratorium and the overriding powers of the Code have been one of the most
debated provisions of the Code. It is a useful shield to the against individual enforcement actions
by the financial creditor (FCs). Further, the Insolvency Professional may engage consultants to
conduct detailed assessment of company’s book of accounts, bank transactions, emails & other
correspondences, etc. to identify assets that may have been diverted by erstwhile promoters of the
Corporate Debtor to other companies in the same Group, or siphoned-out of the Group as such.
The IP may then obtain appropriate orders from the Adjudicating Authority for recovery of the asset
or compensation in lieu of it.

In the matter of Swiss Ribbons, the SC observed that ‘…the moratorium imposed by Section 14 is
in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor
during the resolution process.38

Suggestive Best Practices for Insolvency Professional during Asset Management:

37
Clause 4.4 of the Report of Bankruptcy Law Reforms Committee, November 2015 (BLRC Report)
38
Swiss Ribbons Pvt. Ltd. & Anr. Writ Petition (Civil) No. 99 In Special Leave Petition (Civil) No. 28623 of 2018_2019
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 Upon appointment as an Interim Resolution Professional/Resolution

Professional/Liquidator, the asset class should be reviewed and the potential threat and
risk to the assets should be identified and safeguards measures should be taken.
 IP through appointment of registered valuer(s) should carry out physical verification of the
assets of the corporate debtor and should obtain exceptional reporting from the registered
valuer(s) to ensure reconfirmation of asset size vis-à-vis the books of accounts of the
company.
 If nature of asset is such that it requires extra protection, then IP should engage the
services of relevant security agencies or if needed assistance of local police can also be
obtained by approaching the Adjudicating Authority.
 In case of factory operations, if there is risk perceived regarding unauthorized movement of
goods, CCTV camera can be installed if not already installed and footage might be
reviewed at regular interval.
 IP should institute the process of change in authorised signatories of bank account(s) of the
corporate debtor in order to ensure effective management of cash and bank balance.
 IP should scrutinize the current book assets of the corporate debtor as stated in the audited
balance sheet of the company and should evaluate if any legal action is necessary towards
the realization of the same.
 IP should get the records and registers pertaining to the assets of the corporate debtor
completed at the earliest in order to understand the actual position of the assets of the
corporate debtor (if not completed).

While performing his duties, the IRP or the RP, as the case may be, may approach the
adjudicating authority i.e. the NCLT for seeking any assistance during the CIRP. Key Judgments
wherein the IRP/RP is seeking assistance from the Adjudicating Authority in order to preserve
the asset of the Corporate debtor:

While performing his duties, the IRP or the RP, as the case may be, may approach the
adjudicating authority i.e. the NCLT for seeking any assistance during the CIRP.

In Central Bank of India and the State Bank of India v. M/S. Ashok Magnetics Ltd.39 the IRP
made efforts to take charge of the assets of the corporate debtor, but there was stout resistance
from the corporate debtor. He, therefore, prayed for police assistance to discharge his functions as
IRP. The NCLT directed the Superintendent of Police in whose jurisdiction the Registered Office

39
CP/551(IB)/CB/2017

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and the factory of the Corporate Debtor were located to give proper Police assistance and
personal security to the IRP to enable him to take charge of the assets of the corporate debtor and
perform the functions as per the provisions of the Code. The director of the corporate debtor was
also directed to furnish the books of accounts, list of assets, list of financial and operational
creditors, list of documents and other relevant particulars as envisaged in the Code and extend all
co-operation.

In Punjab National Bank v. Divyajyoti Sponge Iron Pvt Ltd.40 the RP sought for necessary
assistance and security for himself to visit the factory premises of the corporate debtor to carry out
statutory duties and obligations peacefully. Keeping in view the threats by the corporate debtor, the
NCLT ordered the Superintendent of Police and the in-charge of the concerned police station to
provide proper and effective assistance to the resolution professional.

40
CA (IB) No. 570/KB/2017 in C.P (IB) No. 363/KB/17

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CONFIDENTIALITY
The fundamental principle of confidentiality is that an insolvency professional must ensure that
confidentiality of the information relating to the insolvency resolution process, liquidation or
bankruptcy process, as the case may be, is maintained at all times. However, this shall not prevent
him from disclosing any information with the consent of the relevant parties or required by law.

The principle of confidentiality is not only to keep information confidential, but also to take all
reasonable steps to preserve confidentiality. Whether information is confidential or not will depend
on its nature.

Personal information acquired by the Insolvency Professional, both before and during an
appointment, that is not directly relevant to the insolvency or commercial information relating to the
affairs of third parties, should be kept confidential, unless it is the expectation that the information
is not confidential.

Confidentiality should be maintained in respect of the resolution plan for the restructured company,
and in respect of the negotiations conducted to reach the resolution plan. Confidentiality is key to a
successful restructuring, especially as the resolution plan provides whether all or part of the
employees and/or all or part of the assets of the restructured company will be preserved.

The Insolvency Professional is entitled to any information relating to the Corporate Debtor which
the Corporate Debtor itself would have been entitled to and from anyone who holds such
information.

Confidential information acquired as a result of professional and business relationships should not
be used for the personal advantage of the Insolvency Professional or third parties

THREAT FOR NON-COMPLIANCE (LAW IN UNDER THE UK REGIME)

There are circumstances where insolvency practitioners are or might be required to disclose
confidential information or when such disclosure might be appropriate:

a) Disclosure is required by law, for example:

 producing statutory reports for the creditors of the insolvent;
 submitting reports on the conduct of directors of an insolvent entity;
 production of documents or other provision of evidence in the course of legal proceedings;
or

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 disclosure to the appropriate public authorities of infringements of the law that come to
light;

b) Disclosure is permitted by law and is authorised by the employing organisation; and

c) There is a professional duty or right to disclose, when not prohibited by law:
 To comply with the quality review of an authorising body;
 To respond to an inquiry or investigation by an authorising body or the oversight body;
 To protect the professional interests of an insolvency practitioner in legal proceedings; or
 To comply with technical and professional standards, including ethics requirements.

In deciding whether to disclose confidential information, factors to consider, depending on the

circumstances, include:

 Whether the interests of any parties, including third parties whose interests might be
affected, could be harmed if the client or employing organisation consents to the disclosure
of information by the insolvency practitioner.
 Whether all the relevant information is known and substantiated, to the extent practicable.
Factors affecting the decision to disclose include:
- Unsubstantiated facts.
- Incomplete information
- Unsubstantiated conclusions.
 The proposed type of communication, and to whom it is addressed.
 Whether the parties to whom the communication is addressed are appropriate recipients.41

Significant Situations to Preserve Confidentiality:

 The information relating to the Corporate Debtor and its affairs during the CIRP may be
commercially sensitive, confidential or subject to obligations owed to third parties such as trade
secrets, research and development information and customer information and therefore, any
use of such confidential information needs to be carefully considered by the Insolvency
Professional and must be used only in accordance with law.
 Resolution Plans received by the IP from different parties should be kept confidential and the
same shall only be shared with the Committee of Creditors.

41
Fundamental General Principles- Confidentiality, Insolvency Practitioners Association - Ethics Handbook - UK - May2020
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 In cases or situations where a conflict of interest arises, the preservation of confidentiality will
be of paramount importance; therefore, the safeguards used should generally include the use
of effective information barriers.
 Insolvency Professionals should also be careful not to enter into new obligations of confidence,
such as non-disclosure agreements, that might have an impact on transparency in information
sharing or communication with interested parties, other than as commercially reasonable and
in accordance with law.42

RESPONSES TO THREAT:

 An IP shall maintain strict confidentiality with regard to the information received about the
corporate debtor through business/professional relationship.
 IP shall not disclose any information acquired through business/professional relationship to
any third party and shall only make disclosure if required by law or Adjudicating Authority
and shall not use it for any personal benefit.
 Resolution Plans received by the IP from different resolution applicant should be kept
confidential and the same shall only be shared with the participants of the Committee of
Creditors.
 In case for the receipt of information, IP has to enter into Non-Disclosure Agreement, then
IP shall carefully review the terms and condition of the agreement and shall avoid signing
off to any terms and condition which may impact any of his duties or responsibility under
the Code.
 IP should have systems and procedures in place to prevent access to confidential
information to any unauthorized person.
 Confidentiality should be maintained by the IP when hiring external advisors/professionals.
Confidentiality or Non-Disclosure Agreement may be entered into with such external
advisors/professionals to the extent applicable.
 In case of conduct of meeting of Committee of Creditors through videoconferencing or
through any other online mode, IP shall ensure the authenticity of the system.

The Code and regulations made thereunder contain specific provisions for keeping the information
confidential or for providing information to stakeholders under confidentiality agreement.
Accordingly, vide a Circular dated 23 February, 2018, the IBBI clarified that the disclosure of
information, except as provided for in the Code, or rules, regulations or circulars issued
thereunder, is restricted.
42
http://www.insolindia.com/uploads_insol/draft_best_practices/files/confidentiality-1012.pdf
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Unauthorised access to or leakage of such information has the potential to impact the processes
under the Code. An IP, whether acting as IRP, RP or Liquidator, except to the extent provided in
the Code and the rules, regulations or circulars issued thereunder, shall:

 keep every information related to confidential; and

 not disclose or provide access to any information to any unauthorised person.

In the matter of Vijay Kumar Jain Vs. Resolution Professional and Ors. 43 a member of the
suspended Board of Directors of the CD filed an application seeking confidential information as
stated in regulation 35 of the CIRP Regulations, which requires the RP to provide fair value and
liquidation value to every member of the CoC. The AA disposed of the application with liberty to
the applicant to attend CoC meetings but not to insist upon the CoC or the RP to provide
information which is considered confidential.

Requirements under the UK regime

 The principle of confidentiality is not only to keep information confidential, but also to take all
reasonable steps to preserve confidentiality. Whether information is confidential or not will
depend on its nature.
 An insolvency practitioner in the role as office holder has a professional duty to report openly to
those with an interest in the outcome of the insolvency. An insolvency practitioner shall always
report on their acts and dealings as fully as possible given the circumstances of the case, in a
way that is transparent and understandable bearing in mind the expectations of others and
what a reasonable and informed third party would consider appropriate.
 An insolvency practitioner shall comply with the principle of confidentiality, which requires an
insolvency practitioner to respect the confidentiality of information acquired as a result of
professional and business relationships.
 An insolvency practitioner shall:
- Be alert to the possibility of inadvertent disclosure, including in a social environment, and
particularly to a close business associate or an immediate or a close family member;
- Maintain confidentiality of information within the firm or employing organisation;
- Maintain confidentiality of information disclosed by the employing organisation;
- Not disclose confidential information acquired as a result of professional and business
relationships outside the firm or employing organisation without proper and specific
authority, unless there is a legal or professional duty or right to disclose;
43
MA 518/2018 in CP (IB) 1371 (MB)/2017
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- Not use confidential information acquired as a result of professional and business

relationships for the personal advantage of the insolvency practitioner or for the advantage
of a third party;
- Not use or disclose any confidential information, either acquired or received as a result of a
professional or business relationship, after that relationship has ended; and
- Take reasonable steps to ensure that personnel under the insolvency practitioner’s control,
and individuals from whom advice and assistance are obtained, respect the insolvency
practitioner’s duty of confidentiality.
 There are circumstances where insolvency practitioners are or might be required to disclose
confidential information or when such disclosure might be appropriate:
- Disclosure is required by law, for example:
o producing statutory reports for the creditors of the insolvent;
o submitting reports on the conduct of directors of an insolvent entity;
o production of documents or other provision of evidence in the course of legal
proceedings; or
o disclosure to the appropriate public authorities of infringements of the law that come
to light;
- Disclosure is permitted by law and is authorised by the employing organisation; and
- There is a professional duty or right to disclose, when not prohibited by law:
o To comply with the quality review of an authorising body;
o To respond to an inquiry or investigation by an authorising body or the oversight
body;
o To protect the professional interests of an insolvency practitioner in legal
proceedings; or
- To comply with technical and professional standards, including ethics requirements.

 In deciding whether to disclose confidential information, factors to consider, depending on the

circumstances, include:
- Whether the interests of any parties, including third parties whose interests might be
affected, could be harmed if the client or employing organisation consents to the disclosure
of information by the insolvency practitioner.

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- Whether all the relevant information is known and substantiated, to the extent practicable.
Factors affecting the decision to disclose include:
o Unsubstantiated facts.
o Incomplete information
o Unsubstantiated conclusions.
o The proposed type of communication, and to whom it is addressed.
o Whether the parties to whom the communication is addressed are appropriate
recipients.
 An insolvency practitioner shall continue to comply with the principle of confidentiality even
after the end of the relationship between the insolvency practitioner and an employing
organisation. When changing employment or accepting an insolvency appointment, the
insolvency practitioner is entitled to use prior experience but shall not use or disclose any
confidential information acquired or received as a result of a professional or business
relationship.44

Safeguards to Maintain Confidentiality

 The Insolvency Professional may enter into non-disclosure agreements, subject to the
condition that the non-disclosure agreement would not in any manner lead to non-compliance
with the General Principles stated above and in carrying out duties as required under the
Code.
 The Insolvency professional should make best endeavours to document all initial assessments,
investigations and conclusions, including any conclusion that determines that further
investigation or action is not required or feasible, and also any other decision.
 Post appointment, the Insolvency Professional should ensure there are procedures in place to
prevent access to confidential information (for instance, strict physical separation of insolvency
teams, and confidential and secure data filing).
 The Insolvency Professional should ensure there are clear guidelines for individuals including
key managerial personnel within the company on issues of security and confidentiality,
including requiring such key managerial personnel to sign confidentiality agreements.
 Confidentiality should be maintained by the Insolvency Professional when hiring external
advisors including registered valuers, lawyers or any other professionals. Confidentiality or
non-disclosure agreements may be entered into with such advisors.

44
Requirements under the Confidentiality, Insolvency Practitioners Association - Ethics Handbook - UK - May2020
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 Liquidation valuation report by the two registered valuers should only be shared with the
Committee of Creditors and the contents of the report shall be treated as confidential
information. Further, the Insolvency Professional shall maintain confidentiality by ensuring that
the two valuers are independent of each other and in no manner discuss with each the
valuation report.
 The video-conferencing, etc. provided by the Insolvency Professional for meetings of the
Committee of Creditors should be through secured/protected computer systems. The
Insolvency Professional shall also ensure that the identification and authorization of persons is
checked before they can participate in the meetings of the Committee of Creditors. 45

The Supreme Court in the case of Ruchi Soya Industries46 held that the scheme of the Code IBC-
2016 makes it clear that the Ddirectors, though not members of the Creditors Committee, have a
right to participate in every meeting of the Creditors Committee. In addition, it was also held that
for effective participation as vitally interested parties in discussion on resolution plans, they have
the right to receive copies of the resolution plans presented to the Creditors Committee of
Creditors. Any concerns over breach of confidentiality may be alleviated by the Insolvency
Professional obtaining a confidentiality undertaking from the directors, which may also contain an
indemnity to the Insolvency Professional against any breach. The Supreme Court further opined as
follows:

“… So far as confidential information is concerned, it is clear that the

resolution professional can take an undertaking from members of the
erstwhile Board of Directors, as has been taken in the facts of the
present case, to maintain confidentiality. The source of this power is
Regulation 7(2)(h) of the Insolvency and Bankruptcy Board of
India (Insolvency Professionals) Regulations, 2016, read with
paragraph 21 of the First Schedule thereto. This can be in the
form of a non-disclosure agreement in which the resolution
professional can be indemnified in case information is not kept strictly
confidential.”

45
http://www.insolindia.com/uploads_insol/draft_best_practices/files/confidentiality-1012.pdf
46
Vijay Kumar Jain v. Standard Chartered Bank and Others (Civil Appeal No. 8430 of 2018; Order dt. January 31, 2019)
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OCCUPATION, EMPLOYABILITY AND RESTRICTIONS

An insolvency professional cannot play two roles viz. ‘profession’ and ‘employment’
simultaneously. It is similar to the requirement that a person in employment cannot practice as an
advocate and vice versa. The sole objective behind such a requirement is that a professional must
have undivided loyalty and unflinching attention towards his professional obligations. According to
the ethical principle of Professional / Technical Competence followed in UK, accepting cases
where a member cannot give them the level of attention or technical expertise required to deliver
the best result for stakeholders may bring such member and the profession into disrepute.

Further, the current regulatory framework not only seeks to address conflict of interests arising
from past and present relationships of an IP, but also takes care of any future threats. This is
because an IP may compromise his position in promise of a return in future, after he completes a
process or after he ceases to be an IP. For example- he may take up an employment or have a
professional association with the corporate debtor, successful Resolution Applicant, Creditors and
or their related parties. The restriction on an IP and his relatives to seek assignment or
employment with the stakeholders of the processes handled by him seeks to mitigate attempts by
stakeholders to lure the IP by offering assignment/employment post completion of processes,
leading to non-realisation of the objectives of the Code.

As per the Code of Conduct, an IP shall not engage in the following activities:

 Accept too many assignments if he is unlikely to be able to devote adequate time to each
of his assignments
 Engage in any employment when he holds a valid authorisation for assignment or when he
is already on an assignment
 He and his relatives shall not accept any employment (other than an employment secured
through open competitive recruitment) with, or render professional services, other than
services under the Code, to a creditor having more than 10% voting power, the successful
resolution applicant, the corporate debtor or any of their related parties, until a period of 1
year has elapsed from the date of his cessation from the CIRP under him
 Engage or appoint any of his relatives or related parties, for or in connection with any work
relating to any of his assignments
 Provide any service for or in connection with the assignment which is being undertaken by
any of his relatives or related parties.

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 Conduct business which in the opinion of the Board is inconsistent with the reputation of
the profession

An IP is also expected to not engage his relatives or related parties on any work related to his
assignments and vice versa to ensure that his independence and integrity is not threatened while
he is delivering his duties as an IP. To ensure compliance to this insolvency professional agencies
mandate the IP to self-declare his relationship with all stakeholders such as creditors, corporate
debtor, resolution applicants, legal counsels, any other service providers involved in the
assignment within specified timelines to the insolvency professional agency.

According to the ethical principle of Objectivity, Independence and Impartiality followed by

practitioners in UK, members should avoid circumstances likely to result in a conflict of interest
and should not be unjustly enriched, for example, by receiving secret kick-backs or commissions.
A Member should also not accept an appointment in connection with the estate if his (or a related
party’s) relationship with the directors of the company or any of the stakeholders would give rise to
a possible or perceived lack of independence.

As per Regulation 2(aa) of the IBBI (IP) Regulations, from January 1, 2020, the IBBI has further
tightened the regulatory regime for IPs by introducing the concept of Authorisation for
Assignment besides holding a valid registration as an IP. According to the new regulation, an IP
cannot undertake any new assignment unless he or she holds an 'Authorisation for Assignment'
issued by the insolvency professional agency concerned. This would be applicable for an
individual acting as an interim resolution professional, resolution professional, liquidator,
bankruptcy trustee, authorised representative or in any other role under the code.

Before an IPA issues an Authorisation for Assignment it is required to check an IPs eligibility as
per Model Bye-laws. This ensures continuous compliance by an IP with eligibility requirements
such as, inter alia, not having any disciplinary proceedings against him, not being debarred by its
insolvency professional agency or the Board, not being formally employed.

This amendment also aims to enable an individual to seek registration as an IP even when he is in
employment. He must, however, discontinue employment when he wishes to have an
Authorisation for Assignment.

THREAT FOR NON-COMPLIANCE

An IP may encounter several instances before, during and after any of his assignments pertaining
to his occupation. It may not be possible to make an exhaustive list of instances wherein an IP

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may face a threat for non-compliance, however before agreeing to accept any insolvency
appointment (including a joint appointment), an IP shall determine whether acceptance would
create any threats to compliance with the fundamental principles pertaining to his occupation and
employment.

During the course of any insolvency assignment, an IP performs a balancing act among various
stakeholders namely continuity of business of corporate debtor as a going concern, supervising
specialized consultants to unearth a true picture of the assets & liabilities, and have a practicable
resolution plan for the creditors from eligible and resolution applicants amidst tough timelines with
the objective of an effective resolution.. However, an IP may be presented with a situation seeking
to compromise his objectivity and causing a breach of this code of conduct in the form of a future
gain in terms of an assignment or employment. For example, the offer of employment, outside of
the normal recruitment process, to the spouse of the insolvency practitioner by a creditor in an
insolvency might indicate such a threat.

An IP occupies a position of power having the ability to recommend or influence appointment of

various service providers such as legal counsels, valuers, auditors etc. for the corporate debtor
even though these may require ratification and approval by the Committee of Creditors. Occupying
such a position may present various conflicts of interests in terms of appointing a relative or a
related party on one of his assignments. While this threat continues to exist, an IP should always
be wary of this and not allow any bias or conflict of interest to cloud his decisions.

While a trivial relationship of an insolvency professional with the insolvent entity / concerned
creditor is not a bar for being appointed as an insolvency professional for that insolvent entity, for
instance having personal banking relations with the financial / operational creditor, consideration
should always be given to the perception of others when deciding whether to accept an
appointment. Whilst an insolvency practitioner may regard a relationship as not being significant to
the appointment, the perception of others may differ and this may in some circumstances be
sufficient to make the relationship significant.

CASE ILLUSTRATIONS

Case Illustration I
Giving consent to act as IP in multiple CIRPs at the same time47
Contravention

47
IBBI Disciplinary Committee Case No. IBBI/DC/15/2019
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 A husband and wife were insolvency professionals registered with the Board. The
husband, in the capacity interim resolution professional (IRP) of S. N. Plumbing Pvt. Ltd.,
filed applications for initiating Corporate Insolvency Resolution Process (CIRP) of 14
corporate debtors (CDs). His wife consented to act as IRP for CIRPs of all 14 CDs
simultaneously, even though she has absolutely no experience whatsoever and no
capacity.

Submission by IP
 At the time of giving consent, Ms. Ruia did not have any assignment in hand. Therefore,
she consented to all 15 CIRPs. If she got 2-3 CIRPs, she would recuse herself from other
CIRPs by filing withdrawal letter.

Findings
 CIRP is a serious responsibility of an IP.
Section 20 of the Code obliges the IRP to It is inconceivable that an
make every endeavour to protect and individual who is a novice in
the profession and has not
preserve the value of the property of the CD
handled a single CIRP till date,
and manage the operations of the CD as a would act as IRP / RP in 15
going concern. Section 23 of the Code CIRPs simultaneously and
mandates the RP to conduct the entire CIRP exercise the powers of Boards
and manage the operations of the CD during of Directors of 15 CDs.
the CIRP period.
 While the Code aims to rescue the ailing CDs, such conduct of an IP ensures just the
opposite. That is why the law prohibits an IP from taking too many assignments, if he is
unlikely to devote time to each of his assignment. The argument that the IP in question
would withdraw her consent, after she gets a few assignments, is mischievous. Assuming
for the sake of argument that she really meant to withdraw her consent, she must not forget
the cost of such withdrawal to the insolvency regime and the hardships the CDs and their
stakeholders would suffer on account of withdrawal.

Case Illustration II
Ex-employee of the Financial Creditor proposed as IRP48
Facts
 The Financial Creditor proposed the appointment of an IP who was its ex-employee having
worked there for 39 years and was drawing a pension from the financial creditor, to act as
48
State Bank of India Vs. M/s. Metenere Ltd. [2020] 114 NCLAT
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IRP. The corporate debtor objected the application of the Financial Creditor apprehending
bias and plausible inability of the IRP to act fairly as an Independent Umpire.
 The same was admitted by the Hon’ble NCLT and was appealed against by the financial
creditor in the Hon’ble NCLAT.

Contraventions
 The proposed IRP had a long relationship with the Financial Creditor, spanning around four
decades, and was currently a pensioner drawing pension as a benefit earned for the past
services in terms of the relevant Service Rules which he was getting independent of the
benevolence of the ex-employer.
 The Financial Creditor restricted its choice to propose Mr. X as IRP having regard to past
loyalty and the long services rendered by the latter. This is further reinforced by filing of
instant appeal by the ‘Financial Creditor’ who was upset with the impugned order directing
him to substitute the name of Mr. X with another IRP.

Submission by Appellant

 The Financial Creditor submitted that an IRP is not required to act as an ‘Independent
Umpire’ between the ‘Financial Creditor’ and the ex-management of the ‘Corporate Debtor’
or decide any conflicting issues between them.
 It is further submitted that the RP has no adjudicatory powers and only acts as a facilitator
in the CIRP as all major decisions are taken only with the approval of the Committee of
Creditors. It is further submitted that the Financial Creditor also plays part only to the extent
of its voting share as a member of Committee of Creditors. Therefore, merely because the
proposed IRP happens to be an ex-employee of the Financial Creditor cannot be a ground
to allege bias against him.
 Lastly, it contended that the proposed IRP is not on any panel of the Appellant Bank or
handling any portfolios and has no role in decision making committee of the Appellant Bank
besides being fully competent by all regulations to act as an IRP.

Findings and conclusion of the NCLAT

 The Hon’ble NCLAT dismissed the appeal of the financial creditor for disallowing
substitution of the IRP observing the following:

“In the given set of circumstances, we are of the considered opinion

that the apprehension of bias expressed by the ‘Corporate Debtor’ qua
the appointment of Mr. X as proposed ‘Interim Resolution Professional’
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at the instance of the Appellant- ‘Financial Creditor’ cannot be

dismissed offhand and the Adjudicating Authority was perfectly
justified in seeking substitution of Mr. X to ensure that the ‘Corporate
Insolvency Resolution Process’ was conducted in a fair and unbiased
manner. This is notwithstanding the fact that Mr. X was not
disqualified or ineligible to act as an ‘Interim Resolution Professional’.
Viewed thus, we find no legal flaw in the impugned order which is free
from any legal infirmity and has to be upheld. It goes without saying
that the Appellant- ‘Financial Creditor’ should not have been aggrieved
of the impugned order as the same did not cause any prejudice to it.”

RESPONSES TO THREATS
An IP needs to take reasonable steps to identify possible threats and in particular threats in
existence at the time of or immediately preceding the acceptance of an appointment. In reality this
means having in place systems to ensure that any threat to the fundamental principles are
identified and evaluated properly before accepting the assignment.

Some examples of the safeguards would be having:

 Policies and procedures to implement and monitor conflict of interest in engagements.

 Policies and procedures to prohibit individuals who are not members of the insolvency team
from inappropriately influencing the outcome of an insolvency appointment.
 A disciplinary mechanism to promote compliance with policies and procedures.
 Published policies and procedures to encourage and empower individuals within the
practice to communicate to senior levels within the practice and/or the IP any issue relating
to compliance with the fundamental principles that concerns them.

Where a conflict of interest arises, the preservation of confidentiality will be of paramount

importance; therefore, the safeguards used should generally include the use of effective
information barriers.

An insolvency practitioner may encounter situations in which no or no reasonable safeguards can

be introduced to eliminate a threat arising from a professional or personal relationship, or to reduce
it to an acceptable level. In such a situation appropriate course would be

 Withdrawing from the insolvency team

 Terminating (where possible) the financial or business relationship giving rise to the threat.
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INFORMATION MANAGEMENT
The Code casts this duty on the IP to organises all information relating to the assets, finances and
operations of the firm, receives and collates the claims, prepares information memorandum, and
provides access to relevant information, so that there is complete symmetry of information among
the entitled stakeholders, while maintaining confidentiality.

The First Schedule detailing the Code of Conduct for IPs on Information Management as
follows:

 An insolvency professional must make efforts to ensure that all communication to the
stakeholders, whether in the form of notices, reports, updates, directions, or clarifications,
is made well in advance and in a manner which is simple, clear, and easily understood by
the recipients.
 An insolvency professional must ensure that he maintains written contemporaneous
records for any decision taken, the reasons for taking the decision, and the information and
evidence in support of such decision. This shall be maintained so as to sufficiently enable a
reasonable person to take a view on the appropriateness of his decisions and actions.
 An insolvency professional must not make any private communication with any of the
stakeholders unless required by the Code, rules, regulations and guidelines thereunder, or
orders of the Adjudicating Authority.
 An insolvency professional must appear, co-operate and be available for inspections and
investigations carried out by the Board, any person authorised by the Board or the
insolvency professional agency with which he is enrolled.
 An insolvency professional must provide all information and records as may be required by
the Board or the insolvency professional agency with which he is enrolled.
 An insolvency professional must be available and provide information for any periodic
study, research and audit conducted by the Board.

Regulatory requirements
The following table depicts the regulatory requirement for an IP in handling wide range of
information accessible to the IP throughout the CIRP of a CD by ensuring dissemination of
material information to relevant stakeholders, preservation of such information, filing of such
information before the Adjudicating Authority, IBBI and the IPA, etc.

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Regulation Requirement
7(2) (g) of IP maintain records of all assignments undertaken for at least three
Regulations years from the completion of such assignment.

39A of the CIRP IRP/RP shall preserve a physical as well as an electronic copy of
regulation the records relating to CIRP of the corporate debtor as per the
record retention schedule.

5(2) of Liquidation liquidator shall preserve a physical as well as an electronic copy

Regulations49 of the reports and minutes
6 of Liquidation liquidator shall maintain the following registers and books, as may
50
Regulations, 2016 be applicable, in relation to the liquidation of the corporate debtor, and
shall preserve them for a period of eight years after the dissolution of
the corporate debtor
41 of Voluntary liquidator shall preserve a physical or an electronic copy of the
Liquidation reports, registers and books of account for at least eight years after
Regulations51 the dissolution of the corporate person, either with himself or with an
information utility.
Section 208 (2)(d) of IP shall submit a copy of the records of every proceeding before the
the Code Adjudicating Authority to the Insolvency and Bankruptcy Board of
India (IBBI) as well as to the Insolvency Professional Agency of which
he is a member
Clause 16 of the a professional member shall submit information, including records
Schedule: Model Bye- of ongoing and concluded engagements as an IP, in the manner
52
Laws prescribed and format specified by the respective Insolvency Professional Agency
under at least twice a year.

Hence, the Code read with the regulations casts obligations on an IP to:
 forward all records relating to the conduct of the CIRP and the resolution plan;
 submit a copy of the records of every proceeding before the AA, to the Board.

49
Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016
50
Ibid
51
Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017
52
Insolvency and Bankruptcy Board of India (Model Bye-Laws & Governing Board of Insolvency Professional Agencies)
Regulations, 2016
Occupation, Employability and Restrictions
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In order to facilitate submission of records and information by IPs as well as for monitoring of the
processes and performance of IPs, IBBI, in consultation with stakeholders and the IPAs, has
devised a set of seven Forms.

It has also developed, in consultation with the IPAs, an electronic platform for filing of the Forms. It
has reiterated that the Authorization of Assignment shall be issued by the IPAs only to those IPs,
who have filed all the Forms that have become due on the date of issue of authorisation.

CASE ILLUSTRATIONS

Case Illustration I
Delay in submission of documents to IBBI53

Contravention
 The RP failed to provide the documents to the Board within the stipulated time and instead of
providing documents, the RP vide email advised the Board to close the case treating it as too
old.

Submission by IP
 The time taken by RP was not to avoid the response but to prepare a proper and complete
response with all documents.
 There was lack of intention to delay the report since the RP was not informed about the
inspection and he was acting under the belief that it is a routine collection of information.
 The RP admitted that the language used by RP, in his communication with the Board was
inappropriate, however, the RP never had the intention of not supplying the information desired
by the Board.

Findings
 During the CIRP when Board sought certain information/ documents from the RP, he replied by
saying that these are too old and may be treated as closed without wasting Board’s time and
IP’s time in creating correspondence, thereby, frustrating the statutory duties of the Board and,
therefore, of the Code.
 Thus, acted in violation of the provisions of Regulation 7(2)(h) of IP Regulations and had failed
to provide all information and records as may be required by the Board or the insolvency
professional agency with which he is enrolled.

53
IBBI Disciplinary Committee Case No. IBBI/DC/18/2020; Order dt. February 27, 2020
Occupation, Employability and Restrictions
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Case Illustration II
Failure of RP to submit to the Board a copy of the records of every proceeding before the AA 54

Contravention
 The RP failed to submit copies of the records of proceedings before the AA, with the IBBI.

Submission by IP
 There were no proceedings before the AA that were required to be reported to the Board. Only
miscellaneous application was filed by him for approval of resolution plan.

Findings
 As evident from records, the RP approached the AA for the extension of CIRP period and for
approval of the resolution plan.
 He did not submit copies of these proceedings in contravention of the provisions of section
208(2)(d) of the Code and regulation 7(2)(a) and (h) of the Insolvency Professional Regulation,
2016 and had failed to make efforts to ensure that all communication was made to the Board.

Case Illustration III

Failure to respond to claimants and IBBI55

Contravention
 The IRP neither included the claim of one of the claimants in the list of operational creditors nor
did he respond to the claimant. Upon such negligence of the IRP, the claimant submitted a
complaint to the Board seeking a direction under section 196(g) of the Code.
 The RP disregarded repeated requests of the Board for a response on the complaint. He
responded to the Board only after a show-cause notice was issued to him. He made the
stakeholder as well as the Board helpless. It is unbecoming of a professional to ignore
repeated requests of the claimant and the Board for the entire CIRP period.
 He failed to comply with the provisions of section 196(1)(g) and (h) of the Code which
empowers the Board to monitor the performance of an IP and call for information and records
from an IP.

Findings

54
IBBI Disciplinary Committee Case No. IBBI/DC/12/2018; Order dt. November 12, 2020
55
IBBI Disciplinary Committee Case No. IBBI/Ref-Disc.Comm./02/2018; Order dt. April 13, 2018
Occupation, Employability and Restrictions
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 As evident from records, the RP contravened the provisions of section 208(2)(d) of the Code
and regulation and had failed to provide all information and records as may be required by the
Board or the insolvency professional agency with which he is enrolled.

Case Illustration IV
Sharing of Information Memorandum (IM) before publication of EOI56

Contravention
 The IP shared a copy of IM discreetly with one of the prospective resolution applicants vide an
email on July 10, 2018 in priority to all other resolution applicants with whom it was shared
from September 10, 2018 onwards.

Submission by IP
 IP submitted that NDA was signed with such prospective resolution applicant before sharing
the IM with him. The purpose of sharing the IM was to get an understanding of Education
sector to attain value maximisation from an industry expert.

Findings
 Regulation 36B of the CIRP Regulations was inserted w.e.f. July 3, 2018 and was made
applicable to CIRP commencing on or after July 3, 2018. The CIRP in the present matter
commenced on 25.04.2018 i.e. before the above amendment was introduced. In such
circumstances, Regulation 36B of the CIRP Regulations shall not be applicable to the facts of
the present case.
 However, Form G calling for Invitation of Expression of Interest was issued on July 18, 2018
while the RP had shared the IM with such prospective resolution applicant on July 10, 2018 i.e.
before they submitted their Expression of Interest and before the RP conducted due diligence
to ensure if they would qualify as eligible prospective resolution applicants. Section 208(2)(a)
of the Code and Regulation 7(2)(h) of the IP Regulations.

56
IBBI Disciplinary Committee Case No. IBBI/DC/23/2020; Order dt. April 27, 2020
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REMUNERATION AND COSTS

The Code introduced a market driven mechanism for resolution of corporate persons and the
profession of IPs was introduced in order to achieve this objective. The role of an IP is that of an
officer of the Court57 and hence that demands integrity and accountability. Given that, the
monetary incentive for managing such insolvency resolution process is the professional fee
charged by the IP, i.e. the remuneration.

The Code provided for the following multiple roles for the Insolvency Professionals:

1. As a Resolution Professional58 during Corporate Insolvency Resolution Process (“CIRP”)

2. As a Liquidator during liquidation process.
3. As a Resolution Professional during Individual Insolvency.
4. As a Bankruptcy Trustee during bankruptcy process.

The sections governing individual insolvency and bankruptcy are not yet notified and hence, the
discussion will be limited to the first two roles of the Insolvency Professional.

Insolvency Professional as a Resolution Professional

Before we take a look at the legal provisions governing the remuneration drawn by Resolution
Professionals (“RP”), it is important to take note of the following view of the Bankruptcy Law
Reforms Committee (BLRC):

“The Committee is of the view that there should be no constraints

on RP fees. In a competitive market for the insolvency professionals,
the fees for managing the insolvency resolution process will converge
to the fair market value for the size of the entity involved. While the
market is evolving, the Code tries to ensure that there is as much
transparency about the behaviour and the performance of individual
insolvency professionals that the professional, creditors and debtors
are incentivised to behave optimally.
…
The Committee feels it is prudent to allow the market to develop
and competition to drive charges of the RP rather than setting
these in the Code, or in regulations.”
57
ARCIL vs. Shivam Water Pvt. Ltd., NCLT (Mumbai Bench) (C.P. No.(IB)1882(MB)/2018)
58
Wherever the term Resolution Professional (“RP”) is used it is deemed to include a reference to Interim Resolution
Professionals
Remuneration and Costs
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Hence, the Code nor the Regulations stipulated any basis for fixing of remuneration for the
services of the IPs unlike the UK where the Insolvency (England and Wales) Rules, 2016 stipulate
the principles for fixing the basis of remuneration59.

Section 5(13) of the Code defines “Insolvency Resolution Process Costs” which include fees
payable to any person acting as a Resolution Professional. Regulation 34 of the IBBI (Insolvency
Resolution Process for Corporate Persons) Regulations, 2016 stipulate that the committee of
creditors (“CoC”) shall fix the fee to be paid to resolution professional. There is no mention of any
limitations, principles or basis for fixing such fee to resolution professional in these regulations.
However, the code of conduct for the IPs state the following with respect to the remuneration
drawn by IPs:

 Remuneration shall be charged in a transparent manner

 It shall be a reasonable reflection of his/her
work The fee quoted by the
 It shall not be inconsistent with the applicable professionals should be
regulations reasonable, commensurate
with work to be handled
 Adequate disclosures shall be made to the
- NCLT, Hyderabad
Insolvency Professional Agency (IPA) as to the Shri Shrikrishna Rail Engineers Pvt.
fee payable to him/her, to IPE and to the Ltd. vs. Madhucon Projects Ltd.
(CP(IB) SR No. 4322/9/HDB/2017)
professionals engaged by him/her.
 No other fee shall be charged other than that
which is disclosed and approved by the persons fixing his/her remuneration
 The IP shall disclose the details of the CIRP costs, liquidation costs and bankruptcy
costs and must endeavour that such costs are not unreasonable.

Insolvency Professional as a Liquidator

Section 34(8) of the Code stipulates that:

“An insolvency professional proposed to be appointed as a liquidator

shall charge such fee for the conduct of the liquidation proceedings
and in such proportion to the value of the liquidation estate assets, as
may be specified by the Board.”

59
Rule 18.16 of the Insolvency (England and Wales) Rules, 2016
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Regulation 39D of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations,
2016 states that while approving a resolution plan under section 30 or deciding to liquidate the
corporate debtor under section 33, the CoC in consultation with the resolution professional shall fix
the fee payable to the liquidator, if an order for liquidation is passed under section 33.

In case the remuneration is not fixed by the CoC, then Regulation 4(2) of the IBBI (Liquidation
Process) Regulations, 2016 shall apply pursuant to which the liquidator shall be entitled to a fee at
the same rate as the RP for the initial period of 90 days where the liquidator endeavours to enter
into a scheme of compromise of arrangement. For the balance period of liquidation, the liquidator’s
fee shall be as a percentage of the amount realised net of other liquidation costs, and of the
amount distributed60.

The Bankruptcy law Reforms Committee had given the following rationale behind the fee structure
of the Liquidator:

“In fact, it has been found that often the Liquidator has the incentive to
prolong the Liquidation process purely as a mechanism to seek rents
from the creditors. They earn rents either by deploying the capital
realised, or differentiating payouts to those who can pay for it. The
Committee agrees that the Code and the regulations thereunder should
incentivise good behaviour by the Liquidator by imposing a structure
on fees charged in Liquidation. An ideal structure will be one that
incentivises the Liquidator to preserve time value of transactions in
Liquidation.

The fees that the Liquidator can charge must be a decreasing function
of time. Under such a fee structure, the same realisation obtained in
the second year will mean a smaller fee for the liquidator than the fee
for the realisation in the first year. The precise function can be
specified by the Regulator, and can vary from case to case in
regulations. However, irrespective of the variations, because fees
earned must be lower in a later year than in an earlier year, the

60
Refer table given under Regulation 4(3) of the IBBI (Liquidation Process) Regulations, 2016 for different percentages
prescribed for fee calculation based on time consumed by the liquidator in disposing the assets
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Liquidator is motivated to realise value sooner rather than

later.”

THREAT FOR NON-COMPLIANCE

Even though the code of conduct for IPs stipulated for various requirements in terms of drawing of
remuneration by the IP, there might be certain circumstances creating threat for non-compliance /
breach, as follows61:

 When IP is associated as an ex-employee, consultant, supplier, customer or in any

other capacity to the Financial Creditor (“FC”) / Operational Creditor (“OC”) /
Corporate Debtor (“CD”)
There is a scope of bias by the IP towards the FC, OC or CD as the case may be and in
return for such bias, the IP may be offered a handsome remuneration which might not
actually reflect the work undertaken by such IP.

 Where the IP quotes “ZERO” remuneration

It is a unique case where an IP quotes zero remuneration and the CoC appoints such IP.
Zero remuneration is definitely not reasonable nor is commensurate with the work to be
handled. Also, it may lead to the RP delegating many of his duties to other firms / service
providers with whom the RP can have financial arrangements. This ultimately leads to
exploitation of the value of assets of the corporate debtor.

 Outsourcing of duties to related parties of IP and additional remuneration

The IP may outsource essential duties to related parties and not disclose the fact that such
parties are related. It can lead to a situation where additional remuneration is paid indirectly
to the IP which is against the Code of Conduct.

 Where the IP takes undue advantage of the Creditors

61
It is an indicative list of circumstances and not exhaustive. There can be multiple other circumstances which portray threat to
the non-compliance or breach of the code of conduct.
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There can be situations where the corporate debtor is situated in a remote location with
less value of assets and not many IPs show interest in such assignment. Taking this as an
undue advantage, an IP can quote higher remuneration which is not commensurate with
the work to be handled nor a reasonable reflection of the work to be undertaken.

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 IP attempting to increase the fee after securing the appointment as RP

After being appointed as a RP, the IP may time and again burden the CoC to increase the
remuneration and this can be adverse towards the CIRP as that shows disinterest of the
said IP in continuing his services with the existing remuneration.

CASE ILLUSTRATIONS

Case Illustration I:
Charging remuneration more than the claim of the applicant62

Contravention
 The RP charged an unreasonable professional fee of Rs.50 lakh plus out-of-pocket expenses,
with the applicant (operational creditor) who had a claim of Rs.13.76 lakh.

Submission by IP
 The RP submitted that the amount of fee charged by him was clear reflection of work that he
has to undertake as an IRP and that the charging of Fee is the discretion of the Professional
considering the volume of work.

Findings
 The IRP acted in violation of the code of conduct by claiming unreasonable CIRP costs and
also, the fee claimed by the RP do not reflect the work to be undertaken.
 The registration of the RP as an insolvency professional is suspended for two years and the
RP is directed to work for at least six months as an intern with a senior insolvency professional,
at any time during the period of suspension, to improve his understanding of the Code and the
regulations made thereunder.

62
IBBI Disciplinary Committee Case No. IBBI/DC/16/2019; Order dt. 17th April, 2019
Remuneration and Costs
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Case Illustration II:

Authorising the LLP where IRP is a partner to raise invoices for IRP Fee63

Contravention
 The IRP authorised an LLP, where the IRP is a partner, to raise invoices for IRP fees and other
out of pocket expenses for work undertaken by the IRP.

Submission by IP
 The IRP submitted that the fee arrangement he had with the LLP where he is a partner is
entered in good faith. As per the terms of the LLP agreement which bind him, he is not
permitted to earn fee outside of the LLP.
 It was further submitted that he is in full compliance of the IBBI Circular dated January 16,
2018 after the issue of the circular till which time there is no clarity as to how and to whom fee
shall be paid for his professional services.

Findings
 The IRP has violated clause 25 of the code of conduct since the mode of charging
remuneration is inconsistent with the applicable regulations.

Case Illustration III

Drawing same remuneration as was paid in the capacity of RP in the absence of any approval by
CoC with regard to fee payable to liquidator64

Contravention
 During liquidation, the liquidator continued to draw the same remuneration as was paid to him
in the capacity of RP.

Submission by IP
 The liquidator submitted that the remuneration as was payable to RP was charged only till
units were kept as going concern during liquidation and that all the four units were being run as
during CIRP by the full involvement of all the team members, which required hectic movement
from unit to unit, taking decisions regarding purchase and sale, recovery of book debts,
statutory compliances, legal and NCLT cases, maintenance of machinery, security

63
IBBI Disciplinary Committee Case No. IBBI/DC/08/2018; Order dt. 23rd August, 2018
64
IBBI Disciplinary Committee Case No. IBBI/DC/22/2020; Order dt. 21st April 2020
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arrangements, handling of staff/workers etc. Further, no fee has been charged after the units
were closed.
 It was also submitted that the fee charged by the RP is far lesser than the amount payable to
him as per table given in Regulation 4(3) of the IBBI (Liquidation Process) Regulations, 2016.

Findings
 The liquidator has acted in contravention of Regulation 4(3) of the IBBI (Liquidation Process)
Regulations, 2016 wherein it is clearly stated that in the event where remuneration of liquidator
is not decided by the CoC, the same shall be paid in accordance with the table provided in the
said regulation and consequently breached clause 25 of the Code of Conduct by charging
remuneration inconsistent with the regulations.
 The RP is directed to deposit the amount continued to be drawn during liquidation as was paid
to him in the capacity of RP, in the liquidation estate of the corporate debtor with the liberty to
draw remuneration as per Regulation 4(3) of the IBBI (Liquidation Process) Regulations, 2016.

Case Illustration IV:

Payment of exorbitant fee to the professionals during the conduct of CIRP65

Contravention
 The RP appointed various law firms and advocates paying them exorbitant fees when a law
firm was already appointed for legal assistance at exorbitant cost.

Submission by IP
 The RP submitted that all the appointments are justified and that they are made to address
certain sensitive issues and hence the high professional fee and the same had the approval of
the CoC.

Findings
 The RP has been able to provide satisfactory justification for the CIRP costs incurred by the
corporate debtor for the appointment of various professionals and hence the IP is not liable for
payment of exorbitant fee to the professionals during the conduct of CIRP.

65
IBBI Disciplinary Committee Case No. IBBI/DC/23/2020; Order dt. April 27, 2020
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Case Illustration V:

Appointment of forensic auditor based on the decision of CoC66

Contravention
 The RP appointed a firm to conduct forensic audit of the corporate debtor which submitted its
report. Thereafter, the same firm was again appointed to conduct Forensic Audit with an
enhanced scope of five years upon the directions of CoC.
 A large amount has been cumulatively paid for conduct of two forensic audits (i.e. Rs.
17,00,000 + Rs.50,74,000 = Rs. 67,74,000/-) despite the fact that the initial bid made by the
firm was Rs.28,50,000 with taxes for a review period of 5 years.

Submission by IP
 The RP submitted that based on the findings of serious and significant nature in the transaction
audit conducted by the firm, the CoC sought a larger audit on an enhanced scope of forensic
audit to be conducted in relation to the affairs of the corporate debtor and that the RP agreed
with the same.
 It was further submitted that taking a principle direction from CoC is not a contravention and it
was an act of taking additional approval along with RP’s own satisfaction. He added that
reporting to the CoC does not amount to abdicating his authority in favour of the CoC.

Findings
 The RP is required to take an independent decision on whether there was a need to get
forensic audit of the corporate debtor again rather than abdicating the authority in favour of
CoC and allowing them to usurp RP’s authority.
 Also, since it is the CoC and not RP who decided to conduct the forensic audit again, the cost
of the second audit should not have been made a part of CIRP cost in accordance to IBBI
Circular dated June 12, 2018.
 The fee charged for the second forensic audit of Rs. 50,74,000/- shall be excluded from the
CIRP costs and the same be borne by the CoC members themselves.
 The RP has contravened the Code of Conduct by allowing appointment of the forensic audit
firm on the basis of a decision of the CoC and at unreasonable cost.

66
IBBI Disciplinary Committee Case No. IBBI/DC/23/2020; Order dt. April 27, 2020
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Case Illustration VI

Charging of hefty fee by the RP and appointing related parties without any due diligence67

Contravention
 The RP charged hefty fees for his services as RP / IRP and ensured that his related parties get
the works during CIRP without any due diligence.

Submission by IP
 The RP submitted that there is no provision in the Code and Rules and Regulations made
thereunder for deciding the professional fee of an IP and where the CoC has approved the
fees of a RP, it is not open to the IBBI to pass a value judgement on the same.

Findings
 Absence of law does not entitle an IP to charge any fee he wishes and hence the RP is in
contravention of clause 25 of the Code of Conduct for charging such fee which is not a
reasonable reflection of the work undertaken by him.

PRACTICES IN THE UK

In the UK, Rule 18.16 of the Insolvency (England and Wales) Rules, 2016 prescribe the following
principles for determining the basis of remuneration of the office-holder 68 by the Committee of
Creditors:

 The complexity (or otherwise) of the case;

 Any respects in which, in connection with the company’s or bankrupt’s affairs, there falls on
the office-holder, any responsibility of an exceptional kind or degree;
 The effectiveness with which the office-holder appears to be carrying out, or to have carried
out, the office-holder’s duties; and
 the value and nature of the property with which the office-holder has to deal.

Also, the same rule stipulates the following three bases of remuneration or combination thereof, to
be fixed for office-holder:

 As a percentage of the value of the property with which the administrator has to deal, or the
assets which are realised, distributed or both realised and distributed by the liquidator or
trustee; or

67
IBBI Disciplinary Committee Case No. IBBI/DC/07/2018; Order dt. August 23, 2018
68
Office Holder includes administrator, liquidator and trustee in bankruptcy
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 By reference to the time properly given by the office-holder and the office-holder’s staff in
attending to matters arising in the administration, winding up or bankruptcy; or
 As a set amount

In addition to the above, where the basis of remuneration is not fixed by the Committee of
Creditors, then the office-holder has the right to apply to the Court to get it to be fixed and Part VI
of the Practice Direction for Insolvency Proceedings in UK stipulate the following guiding
principles to assist the Court in fixing the basis of remuneration of the office-holder:

 Justification: The office-holder shall justify his/her claim for a particular remuneration
 Benefit of doubt: In case of any doubt as to the appropriateness, fairness or
reasonableness of the remuneration sought or to be fixed, such element of doubt will be
resolved by the Court against the office-holder.
 Professional Integrity: Giving weight to the fact that the office-holder is a member of a
regulated profession and is an officer of the Court.
 Value of the service rendered: Remuneration should reflect the value of the service
rendered.
 Fair and Reasonable: The amount and basis of the remuneration should represent fair
and reasonable remuneration for the work undertaken or to be undertaken.
 Proportionality of Information: The office-holder shall provide such information about the
assets dealt with or the nature, extent and complexity of the work proportionate to the
remuneration sought.
 Proportionality of Remuneration: The remuneration sought by the office-holder shall be
proportionate to:
- the nature, extent and complexity of the work
- the value and nature of assets / liabilities to be dealt with
- the nature and degree of the responsibility
- the nature and extent of the risk (if any) assumed
- the efficiency (in respect of both time and cost) with which the office-holder has
completed the work undertaken.
 Professional Guidance: The Court may also have regard to the relevant and current
statements of practice promulgated by any relevant regulatory and professional bodies in
relation to the fixing of the remuneration.
 Timing of Application: The Court will take into account whether any application should
have been made earlier and if so, the reasons for any delay.
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GIFTS AND HOSPITALITY

Being an Officer of Court, an IP is expected to portray utmost integrity and is entrusted with the
responsibility to effectively manage the corporate debtor as a going concern. The Code further
entrusted various responsibilities to the IP which, inter alia, includes verification / admission /
rejection of claims, holding of CoC meetings, appointment of professionals, taking possession of
assets, disposal of assets etc. In exercising these responsibilities, there is a possibility that the IP
or his/her relative, may be offered gifts and hospitality. Such an offer ordinarily gives rise to threats
to compliance with the other principles of code of conduct like objectivity and integrity.

In this regard, the IBBI stipulated the following in the Code of Conduct with respect to the principle
on gifts and hospitality:

- An IP or his relative must not accept gifts or hospitality which undermines or affects his/her
independence as an insolvency professional.
- An IP shall not offer gifts or hospitality or financial or any other advantage to a public
servant or any other person, intending to obtain or retain work for himself, or to obtain or
retain an advantage in the conduct of profession for himself.

THREATS FOR NON-COMPLIANCE

The following circumstances may cause threat for non-compliance / breach of code of conduct 69:

- Accepting the hospitality of financial creditor

- Accepting Diwali gifts from suppliers of the corporate debtor
- Offering gifts to government officials for obtaining their support in concealing certain non-
compliances by the corporate debtor during CIRP
- Offering gifts / hospitality to the representatives of prospective resolution applicants
inducing them to give false due diligence reports to their superiors.
- Accepting gifts / hospitality from creditors whose claims are subject to verification and
admission by the RP / Liquidator, as the case may be.
- Accepting gifts / hospitality from the corporate debtor, apart from the remuneration drawn,
can cause serious threat to the independence of the IP.

Practices in UK

69
It is an indicative list of circumstances and not exhaustive. There can be multiple other circumstances which portray threat to
the non-compliance or breach of the code of conduct.
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The Code of Ethics for Insolvency Practitioners in UK stipulate the following with respect to the
acceptance or offering of gifts and hospitality as a threat the fundamental principles of integrity,
objectivity, professional competence and due care, confidentiality and professional behaviour:

- An Insolvency Practitioner, or a close or immediate family member, may be offered gifts

and hospitality. In relation to an insolvency appointment, such an offer will give rise to
threats to compliance with the fundamental principles. For example, self-interest threats
may arise if a gift is accepted and intimidation threats may arise from the possibility of such
offers being made public.
- The significance of such threats will depend on the nature, value and intent behind the
offer. In deciding whether to accept any offer of a gift or hospitality the Insolvency
Practitioner should have regard to what a reasonable and informed third party having
knowledge of all relevant information would consider to be appropriate.
- If an Insolvency Practitioner encounters a situation in which no or no reasonable
safeguards can be introduced to reduce a threat arising from offers of gifts or hospitality to
an acceptable level, he should conclude that it is not appropriate to accept the offer.
- An Insolvency Practitioner should also not offer or provide gifts or hospitality where this
would give rise to an unacceptable threat to compliance with the fundamental principles.

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GLOBAL BEST PRACTICES (UK LAWS)

Global Best Practices (UK Laws)

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Requirements:
1. In order to protect and promote the public interest, an insolvency practitioner shall
observe and comply with this Code. If an insolvency practitioner is prohibited from
complying with certain parts of this Code by law or regulation, the insolvency
practitioner shall comply with all other parts of this Code.

The Code establishes the fundamental principles of ethics for insolvency practitioners and
provides a framework for insolvency practitioners to:
 identify threats to compliance with the fundamental principles;
 evaluate the significance of the threats identified; and
 apply safeguards, where available and capable of being applied, to reduce the
threats to a level at which an insolvency practitioner using the reasonable and
informed third party test would likely conclude that the insolvency practitioner
complies with the fundamental principles.

2. An insolvency practitioner shall use professional judgement in applying this

framework.

The Code also describes how the ethical framework applies in certain situations. It provides
examples of actions that might be appropriate to address threats to compliance with the
fundamental principles. It also describes situations where no action can address the
threats, and consequently, the circumstance or relationship creating the threats needs to
be avoided.

3. Insolvency practitioners shall ensure that the Code is applied at all times in relation
to the conduct of an insolvency appointment or circumstances which might lead to
an insolvency appointment.

4. Insolvency practitioners shall follow the fundamental principles, apply the

conceptual framework and specific requirements of the Code in all their professional
and business activities whether carried out with or without reward and in other

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circumstances where to fail to do so would bring discredit to the insolvency

profession.

5. Insolvency practitioners shall be guided not merely by the terms but also by the
spirit of the Code.

The Code provides examples of matters to take into account when insolvency practitioners
are considering their position, but ethical considerations are not limited to the examples. It
is necessary for insolvency practitioners to take into account how their conduct might be
perceived by a reasonable and informed third party.

6. Insolvency appointment will be personal to the insolvency practitioner rather than

their firm or employing organisation, insolvency practitioners shall ensure that work
for which they are responsible, which is undertaken by members of the insolvency
team on their behalf, is carried out in accordance with the requirements of this Code.

FUNDAMENTAL PRINCIPLES
General: There are five fundamental principles of ethics for insolvency practitioners:
 Integrity – to be straightforward and honest in all professional and business relationships.
 Objectivity – not to compromise professional or business judgements because of bias,
conflict of interest or undue influence of others.
 Professional Competence and Due Care – to: i. Attain and maintain professional
knowledge and skill at the level required to ensure that a client or employing organization
receives competent professional service, based on current technical and professional
standards and relevant legislation; and ii. Act diligently and in accordance with applicable
technical and professional standards.
 Confidentiality – to respect the confidentiality of information acquired as a result of
professional and business relationships. e) Professional Behaviour – to comply with
relevant laws and regulations and avoid any conduct that the insolvency practitioner knows
or should know might discredit the profession.

Global Best Practices (UK Laws)

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ABBREVIATIONS

AA Adjudicating Authority
Board / IBBI Insolvency and Bankruptcy Board of India
CD Corporate Debtor
CIRP Corporate Insolvency Resolution Process
CIRP IBBI (Insolvency Resolution Process for Corporate Persons) Regulations,
Regulations 2016
CoC Committee of Creditors
Code Insolvency and Bankruptcy Code
DRT Debt Recovery Tribunal
EoI Expression of Interest
FC Financial Creditor
IP Insolvency Professional
IP Regulations IBBI (Insolvency Professionals) Regulations, 2016
IPA Insolvency Professional Agency
IRP Interim Resolution Professional
OC Operational Creditor
RA Resolution Applicant
RP Resolution Professional

Bibliography
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BIBLIOGRAPHY

Code of Ethics for insolvency Practitioners, UK

Ethics Code for Members issued by the Insolvency Practitioners Association of UK, March 2020

Ethics Handbook - UK - May2020

Insolvency Act, 1986 (UK)

Insolvency (England and Wales) Rules, 2016 (UK)

Practice Direction for Insolvency Proceedings in UK

Insolvency and Bankruptcy Code, 2016 and the rules and regulations made thereunder

Orders of the Disciplinary Committee of the IBBI

Following Supreme Court Orders:

 Chitra Sharma and Ors. Vs. Union of India and Ors. (WP (Civil) No. 744 of 2017)
 Vijay Kumar Jain v. Standard Chartered Bank and Others (Civil Appeal No. 8430 of 2018)
 M/s. Surendra Trading Company Vs. M/s Juggilal Kamlapat Jute Mills Company Ltd. & Ors.
(Civil Appeal No. 8400 of 2017)

Following NCLT Orders:

 Central Bank of India and the State Bank of India v. M/S. Ashok Magnetics Ltd.
(CP/551(IB)/CB/2017)
 Punjab National Bank v. Divyajyoti Sponge Iron Pvt Ltd. (CA (IB) No. 570/KB/2017 in C.P
(IB) No. 363/KB/17)
 Shri Shrikrishna Rail Engineers Private Limited vs. Madhucon Projects Limited (CP(IB) SR
No. 4322/9/HDB/2017)
 ARCIL vs. Shivam Water Pvt. Ltd., NCLT (Mumbai Bench) (C.P. No.(IB)1882(MB)/2018)

Bibliography
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