Professional and Ethical Practices for Insolvency Practitioners

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Part IV of the Insolvency and Bankruptcy Code 2016 deals with the concept of the establishment of the Insolvency and Bankruptcy Board of India (IBBI), powers and functions of the board, professional agencies, professionals, information utilities etc. The previous parts of the code deals with the concept of how the process can be initiated under different provisions of the code. Now, Part IV of the code deals with those class of person who are held responsible for filing of the applications and carrying out the functions of the code. These are known as Insolvency Professionals.

The Board and the Adjudicating Authority are empowered to appoint such professionals who are registered under the Act and are eligible to handle such cases which are arising from the different provisions of the code. Chapter IV of Part IV of the code deals with the concept of enrollment, registration, functions, and obligations of the insolvency professionals.

Enrolment and Registration of Insolvency Professional

In order to discharge function as insolvency professional under the Code, the person should get himself enrolled as a member of a professional agency and then register himself with the board (IBBI) in the prescribed manner as specified. Section 207 of the code laid down the concept of registration of such a professional under the Act. It states that after the membership is being obtained by such professional agency, then the insolvency professional must register themselves with the Board within such time, fees and the prescribed manner as given under the regulations. The Board after the registration will specify the categories of the professionals.

These categories cover different fields such as finance, law, management, insolvency, or any other field of which the board is of the view that the same should be included in these categories. The category of the professional is determined on the basis of the qualifications and the experience that professional will be having.

Functions and Obligations of Insolvency Professional

Section 208 of the code specified the functions and obligations that should be discharged by the IP. This IP is liable to discharge his functions with respect to various resolution process being carried out under different provisions of the Code. The functions and obligations of the insolvency professional are as follows[1]:

  • Fresh start order process under Chapter II of Part III
  • Individual insolvency resolution process under Chapter III of Part III.
  • Corporate Insolvency Resolution Process under Chapter II of Part II.
  • Individual bankruptcy process under Chapter IV of Part III
  • Liquidation of a corporate debtor firm under Chapter III of Part II.

Code of conduct of Insolvency Professional

The section further laid down the code of conduct which is to be followed by each and every IP registered under the Act. The code of conduct of the insolvency professional includes the following[2]:

  • To take reasonable care and diligence while performing his duties.
  • To comply with all the requirements and terms and conditions specified by bye laws of IP agency of which he is a member.
  • To allow the insolvency professional agency to inspect his records
  • To submit a copy of the records of every proceeding before the Adjudicating Authority to the Board as well as to the insolvency professional agency of which he is a member.
  • To perform his functions in such manner and subject to such conditions as may be specified.

By analyzing the provision which laid down the code of conduct that should be followed by the IP, it can be ascertained that the responsibility of an IP is much higher. He must abide by the rules that has been framed for them in order to discharge their functions under the Code. The responsibility of an IP can be determined through its functions as specified under clause (1) of the section.

The IP will be held responsible if he failed to comply properly with the provisions as laid down under the code while discharging his functions under different part of the code. The IP will be appointed to deal with the matters of insolvency of a company and making of the plans for reviving the same so that the loss to be borne by the corporate debtor should be less.

Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulation 2016

The Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulation 2016 was enacted in order to clarify the procedure of appointment and registration of the IPs. It can be considered as rule book for the IPs. The Regulations came into effect from 29th November 2016. Various areas which are covered under these regulations will now be discussed hereafter.

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Insolvency Examinations

The Board is empowered to conduct “National Insolvency Examination” with the objective of testing of the knowledge of the professional in different areas of practice. These exams will be conducted in the manner and time specified by the code.

The Board is further empowered to conduct either on its own or through any agency “Limited Liability Examination” in order to test the knowledge and application of law with regard to the areas related to insolvency, bankruptcy etc. Earlier the syllabus of the respective exams was published on the website of the board at least one month before the exam is being conducted, now after the amendment in 2016, the syllabus will be published on the website of the board three months prior of the examination.

Eligibility for the registration of insolvency professional

Regulation 4 laid down the eligibility criteria for the registration of an IP. The person should be major, sound mind, should be a person resident of India, should not be convicted by any competent court and is fit and proper person.

The regulation further laid down the qualification required for registration. It states that an individual shall be eligible to get registered if: [3]

  • He has passed the National Insolvency Examination
  • He has passed the Limited Insolvency Examination and has experience of at least 15years in management after receiving the bachelor’s degree from the recognized university.
  • As per amendment made, individual must have cleared pre-registration educational course as required by the board from insolvency professional agency after the enrolment of such person as a professional member.
  • Has completed Graduate Insolvency Programme as specified by the board.
  • Has ten years of experience as CA or CS or Cost Accountant or Advocate.

The application for registration can be made to the Board under Form A of the second schedule of the regulation. The acknowledgement of the application shall be made by IBBI within seven days from the receipt of such application. The Board further issues the certificate of registration. The board is also empowered to refuse the grant of registration if he is of the view that the information furnished by the applicant is false and incorrect.

Temporary Surrender and Disciplinary Proceedings

The IP agency has the liability to inform the board regarding the temporary surrender of membership or certification of any professional member within the period of seven days. The regulations further cover the area regarding the disciplinary proceedings that can be initiated against the insolvency professional. In order to invoke such provisions, the board has to give show cause notice to such professional asking him the reason why he should not be prosecuted under the disciplinary actions as specified under the regulation. The disciplinary committee shall endeavor the process within six months of the assignment.

First Schedule: Code of conduct of Insolvency Professional

In addition to the code of conduct of IP as given under section 208 of the Code, the regulation further laid down the following rules which should be followed by each insolvency professional registered with the Board[4]:

  • Complete independence should be maintained in professional relationships and should conduct various process under the code independently.
  • The professional must assure that he or his family members should not hold any interest in the assets which belong to the liquidation process under the code and the same is being dealt by the insolvency professional.
  • He must disclose the personal relationship or pecuniary relationship with any of the shareholders who is entitled for distribution under section 53 or 178 of the Code.
  • He must not influence the decision of committee of creditors in any manner.
  • The IP must maintain his professional knowledge and skills to render its services.
  • He must not make any private communication to the stakeholders unless the same is required by the code.
  • He must disclose all the cost with relation to the insolvency process. Transparency should be maintained by the IP.
  • An IP must appear, co-operate and be available for inspections and investigations carried out by the Board, any person authorized by the Board or the IP agency with which he is enrolled.
  • An IP 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.
  • An IP must refrain from accepting too many assignments if he is unlikely to be able to devote adequate time to each of his assignments.

Judicial Perspective

Alchemist Asset Reconstruction Co. Ltd. vs. Hotel Gaudavan Pvt Ltd.[5]

The brief facts of the present case are an insolvency petition has been filed and admitted by the National Company Law Tribunal and hence the moratorium period has been imposed. During the moratorium period, the respondent filed the arbitration proceeding which was objected by the other party.

The issue in this case was the word “proceeding” to be included as legal proceedings. The finding made by the court was on Section 14 of the Insolvency and Bankruptcy Code 2016. The section covers the concept of moratorium. The code specifies that when the moratorium period is imposed by the adjudicating authority, all the proceedings during this period shall stand stayed. Therefore, section 14 of the code will not apply to the proceedings which will be beneficial for the corporate debtor as these cannot be labelled as the debt recovery action.

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Whether a moratorium under Section 14 of the Code shall apply in arbitration proceedings ultimately depends upon the nature of arbitration proceedings and peculiar facts and circumstances of each case, if the proceedings are in detriment to the financial position of the Corporate Debtor the moratorium shall have an effect and in case it does not have such an effect the moratorium shall not apply.[6]

Dhinal Shah vs. Bharati Defence Infrastructure Ltd. & Anr.

The appeal has been filed by the ex-resolution professional against the order passed by National Company Law Tribunal, Mumbai. The court observed that the resolution plan in this case was approved by 94% approval of committee of creditors, still the same court goes into the question of feasibility and viability of the resolution plan regarding maximization of the value of asset.

The court observed that the adjudicating authority has not issued any notice to the resolution professional and also if any such matters are aroused the same shall be reported to the Insolvency and Bankruptcy Board of India as constituted under the Act. As far as the process of liquidation is concerned, the same shall come under the ambit of company law.

Hence, the complaints with regard to the resolution professionals should be made to the Board of IBBI and no other court will be competent to deal with the cases related to the professionals registered under the Code.

Amendments to Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulation 2016

  1. The amendment to the regulation is made so as to clarify the eligibility and qualification for the individuals which can be appointed as insolvency professional. This amendment is known as Amendment of 2018. The changes made under such area include the examinations which are now included as one of criteria to get eligible under the registration process of the insolvency professional. Now an individual must include the graduate training programme and the pre-registration process of the examination are made mandatory in order to qualify for the appointment as insolvency professional under the regulations.
  2. The code of conduct that is to be followed by the insolvency professional includes the transparency at the end of the insolvency professional. Now the insolvency professional is required to disclose the information as required by the insolvency process.
  3. The amendment further included the new provision which states disclosure of payment of fees to the insolvency professional and insolvency professional agency should be made by the insolvency professional at the time of initiation of the insolvency proceedings.
  4. In second amendment, the regulation inserted which states that the Board may take decision regarding the payment of the fees by the insolvency professional or insolvency professional agency with a simple interest rate of 12% per annum on the amount of fees unpaid by the said entities.  In other words, the delay in making of the payment of fees by the insolvency professional or insolvency professional agencies will attract the penalty of 12% per annum interest along with the amount that is to be paid.
  5. Further amendment has been made in the year 2019, which states that the insolvency professional will not act as insolvency professional in matters related to liquidation, corporate insolvency process, bankruptcy process unless the same has obtained the certification of “Authorization for assignment” by the insolvency professional agency. This provision will come into effect from 1st January 2020.
  6. The insolvency professional who holds the certificate of authorization for assignment will be ceased to hold any employment other than for which the certification is issued to the insolvency professional.


The insolvency professional regulation as appointed under the Act has to adhere with the process as laid down by the code and the regulations. The responsibility of the insolvency professional includes the confidentiality, transparency, functions, and obligations in such manner as the interest of the corporate debtor will not get affected. The board time to time amend the provision of the regulation so that the clarification can be made with regard to their appointment, qualification, registration, duties towards the Board incorporated under the Code.

The recent amendment included the penalty clause so that if there is any default with regard to the payment of fees by the insolvency professional, the same will now attract the penal provision regarding such professionals. The regulation has clarified various aspects of the insolvency professionals.

[1] Section 208(1) of IBC 2016

[2] Section 208(2) of IBC 2016

[3] The Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulation 2016

[4] The Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulation 2016

[5] CP No. (IB)23/PB/2017