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Regulatory Oversight and Accountability: Authorities Empowered to Address Non-Compliance by Insolvency Professionals

Shalini Vasishtha
April 26, 2024
Non-Compliance by Insolvency Professionals

In the complex domain of insolvency proceedings, insolvency professionals (IPs) play a pivotal  role, aiding in the resolution process between debtors and creditors. Yet, their duties are  governed by rigorous regulations and compliance standards. Any divergence from these  guidelines can result in significant repercussions, including penalties and disciplinary actions.  Under the Insolvency and Bankruptcy Code (IBC), a two-tier regulatory framework oversees  IPs, consisting of the Insolvency and Bankruptcy Board of India (IBBI) and the Insolvency  Professional Agencies (IPAs), both regulated by the IBBI. 

IBBI (Insolvency and Bankruptcy Board of India) 

IBBI emerged as a consolidated regulatory authority tasked with overseeing insolvency  proceedings, including the conduct of IPs. 

If an individual is dissatisfied with an IP then, sections 217-220 of the Insolvency and  Bankruptcy Code outline the provisions for inspection and investigation against Insolvency  Professionals.  

Non-Compliance by Insolvency  Professionals

IPA (Insolvency Professional Agency) 

IPAs function regulates the activities of Insolvency Professionals and monitor their adherence  to the provisions outlined in the Insolvency and Bankruptcy Code, 2016. 

They also perform executive duties, such as monitoring, inspecting, and investigating their  members and also fulfill quasi-judicial responsibilities by addressing grievances of affected  parties, hearing complaints against members, and taking suitable actions. 

Under the Code, IPAs develop professional standards and a code of ethics, auditing the  operations of their members and disciplining them as needed. The Code mandates the  monitoring of IP performance to ensure legal compliance and authorizes IPAs to request information and records. This authority is derived from Section 208(2)(c) of the IBC, 2016, in conjunction with Clause 18 of the Code of Conduct provided under the First Schedule of IBBI  (Insolvency Professional) Regulations, 2016. 

The primary objective of inspecting IPs is to verify whether their conduct serves the overall  interests of stakeholders and the corporate debtor as a going concern. It also aims to prevent  the misuse of the trust placed in IPs and to take appropriate action in cases of abuse. Inspection  is conducted to gather sufficient and relevant information regarding IP conduct and  performance. 

Disciplinary measures against insolvency professionals are carried out in accordance with the  provisions outlined in the IBBI (Inspection and Investigation) Regulations, 2017, particularly  Regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016. Additionally, the  Insolvency and Bankruptcy Board of India (Model Bye-laws and Governing Board of  Insolvency Professional Agencies) Regulations, 2016, establish disciplinary committees for  insolvency professionals and prescribe penalties or the revocation of their licenses if found  guilty. 

Some Mandatory Compliance Requirements Fulfilled by IPS Failure to Comply with These may Result in Monetary Penalties or, in Some Cases,  Suspension of the Authorization for Assignment (AFA). 

1.Authorization for Assignment: As per Regulation 7A of the Insolvency Professional  Regulations, an insolvency professional must possess a valid authorization for the assignment  before accepting or commencing it. 

2. Form IP-1 Submission: Regulation 40B of Insolvency and bankruptcy board of India  (insolvency resolution process for corporate persons) regulations, 2016 mandates the  submission of Form IP-1 within three days of consenting to act as an RP, after that he has to  give penalty to submit the same. 

3. Timely Submission of Forms: If the Request for Resolution Plan (RFRP) is not issued within  105 days from the date of commencement date, the RP must file Form CIRP 7 within three  days of that date. Subsequently, Form CIRP 7 must be filed every 30 days until the activity is  completed, if not than again there is a monetary penalty. 

4. Event-based Form CIRP-6: This form is required for requesting an extension of the CIRP  period and excluding certain timeframes. 

5. Cost Disclosure: IRPs must disclose all fees payable to them, to the insolvency professional  entity, and to other professionals engaged by them to the Insolvency Professional Agency. 

6. Half-Yearly Return: Insolvency professionals must submit information, including records of  ongoing and concluded engagements, at least twice a year, regardless of whether they are  currently handling assignments. 

7. Progress Reports: IRPs are obligated to submit regular progress reports to both the IBBI and  the IPA, updating them on the status of ongoing insolvency cases under their supervision.

About the author
Shalini Vasishtha

Shalini Vasishtha, a lawyer and trainee at Ancoraa while pursuing a postgraduate insolvency program, possesses a comprehensive grasp of insolvency, bankruptcy, and restructuring. With previous experience as a legal blog writer, she adeptly intertwines her expertise in her writings, providing invaluable insights for navigating the intricate complexities within the realm of insolvency.

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