Conduct of CIRP by Resolution Professional (Section 23 of IBC)

The Insolvency and Bankruptcy Code, 2016 (IBC) lays down a detailed process for resolving insolvency of corporate entities in India. Once a company defaults in repayment of its debts, the process of Corporate Insolvency Resolution Process (CIRP) is initiated to either revive the company or proceed towards liquidation. 

During this process, the management of the company is taken away from the existing directors or promoters and handed over to a professional appointed by the Adjudicating Authority – known as the Resolution Professional (RP).

Section 23 of the IBC deals with the conduct of CIRP by the Resolution Professional. It specifies the duties, powers, and responsibilities of the RP in managing the operations of the corporate debtor and ensuring that the process is completed within the statutory timeline.

Understanding the Role of the Resolution Professional

The Resolution Professional is a licensed insolvency professional who is responsible for conducting the entire CIRP and managing the operations of the corporate debtor. The RP functions as the custodian of the company’s assets and operations and acts in the best interests of all stakeholders, particularly the creditors.

The RP takes charge after the Interim Resolution Professional (IRP) is confirmed by the Committee of Creditors (CoC) under Section 22. Upon such confirmation, the RP continues the process started by the IRP and ensures that it progresses smoothly till its conclusion.

Text of Section 23 of the IBC

Section 23 of the Insolvency and Bankruptcy Code, 2016 provides as follows:

1. Subject to Section 27, the resolution professional shall conduct the entire corporate insolvency resolution process and manage the operations of the corporate debtor during the corporate insolvency resolution process period.
   
   Provided that the resolution professional shall continue to manage the operations of the corporate debtor after the expiry of the corporate insolvency resolution process period until an order approving the resolution plan under sub-section (1) of Section 31 or appointing a liquidator under Section 34 is passed by the Adjudicating Authority.
   
2. The resolution professional shall exercise powers and perform duties as are vested or conferred on the interim resolution professional under this Chapter.
   
3. In case of any appointment of a resolution professional under sub-section (4) of Section 22, the interim resolution professional shall provide all information, documents, and records pertaining to the corporate debtor in his possession and knowledge to the resolution professional.

Key Provisions of Section 23 of the IBC Explained

Conduct of CIRP by Resolution Professional

Section 23(1) makes it clear that the RP shall conduct the entire CIRP and manage the operations of the corporate debtor during this period. This means that once the RP is appointed, the Board of Directors of the company ceases to have any control over the affairs of the company. The RP acts as the de facto management of the corporate debtor.

The objective of this provision is to ensure that the insolvency process is conducted in a professional, transparent, and impartial manner by a qualified individual rather than by those responsible for the financial distress of the company.

Continuation After CIRP Period

The proviso to Section 23(1), which was introduced by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019, provides that the RP shall continue to manage the operations of the corporate debtor even after the expiry of the CIRP period until the Adjudicating Authority passes an order either approving a resolution plan or appointing a liquidator.

This amendment was made to address a practical issue faced during the transition period. Earlier, there was ambiguity regarding who would manage the company after the CIRP period ended but before the Adjudicating Authority gave its order. The amendment ensures that there is no management vacuum during this interim stage and the affairs of the corporate debtor remain in the hands of the RP.

This change was significant because it avoided a situation where the company would be left without authorised management, which could harm its assets and operations.

Powers and Duties of the Resolution Professional

Under Section 23(2), the RP is vested with the same powers and duties as those conferred on the Interim Resolution Professional under Section 18 and Section 20 of the Code. These include:

• Taking control and custody of all assets of the corporate debtor.
• Managing the operations of the corporate debtor as a going concern.
• Collecting and verifying claims of creditors.
• Constituting and convening meetings of the Committee of Creditors.
• Preparing and presenting information memoranda.
• Ensuring that the CIRP is completed within the prescribed period (180 days, extendable up to 330 days).

The RP must act with independence, integrity, and in accordance with the IBC and regulations framed by the Insolvency and Bankruptcy Board of India (IBBI).

Handover of Records by Interim Resolution Professional

Under Section 23(3), when the RP is appointed under Section 22(4), the Interim Resolution Professional is required to hand over all information, documents, and records related to the corporate debtor to the RP. This ensures a smooth transition and continuity in the insolvency process.

The handover includes financial statements, asset registers, details of claims, list of creditors, pending contracts, and any other documents necessary for the RP to continue managing the process efficiently.

Responsibilities of the Resolution Professional

The Resolution Professional plays a crucial role in the CIRP and is accountable to both the Committee of Creditors and the Adjudicating Authority (NCLT). The main responsibilities of the RP include:

Managing the Corporate Debtor

The RP takes charge of the company’s management and ensures that its operations continue smoothly as a going concern. The aim is to preserve the value of assets and maintain business continuity.

Convening the Committee of Creditors (CoC)

The RP convenes and conducts meetings of the CoC, where important decisions are taken regarding the future of the corporate debtor, such as approval of the resolution plan or initiation of liquidation.

Supervising the Resolution Plan Process

The RP invites expressions of interest from prospective resolution applicants, examines their eligibility under Section 29A, and places the resolution plans before the CoC for consideration.

Compliance and Reporting

The RP must ensure compliance with all procedural requirements of the IBC and submit regular progress reports to the Adjudicating Authority and the IBBI.

Acting as a Link Between Stakeholders

The RP acts as a bridge between the creditors, Adjudicating Authority, and the corporate debtor, ensuring transparency and coordination in the resolution process.

Judicial Interpretation of Section 23

Ashok Kumar Tyagi vs. UCO Bank (NCLAT, New Delhi)

In this case, the National Company Law Appellate Tribunal (NCLAT) ruled that once the CIRP admission order under Section 7 of the IBC is stayed by the NCLAT, the Interim Resolution Professional (IRP) is not entitled to discharge any functions. The Tribunal clarified that if the CIRP process is suspended, the IRP or RP cannot operate the corporate debtor or carry out any duties under the Code.

This case highlighted that the authority and powers of the RP exist only within the legally active period of the CIRP and are dependent on the subsistence of the insolvency process.

Essar Steel India Ltd. v. Satish Kumar Gupta (2019)

The Supreme Court in this landmark case emphasised the pivotal role of the Resolution Professional in ensuring a fair, transparent, and efficient insolvency process. The Court observed that the RP acts as a facilitator and does not have adjudicatory powers but must ensure that the process remains within the legal framework.

Swiss Ribbons Pvt. Ltd. v. Union of India (2019)

In this case, the Supreme Court upheld the constitutional validity of the IBC and acknowledged the professional and independent role of the RP in achieving the objective of resolution rather than liquidation. It recognised the RP as an essential functionary for maintaining the integrity of the insolvency system.

Amendment by the IBC (Amendment) Ordinance, 2019

The 2019 amendment to Section 23 clarified that the RP must continue managing the corporate debtor even after the expiry of the CIRP period until the Adjudicating Authority passes a final order. This amendment addressed an important gap in the Code and ensured that there was no vacuum in the management of the corporate debtor between the end of the CIRP period and the passing of an order by the NCLT.

It also reinforced the accountability of the RP to maintain the company’s operations during the extended period, thus protecting the interests of creditors and stakeholders.

Objective Behind Section 23

The purpose of Section 23 is to ensure that the CIRP is conducted efficiently and professionally, with the goal of maximising the value of the corporate debtor’s assets. It establishes a clear framework for the RP to manage the process and prevents any disruption in the management of the company during insolvency proceedings.

By entrusting this responsibility to a qualified professional, the IBC promotes transparency, fairness, and confidence among creditors and investors.

Challenges Faced by Resolution Professionals

Despite their defined powers, RPs often face several challenges in the execution of their duties:

• Lack of cooperation from promoters or key managerial personnel in providing necessary documents and information.
• Litigation delays caused by appeals and stay orders that affect the CIRP timeline.
• Limited financial resources to manage operations and pay for interim finance.
• Conflicts within the Committee of Creditors, which may delay decision-making.
• Balancing multiple interests of stakeholders while maintaining neutrality and adherence to the Code.

The IBC provides remedies for some of these issues, such as the power to seek directions from the Adjudicating Authority when cooperation is denied, as per Section 19.

Conclusion

Section 23 of the Insolvency and Bankruptcy Code plays a crucial role in ensuring that the Corporate Insolvency Resolution Process is conducted effectively and without interruption. The Resolution Professional acts as the central authority managing the corporate debtor’s affairs, safeguarding its assets, and steering the resolution process towards revival or liquidation as per the decision of the Committee of Creditors.

The amendment of 2019 further strengthened the provision by ensuring continuity of management even after the expiry of the CIRP period, preventing a gap that could have jeopardised the company’s value and operations.