Insolvency Professional Agency under IBC

The Insolvency and Bankruptcy Code, 2016 (IBC) brought a consolidated legal framework to deal with corporate insolvency, individual insolvency, and bankruptcy in India. A major strength of this Code is its professional approach towards resolution of distressed entities. Insolvency professionals (IPs) are at the centre of the resolution framework. To regulate these professionals, the Code created the concept of Insolvency Professional Agencies (IPAs).

IPAs serve as the first-level regulators for insolvency professionals, much like professional bodies in other sectors. They enrol members, set standards, enforce discipline, and act as a bridge between the Insolvency and Bankruptcy Board of India (IBBI) and the individual professional. 

This article explains the meaning, functions, regulatory framework, and significance of Insolvency Professional Agencies under the IBC.

Meaning of Insolvency Professional Agency

Section 3(20) of the IBC defines an Insolvency Professional Agency as any person registered with the IBBI under section 201 as an insolvency professional agency.

These agencies are entrusted with the task of regulating the conduct and functioning of insolvency professionals. They enrol members, conduct pre-registration educational courses, issue authorisation for assignment (AFA), and ensure adherence to a professional code of conduct.

Importantly, Section 199 of the Code provides that no person can carry on business as an IPA or enrol insolvency professionals unless it holds a certificate of registration from the IBBI. This makes IBBI the apex regulator, while IPAs work as self-regulatory bodies under its supervision.

Objectives and Role of Insolvency Professional Agencies

The primary role of IPAs is to ensure that insolvency professionals discharge their duties ethically, independently, and efficiently. The work of insolvency professionals often involves management of large companies under financial distress, handling creditors’ claims, safeguarding assets, and dealing with sensitive commercial matters. For such responsibilities, a strong regulatory and ethical framework is essential.

IPAs help in:

• Developing professional standards and a code of conduct.
• Ensuring discipline and accountability among insolvency professionals.
• Providing training and continuous education to their members.
• Creating a competitive but responsible environment in the insolvency profession.

Thus, IPAs act as guardians of professional integrity within the insolvency ecosystem.

Statutory Functions of IPAs

Section 204 of the IBC lays down the functions of Insolvency Professional Agencies. These include:

• Granting membership to eligible persons who satisfy requirements laid down in the bye-laws.
• Laying down standards of professional conduct for members.
• Monitoring performance of members and ensuring compliance.
• Safeguarding rights and interests of insolvency professionals.
• Suspending or cancelling membership in case of misconduct.
• Redressing grievances against insolvency professionals.
• Publishing information about its functioning, list of members, performance of members, and other details specified by regulations.

Each of these functions is critical for building trust in the insolvency framework.

Regulatory Framework Governing IPAs

To regulate the working of IPAs, the IBBI has notified two sets of regulations:

Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016

• Deals with registration and recognition of IPAs.
• Prescribes eligibility conditions, including incorporation as a Section 8 company, minimum net worth of ₹10 crore, and paid-up capital of ₹5 crore.
• Provides for monitoring, inspection, and disciplinary action.

Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016

• Provides model bye-laws to be adopted by IPAs.
• Lays down structure of governing boards, duties of professional members, grievance redressal mechanism, and disclosure requirements.

Together, these regulations create a detailed framework that guides the functioning of IPAs.

Recognised Insolvency Professional Agencies

At present, three IPAs are recognised by the IBBI. All of them are registered as Section 8 companies (non-profit entities):

1. Indian Institute of Insolvency Professionals of ICAI (IIIPI)
2. ICSI Institute of Insolvency Professionals
3. Insolvency Professional Agency of Institute of Cost Accountants of India (IPAICMAI)

Interestingly, membership is not restricted to persons belonging to the parent professional institute. For example, a chartered accountant can enrol with ICSI IPA, or an advocate can enrol with IIIPI.

Change of membership from one IPA to another is also permitted with a No Objection Certificate (NOC) from both IPAs and approval of the IBBI.

Membership and Authorisation for Assignment

For any person to practise as an insolvency professional, membership of an IPA is mandatory. After enrolment, the professional must obtain Authorisation for Assignment (AFA) from the IPA.

Without a valid AFA, an insolvency professional cannot accept assignments such as acting as a resolution professional, liquidator, or bankruptcy trustee. This system ensures only active and compliant members take up professional work.

Further, certain restrictions apply – for example, members above 70 years of age are not eligible for AFA.

Governance and Compliance by IPAs

Each IPA has to follow strict governance requirements under the regulations:

• Adoption of model bye-laws issued by IBBI.
• Establishment of a Governing Board with independent directors.
• Maintenance of grievance redressal and disciplinary mechanisms.
• Annual submission of a compliance certificate to IBBI, signed by the Managing Director and compliance officer, verifying adherence to regulations.

Failure to comply can lead to investigation or disciplinary action by IBBI.

Control of IBBI over IPAs

The IBBI exercises supervisory powers over IPAs.

• Complaints against IPAs can be filed under Section 217 of the Code.
• Inspection and investigation can be carried out under Section 218.
• Disciplinary action can be taken under Section 220, including suspension or cancellation of registration.

These powers are exercised through disciplinary committees constituted by the IBBI, ensuring accountability of IPAs themselves.

Duties of Professional Members

The duties of insolvency professionals as members of IPAs include:

• Compliance with the Code of Conduct specified in regulations.
• Disclosure of relationships with other professionals, to avoid conflict of interest.
• Submission of necessary documents and information to IBBI and the concerned IPA.
• Maintaining confidentiality of information received during assignments.
• Avoiding outsourcing of core responsibilities.

Non-compliance with these duties may lead to disciplinary action by the IPA or the IBBI.

Case Laws Relating to Insolvency Professionals and IPAs

Several judicial decisions highlight the importance of discipline in this profession:

• Alok Kaushik v. Bhuvaneshwari Ramanathan (2021) 5 SCC 787 – The Supreme Court held that NCLT can determine fees payable to a professional even if the insolvency application is not admitted.
• Swiss Ribbons v. Union of India (2019) 4 SCC 17 – The Court clarified that resolution professionals do not have adjudicatory powers; their role is administrative.
• Mukesh Mohan, In Re (2018) 147 SCL 568 – Disciplinary action was taken for outsourcing responsibilities and misleading stakeholders.
• Bhavna Sanjay Ruia, In Re (2018) 95 taxmann.com 193 – Membership was suspended for quoting unjustified and excessive fees.
• Sanjay Kumar Agarwal v. CBI (2023) 177 SCL 511 – Held that insolvency professionals are “public servants” under the Prevention of Corruption Act.

These cases show how IPs and IPAs are subject to strict judicial and regulatory scrutiny.

Significance of IPAs in the Insolvency Framework

The existence of IPAs strengthens the insolvency framework in many ways:

• They act as gatekeepers, ensuring only qualified persons enter the profession.
• They ensure continuous education through training programmes.
• They enforce a code of conduct, thereby increasing trust of creditors, debtors, and courts.
• They act as a filter before cases of misconduct reach IBBI, reducing regulatory burden.
• They ensure a competitive but disciplined profession, contributing to better insolvency resolution outcomes.

Challenges Faced by IPAs

While IPAs have established themselves as strong regulators, certain challenges remain:

• Ensuring uniformity of standards across different IPAs.
• Dealing with increasing workload due to growing number of insolvency cases.
• Handling conflicts of interest and ensuring independence of professionals.
• Monitoring fee structures and preventing abuse in charging of costs.
• Balancing autonomy of IPAs with oversight by IBBI.

Conclusion

The Insolvency and Bankruptcy Code, 2016 has created a new professional class to handle insolvency and bankruptcy matters. Insolvency Professional Agencies play a pivotal role in this framework by enrolling, regulating, and disciplining insolvency professionals.

By laying down professional standards, issuing authorisations, and ensuring accountability, IPAs have strengthened the trust in the insolvency resolution system. With time, their role is expected to expand further as the profession matures.