Insolvency Professionals under IBC

The Insolvency and Bankruptcy Code, 2016 (IBC) is one of the most significant reforms in Indian commercial law. It was enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner. Among the many pillars of this legislation, insolvency professionals (IPs) play a central role.

These professionals act as facilitators and administrators of the insolvency resolution process. They manage the debtor’s affairs, represent stakeholders, protect assets, invite resolution plans, and ensure compliance with the Code. Without insolvency professionals, the framework of IBC would be ineffective, as they serve as the link between debtors, creditors, adjudicating authorities and regulatory bodies.

This article provides a detailed understanding of insolvency professionals under IBC, their qualifications, appointment, role, powers, responsibilities, case law developments and key statutory provisions.

Who are Insolvency Professionals?

Section 3(19) of the IBC defines an “insolvency professional” as a person enrolled under Section 206 with an insolvency professional agency (IPA) as its member and registered with the Insolvency and Bankruptcy Board of India (IBBI) under Section 207.

In simple terms, insolvency professionals are regulated private professionals who oversee the insolvency and bankruptcy resolution process. Their role is not adjudicatory but administrative, and they function under the supervision of the National Company Law Tribunal (NCLT) and the Committee of Creditors (CoC).

Eligible Entities

Under Section 3(23) of IBC, several entities are eligible to become insolvency professionals:

• Individuals
• Hindu Undivided Families (HUFs)
• Companies
• Trusts
• Partnership firms
• Limited Liability Partnerships (LLPs)
• Entities established under law
• Non-resident persons

However, practical application shows that individuals form the majority of insolvency professionals in India.

Insolvency Professional Agencies (IPAs)

An insolvency professional must be a member of an Insolvency Professional Agency (IPA). Section 3(20) of the Code defines an IPA as a body registered with IBBI. These agencies are usually incorporated as Section 8 companies under the Companies Act, 2013.

The key functions of IPAs include:

• Enrolling and regulating insolvency professionals.
• Setting standards of professional conduct.
• Monitoring members’ activities and ensuring compliance.
• Disciplinary action in case of misconduct.

Examples of IPAs in India are:

• ICSI Institute of Insolvency Professionals.
• Indian Institute of Insolvency Professionals of ICAI.
• Insolvency Professional Agency of Institute of Cost Accountants of India.

Section 208 of IBC makes it mandatory for insolvency professionals to follow the rules, bye-laws, and code of conduct of their IPA.

Roles of Insolvency Professionals

The Code assigns different roles to insolvency professionals depending on the stage of the process:

Interim Resolution Professional (IRP)

• Appointed by the NCLT at the start of the corporate insolvency resolution process (CIRP).
• Responsible for taking control of the debtor’s assets.
• Collects and verifies creditors’ claims.
• Constitutes the Committee of Creditors within 30 days of commencement.
  

Resolution Professional (RP)

• Appointed by the CoC in its first meeting.
• Can be the same person as IRP or another professional chosen by the CoC.
• Manages the debtor’s business during CIRP.
• Invites and examines resolution plans submitted by applicants.
• Presents approved plans to the NCLT for approval.

Liquidator

• If CIRP fails, the RP may be appointed as liquidator.
• Oversees sale of debtor’s assets and distribution of proceeds among creditors.

Bankruptcy Trustee

Under Part III of IBC, insolvency professionals act as bankruptcy trustees for individuals and partnership firms.

Functions and Duties under the IBC

Section 208(1) of IBC states that insolvency professionals shall perform necessary functions in the following matters:

• Fresh start process (individual insolvency).
• Corporate insolvency resolution process.
• Individual insolvency resolution.
• Individual bankruptcy.
• Liquidation of corporate debtors.

Code of Conduct (Section 208(2))

An insolvency professional must:

• Exercise reasonable care and diligence.
• Comply with IPA bye-laws.
• Allow inspection of records by the IPA.
• Submit copies of proceedings to IBBI and the IPA.
• Perform duties as per regulations.

Responsibilities of Resolution Professionals

Sections 18 and 25 of the Code outline specific duties of IRPs and RPs. These include:

• Collecting information on debtor’s assets, liabilities and operations.
• Protecting and safeguarding assets of the corporate debtor.
• Collecting claims from creditors and maintaining an updated list.
• Representing the corporate debtor in legal proceedings.
• Raising interim finance with CoC’s approval.
• Appointing accountants, legal experts and valuers.
• Filing information with the Information Utility.
• Presenting resolution plans to the CoC.
• Ensuring compliance with provisions of IBC during the process.

Appointment of Insolvency Professionals

Interim Resolution Professional (Section 16)

• When insolvency proceedings are initiated, the NCLT appoints an IRP within 14 days of commencement.
• If the debtor or financial creditor proposes a name, NCLT considers it after IBBI confirmation.
• If no name is proposed, NCLT requests IBBI to recommend an IRP.

Resolution Professional (Section 22)

• CoC holds its first meeting within 7 days of constitution.
• With 66% majority, the CoC may confirm the IRP as RP or appoint a new professional.
• The decision is communicated to NCLT and IBBI.
• Until confirmation, IRP continues as RP.

Replacement of RP (Section 27)

• CoC may replace an RP at any time with 66% voting share.
• NCLT approves the replacement after IBBI confirmation.
• RP cannot challenge CoC’s decision since the appointment is contractual and temporary.

Qualifications and Eligibility

As per IBBI (Insolvency Professionals) Regulations, 2016, an individual must:

• Be a resident of India.
• Be solvent, of sound mind, and a major.
• Have the prescribed qualifications and experience.
• Not have been convicted of offences involving moral turpitude or imprisonment exceeding six months.
• Be a “fit and proper” person in the eyes of IBBI.

Additionally, the professional must be independent of the corporate debtor to avoid conflict of interest.

Case Law Developments

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

The Supreme Court clarified that resolution professionals are not adjudicatory authorities. Their role is limited to administrative tasks like verifying claims and facilitating CoC meetings.

Victory Iron Works Ltd. v. Jitendra Lohia (2021)

The Court held that assets held under contractual agreements may not fall under Section 18 but can still be considered under Section 25, reinforcing the RP’s duty to protect assets.

SBI v. Metenere Ltd. (2020)

NCLAT held that appointing an ex-employee of a financial creditor as IRP could create apprehension of bias. Independence of IPs was emphasised.

Binani Industries Ltd. v. Bank of Baroda (2018)

The Supreme Court held that the power to approve a resolution plan rests with the CoC, not the RP. RPs only facilitate the process.

Partha Sarathy Sarkar v. SUUTI (2023)

NCLAT clarified that CoC has the right to replace an RP if dissatisfied. RP cannot challenge such replacement.

Important Sections of IBC Relevant to Insolvency Professionals

• Section 3(19): Definition of insolvency professional.
• Section 3(20): Definition of insolvency professional agency.
• Section 16: Appointment of IRP.
• Section 22: Appointment of RP.
• Section 27: Replacement of RP.
• Section 206 & 207: Enrolment and registration.
• Section 208: Functions and code of conduct.
• Section 18 & 25: Duties of IRP and RP.

Conclusion

Insolvency professionals are the backbone of the insolvency resolution process in India. By ensuring fair treatment of creditors, safeguarding debtor’s assets, and facilitating resolution plans, they help achieve the objectives of the IBC – maximisation of asset value, timely resolution, and balance of interests.

Their role is not judicial but administrative, making them facilitators rather than decision-makers. However, the quality, independence, and integrity of insolvency professionals directly impact the efficiency of the insolvency ecosystem. With increasing reliance on them, strengthening their regulation and capacity remains a priority for IBBI.