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School of Law
Five Year Integrated B.A.,/B.B.A.,/B.Com.,LL.B. (Hons.)

Insolvency and Bankruptcy Law

An Overview of Role of an Insolvency Professional

Course Instructor Name: Manal Naseem

Dr. Arifa Zahara ID No : 20181BAL0028
Submission Date : 1/12/21
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TABLE OF CONTENT

Abstract ………………………………………………………………………3

Research question…………………………………………………………….3

Research Methodology……………………………………………………….3

Introduction………………………………………………………………….4

Insolvency professional agency………………………………………………4

Code of conduct that an Insolvency Professional shall abide by are as follows. …5

Eligibility criteria for insolvency professional……………………………………5

Enrolment and Registration of insolvency professionals………………………….6

Qualifications and experience of an IP……………………………………………6

Functions and obligations of insolvency professionals………………………….7

Duties of an IP…………………………………………………………………….8

Challenges and Suggestions………………………………………………………8

How is an IP different from Liquidator…………………………………………10

Conclusion……………………………………………………………………...12
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Abstract

This paper deals with role of an insolvency professional during CIRP of a company, individual,
LLP OR Partnership. During the bankruptcy situation the IP’s play a very significant role
liquidating an entity or an assets and other settlement process. The Indian government have
brought strict norms making this process gain momentum through insolvency and bankruptcy
code. The paper tries to look into the role, qualification, disqualification, conduct, duties and
obligation of an IP. Further it also discusses about IBBI as well as IPA. The object of the paper is
to understand the Challenges and give Suggestion for effective working of an IP.

Keywords: - IP, CIRP, Company, insolvency, Bankruptcy

Research question

What is the role of an IP and what challenges do IP face during the CIRP of a company and how
can an IP help in reviving of a company instead of liquidating it?

Research Methodology.

Doctrinal and Descriptive and analytical methodology has been followed by the researchers
throughout the project. Secondary sources like books, articles have been referred by the researchers
for the accomplishment of this project.
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Introduction

Insolvency professional are engaged in work like dissolution process of an insolvent individual or
a company or a LLP or a partnership firm and so are they authorized to act on behalf of such
individual, company, LLP, or partnership firm when they go bankrupt.

In insolvency and bankruptcy code the insolvency professional play role of intermediaries, who
help in efficient work of bankruptcy process. These insolvency professional have functions like
adhering to the producer of law as well as accounting and finance related functions.

An IP have been given power and responsibility to monitor an enterprise and manage the
operations and assets of that enterprise.

An IP while in a resolution process perform duties like verifying the claim of creditors or
constitutes a creditors committee, an IP also have power to run the debtor’s business while in the
moratorium period and also helps the creditor in reaching a consensus for a revival plan that can
be presented before CoC.

An IP acts as liquidator and bankruptcy trustee in liquidation. Also if an IP is appointed as a

resolution professional he shall act as a neutral trustee of the assets of the organization.1

Insolvency professional agency

Insolvency professional agency is registered with insolvency and bankruptcy board of India under
section 201 of IBC2. IBBI exercises control over IPA and its professionals with respect to the
complains made under section 2173 of insolvency code

An IP is enrolled with an insolvency agency. The code provides for establishment of insolvency
professional agencies to enroll and regulate insolvency professional as its members in accordance
with the IBC.

1
https://www.business-standard.com
2
Part IV, Chapter-III, Sec 201: - Registration of insolvency professional agency
3
Section 217: Any person aggrieved by the functioning of an insolvency professional agency or insolvency
professional or an information utility may file a complaint to the Board in such form, within such time and in such
manner as may be specified.
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IPA have many functions some of which are as follows: -

regulatory functions where drafting detailed standard and code of conduct through bye law, that
are made public and are binding on all members

executive functions like monitoring, inspection and investigation members on regular basis or
gathering information on their performance with the overarching objective of preventing frivolous
behavior and malfeasance in the conduct of IP duties

quasi-judicial functions like addressing grievances of agreed parties, hearing complaints against
members and taking suitable actions.4

Code of conduct that an Insolvency Professional shall abide by are as follows. (sec 208(2))5

 An IP be reasonable and act in diligence while performing his duties

 An IP should comply with all requirements like terms and conditions specified in the bye
laws of the IPA of which he is a member
 An IP must allow the IPA to inspect his records
 An IP should submit a copy of the records of every proceeding before the adjudicating
authority to board as well as to the IPA of which he is member of
 An IP should perform his functions in such manner and subject to such conditions as may
be specified6

Eligibility criteria for insolvency professional

An individual is eligible to become an insolvency professional provided that he or she (IBBI

(Insolvency Professionals) Regulations, regulation 4)7

 Is an Indian resident and has attained the age of majority (18 years)
 Is of a sound mind and a prudent and fit person

4
https://cleartax.in/
5
Part-IV, Chapter-IV, Section 208: Functions and Obligations of insolvency professionals
6
https://ibbi.gov.in/
7
Chapter III- Registration of insolvency professionals, Eligibility Regulation 4 of Insolvency and Bankruptcy board of
India (insolvency professionals) regulations, 2016
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 Is solvent and not been declared insolvent

 Have required qualifications and experiences as specifies by IBBI
 Has not been convicted by any competent court/law for an offence punishable with
imprisonment for a term exceeding six months, or for an offence involving moral turpitude,
and a period of five years has not gone from the date of expiry of the sentences.8

Enrolment and Registration of insolvency professionals

A person cannot render his services as an IP under the IBC if he not a member of an IPA this is
registered under the board as mentioned under section 2069. An IP after obtaining the membership
of an IPA, should register himself with the board within given time and manner and on payment
of such fee, as may be specified by regulations as given under sec 207(1) 10. Section 207(2)
empowers the IBBI to specify the categories of professionals or persons possessing such
qualifications and experience in the field of finance, law, management, insolvency or such other
field to act as insolvency professionals. The Insolvency and Bankruptcy Board of India has framed
the IBBI (Insolvency Professional) Regulations, 2016 to regulate the working of Insolvency
Professionals. These regulations are amended from time to time by the Insolvency and Bankruptcy
Board of India.11

Qualifications and experience of an IP

The first and most important condition of any applicant is to get themselves registered with
insolvency professional agency. The applicant must clear the national insolvency examination. If
the applicant cleared limited insolvency examination in which case the application should have 15
years of experience in management, after receiving a bachelor’s degree from university established
or recognized by law.

If the applicant has passed the limited insolvency examination and has 10 years of experience as

8
https://economictimes.indiatimes.com/
9
Part-IV, Chapter-IV Section 206: Enrolled and registered persons to act as Insolvency Professional
10
Part-IV, Chapter-IV Section 207Redistration of Insolvency Professional
11
https://www.ipaicmai.in/
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 A chattered accountant and is member of the institution of chartered accountants of India

 A company secretary and is a member of the institution of company secretaries of India
 A cost accountant and is member of the institution of cost accountants of India
 An advocate enrolled with a bar council12

Functions and obligations of insolvency professionals

Where any insolvency resolution, fresh start, liquidation or bankruptcy process has been initiated
it’s the role of an insolvency professional to take such actions as may be necessary in following
matters under sec 208(1) namely

(a) a fresh start order process under Chapter II of Part III;

(b) individual insolvency resolution process under Chapter III of Part III;

(c) corporate insolvency resolution process under Chapter II of Part II;

(d) individual bankruptcy process under Chapter IV of Part III;

(e) liquidation of a corporate debtor firm under Chapter III of Part II.13

The main function of an IP is to assess the financial position of an individual or a company, or

partnership and LLPs. An IP ensures the smooth process of the dissolution under IBC. Not just
dissolution but these professions also try to find an opportunity to recue businesses.

An IPs some of the main function includes

 He tries to understand the position of a company and also analysis its financial statement
 An IP also has power to make arrangement to sell all the assets of the liquidating individual
or company.
 An IP tries to understand the receivable position of the company and individual and look
after the collection process.

12
https://blog.ipleaders.in/
13
Part-IV, Chapter-IV Section 208: Functions and Obligations of Insolvency Professional
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 An IP conducts formal discussions with ehw debtor and creditor and manage their
settlement process.
 IP also has power to check and agree on the creditors claim as per the availability of funds
making it one of the most important duty of an IP
 An IP involves himself in the funds distribution process after setting aside money required
to pay the cost of liquidation
 IP also deals with the other competing interest if any14

Duties of an IP

The duty of an IP is to prepare and submit the report to the NCLT with respect to the following

1. Liquidation plan and process; This has to be submitted within 75 days of commencement
of the process by the IP.
2. Detailed report on the asset memorandum
3. Interim report on how liquidation process is progressing from time to time
4. Details about thee sales of all assets
5. Discussion with the debtors and creditors and the conclusion arrived.
6. Final report prior to the dissolution of the company, partnership and others

Challenges And Suggestions

IPs who play the role of RPs face challenges from time to time. Sometimes the IPs don’t get enough
time to develop an understanding about the corporate debtor’s business, but even after that the IP
is expected to make meaningful decisions so that the business keeps operating. Factors that
influence the recommending an IP for a particular assignment are not clearly identifiable. The
Board provides a panel of IPs eligible to take up assignments but does not include information
regarding their relevant experience. Information regarding specialization and relevant experience
of the IP, if made available in public domain will enable creditors to make more appropriate
recommendations. The cooperation between IPs and management of Corporate debtor will help in

14
https://ca2013.com
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smooth operation of business and ensure statutory compliances and also help in availability and
accuracy of information

There have been several cases for example M/s. Subasri Realty Private Limited v. Mr. N.
Subramanian & Anr15 or in case of State Bank of India v. Essar Steel India Limited16 or Bank of
India v. Tirupatu Infraprojects Pvt Ltd17, where the courts have come in aid of the IPs to ensure
cooperation of the promoters of the corporate debtor, erstwhile management, employees etc. It has
been clarified that IRP is acting as a Court Officer and any hindrance in the work of CIRP will
amount to contempt of court.

In Shivam Water Treaters Pvt. Ltd, it is further directed to the promoter or director, officials and
auditor of the company to fully co-operate with the RP in the completion of CIRP’ and the AA
also directed police assistance so that the RP can take full control of the company without any
interference from ex-Director’s or his officials. However, such cooperation is often not
forthcoming and enforced through an order of the AA such ‘coerced support is not as valuable and
expedient as voluntarily given support’.

The IP should encourage their participation and engagement in these meetings to keep them part
of the process while remaining cautious about their vested interests in the corporate debtor from
hampering the process

The IRP is vested with powers and responsibility of the Board of the corporate debtor and
management of its affairs immediately after appointment.

The IBC give an IP power to appoint accountants, legal or other professionals to preserve and
protect the assets of the corporate debtor, including the continued business operations of the
corporate debtor. There is lack of clarity on who can be appointed, what should be the nature of
such appointments, their fee, remuneration etc. which has been a constraint for the RPs. The Board
may consider providing guidelines on such appointments to enable harnessing this provision
efficiently and to ensure transparency in such appointments.

15
. Company Appeal (AT) (Insolvency) No. 290 of 2017
16
CP No. 40/7/NCLT/ AHM/2017
17
CP No. IB 104(PB)/2017
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As streams of insolvency and bankruptcy processes evolve there is a need for professionals to
specialize. The exam and registration system would have to accommodate such specialization in
order to ensure that processes under the Code find the professional best suited for the purpose.
Several countries, including the UK have partial or separate licenses for personal and corporate
insolvencies and evaluation systems also vary accordingly. The current examination scheme has
been successful in kick-starting the profession but has scope for further improvements.

Insolvency regime in India is evolving at a fast pace which brings forth opportunities and
challenges. Developments include the operationalization of individual insolvency including a fresh
start process, a separate track for dealing with insolvency resolution of MSMEs, cross border
insolvency and group insolvency measures under the Code. IPs have been steadfast in their role as
a key pillar to the Code so far and need to be prepared to hold the mantle into a more challenging
future.18

How is an IP different from Liquidator?

company could be wound up if it was "unable to pay its debts", this is mentioned under section
433(e) of the Companies Act, 195619and under Section 271(1)(a) of the unamended Companies
Act, 201320.if a company under both this act is in the process of winding up it will lead in
liquidation of company. With the enactment of the IBC and through the action of section 255,21
inability to pay debts has been removed as a ground for winding up under section 271(1)(a).

Now, under the new law of IBC, it mandates that if a Corporate Debtor is not able to pay its
debts then an effort must be made to revive it through the CIRP and, if that fails, the company
must be liquidated under the provisions of the IBC.

For the purpose of the CIRP, under the IBC, an Interim Resolution Professional is appointed,
who can then be confirmed as the Resolution Professional or a different RP can be selected in his

18
https://www.mondaq.com/
19
433: Circumstances in which company may be wound up by Court. A company may be wound up by the Court
20
circumstances in which company may be wound up by Tribunal
21
The Companies Act, 2013 shall be amended in the manner specified in the eleventh schedule
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place. The main role of IRP or an RP is to help in the revival of company and so in this regard
the RP id given wide range of powers and duties under the code.

The primary tasks of the IRP include assuming control and running the affairs and management
and assets of the corporate debtor as a going concern, collecting information on the finances of
the Corporate Debtor, collecting and collating claims and constituting the CoC. The CoC. then
appoints an RP.

The RP then takes over the CIRP. The RP has been given same powers and duties in the CIRP as
the IRP, also the RP is given more duties like preparing the information memorandum under sec
29 of the IBC22, OR receiving the resolution plan and checking whether the plan conforms to the
requirements under section 30(2)23, presenting resolution plans at the meeting of the committee
of creditors and submitting the resolution plan accepted by the committee of creditors to the AA.
for approval.

In cases where no resolution plan is submitted to the AA, or the resolution plan is rejected, or
when the committee of creditors decide to go into liquidation or the resolution plan is
contravened, then the AA may pass an order for liquidation. This liquidation order therefore
marks the end of the CIRP and the beginning of the Liquidation Process.24

Under IBC the RP appoint for the CIRP takes over as liquidator unless replaced by the AA. Now
the power of board would be vested in the liquidator and the management of CD would also be
taken care by liquidator as so he could carry out the liquidation process.

A liquidator is given power under sec 3525 of IBC to carry out his job, and these powers and
duties are similar to that of IPR the only different being the end result of liquidator is the
liquidation of the company.

22
Sec 29, Preparation of information memorandum
23
Part II, Chapter-II, Sec 30: Submission of resolution plan
24
CIRP is given under, Chapter II of Part II in sections 6 to 32 of the code whereas, sections 33 through 54 in Chapter III of Part-
II talks about Liquidation Process.

25
Part II, Chapter III, Section 35: powers and duties of liquidator
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Further, under the code, both the resolution professional and the liquidator have powers to apply
for the avoidance of preferential transactions, undervalued transactions and extortionate credit
transaction.

For the purpose of liquidation however, the liquidator has some special powers that are different
from those of the RP. Under Sec 3626 a liquidation estate is formed by liquidator where he holds
all the properties of CD as fiduciary, for the benefit of creditors and another important function
of liquidator is to consolidation as well as verification of the claims submitted to him and
determine their value.

In the liquidation process, the liquidator has the power to reject claims raised and if a claim is
rejected, a creditor can appeal against this decision to the AA. Additionally, claims once made
can be withdrawn. The liquidation assets are then sold and the proceeds are distributed according
to the order of priority given under section 5327. Following this, the liquidator makes an
application to the AA for dissolution of the CD.

Thus we see that there are a number of similarities as well as differences between the roles of the
RP and that of the liquidator. It is pertinent to keep in mind however, that there is no overlap
between the two. The resolution professional works towards reviving and restructuring the CD,
after a failure of the same, the liquidator sells the liquidation assets, distributes the proceeds and
makes an application for dissolution of the company.28

Conclusion

The IBC aims to assist the IP and help them achieve what id expected from them providing not
just professional but also ethical guidance. The insolvency professionals should be guided not
merely by the terms but also by the spirit of the Code. Since it is impossible to define every
situation to which the principles set out in the Code will be relevant, there are a few basic principles
stated in Schedule I [Under regulation 7(2)(g)] of Insolvency and Bankruptcy Board of India
(Insolvency Professional) Regulations,2016 which lays down the broad principles under ‘Code of

26
Part II, Chapter III, Section 36: Liquidation estate
27
Part II, Chapter III, Section 53 Distribution of assets
28
https://taxguru.in
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Conduct for Insolvency Professionals’. As a professional membership body promoting high

standards of practice in relation to work undertaken by its members, we require our members to
adhere to certain principles in all aspects of professional work.