top of page
  • Writer's pictureIRALR

RECTIFYING DELAY IN INSOLVENCY PROCESS: IBBI’s DISCUSSION PAPER ON ASSIGNMENTS


Source : Business Today

This article has been authored by Manaswita Nakwaal, a third year student at Symbiosis Law School, Noida.


Curb the number of assignments handled by the Insolvency Professionals (IPs): Says IBBI


Insolvency and Bankruptcy Code: Ecosystem in a Nutshell


The discussion paper recently released on 1st July 2020 by IBBI suggests to limit the number of cases handled by Insolvency Professionals is a hot potato. As it was observed that the Insolvency Professionals (IPs) are overburdened with numerous cases at a time, IBBI came up with the proposal of assigning only five assignments to an IP at a time. The aim of this proposed discussion paper was two-fold.


i. To safeguard the interests of the IPs and stimulate them to work efficiently, and

ii. To rectify the delay in the insolvency process.


This blog discusses the ecosystem in which the insolvency and bankruptcy regime is currently functioning in India. Further, it attempts to examine the discussion paper released by IBBI in reference to the specific aspect of rectifying the delay in insolvency proceedings.


Insolvency and Bankruptcy Board of India, is the apex body which is responsible for the implementation of the Insolvency and Bankruptcy Code, 2016 (IBC). It was established under Section 188(1) of IBC and is in existence since 1 October 2016. IBC ecosystem consists of various bodies such as the National Company Law Tribunal (NCLT), Insolvency and Bankruptcy Board of India (IBBI), Debt recovery tribunal (DRT), Information Utilities (IUs), Insolvency Personal Agencies (IPAs), 10 members from Ministry of Finance; eminent personalities in the field of law; ; Reserve Bank of India (RBI) out of which IBBI acts as the key pillar of this ecosystem for implementing IBC.


IBBI is a sui generis regulator, as it not only regulates the profession but also the process. It has regulatory oversights over the Insolvency Professionals (IPs), IPAs, IUs.


On the other hand, the IPs are registered under Section 207of IBC. It specifies the procedure, fee to be paid, category of professionals, and qualifications required to register oneself as an insolvency professional under the code. IPs act on behalf of such individuals and companies who have been declared bankrupt and have to undergo the insolvency process. IPs play a crucial role whilst the liquidation process in a bankruptcy situation. In recent times this process has gained momentum with the government bringing in strict norms through IBC. In India the eligibility criteria to become an IPs is as followed:


i. An individual should be an Indian resident 4,

ii. He should have attained a majority (attained 18 years of age),

iii. Should be of sound mind,

iv. Should not have declared as an insolvent and

v. Should possess required qualifications and experience in the field of IBC, has no criminal record.


Though the eligibility criteria happen to be simple, the roles and responsibilities of insolvency professionals are demanding, Section 208 of the Code lays down the same. IPs are assigned to analyze the financial statement of the company, make arrangements to sell all the assets of the liquidating individual or company, undertake the receivables position of company/individual and duly scrutinize the collection process, have formal deliberations with related stakeholders and manage their settlement process.


Further, they are required to prepare and submit the report to the National Company Law Tribunal (NCLT) which contains; liquidation plan and discussion, asset memorandum, an interim report on the progress of the insolvency process (from time to time), details about the sale of assets, discussion with debtor/creditor and conclusions arrived and prepare final reports before the dissolution of company and others.


After examining the roles and responsibilities of an insolvency professional, one thing is clear, that their presence and working influences any insolvency process effectively or can sabotage the case if not done diligently.


Tenacious Challenges faced by the Insolvency Professionals


The November 2017, Financial Stability Report says that over 4,300 applications are filed in National Company Law Tribunal under the IBC. Out of which only 470 cases were admitted by the tribunals, which are currently at various stages of the insolvency process.


Synergies-Dooray Automotive Ltd. was the first-ever case which successfully passed the resolution process stage as approved by the Tribunal at Hyderabad. It is pertinent to note that IBC laid down stringent timelines for the insolvency resolution process of a Corporate Debtor. Before Insolvency and Bankruptcy Code (Amendment) Bill, 209 a period of 180 days was granted to insolvency professional to complete the insolvency resolution process, post amendment 330 days are granted. This eventually leaves a very limited period for IPs to understand the debtor company’s fundamentals and prepare a strategy for its resolution.


Considerable challenges are faced by IPs; the reluctant behaviour of the promoters and directors of the Corporate Debtor Company towards them is one of them. . Tribunals can play a supporting role for IPs to overcome this challenge, by compelling the directors of such a company to provide necessary information and assistance to IPs.


Nonetheless, IPs are bound by stringent timelines they should approach the tribunals for obtaining directions against the promoters and directors. Professionals should prepare a questionnaire to seek all the requisite information and documents from promoters and directors since the commencement of the Corporate Insolvency Resolution Process. Some challenges are sector-specific to the corporate debtor and unknown to the professional in such cases IP should appoint a sector-specific expert to assist him with the smooth running of the business in question.


An uninterrupted challenge for IPs is handling a large number of cases simultaneously, which eventually turns out to be an exhausting exercise for them and also adds reduces the efficiency to work. To overcome this challenge recently IBBI came up with a proposal of limiting the number of assignments to be handled by IPs.


Analysis of the IBBI’s Discussion Paper


On 1st July 2020, IBBI floated a discussion paper which deals with the issue of the number of assignments handled by IPs under the Corporate Insolvency Resolution Process (CIRP) along with the voluntary liquidation process under IBC. The proposal sets a limit of maximum 5 assignments to be handled by any IP at a given point of time. The object of this proposal is to keep a check on the delays and disturbances which sabotage the IBC process As a result of which IBBI has derived a matrix to decide the number of assignments, an IP can undertake at a given point of time. The matrix is as follows:


(*Maximum no. of assignments permitted)

*any assignment as IRP, RP or Liquidator (including Voluntary Liquidation) for the given CD


IBBI's outlook is to attract more talent towards the IP profession by limiting the number of assignments. It is enthusiastically preparing the draft of the proposal by referring to various Supreme Court orders and NCLT Orders. For instance, in the case of IDBI Bank v. Lanco Infratech, Hyderabad NCLT’s Bench said acknowledged the fact that the concerned IP was already working as an IP for two other corporate debtors and hence working for a third corporate debtor which in itself was a very huge company was not possible for the IP.


The Hon’ble NCLT Allahabad Bench in Anil Goel v. LML Ltd. observed and vehemently mentioned that the IP could not adhere to the set timelines for the completion of the Corporate Insolvency Reslution Process within a given period as the IP was working on simultaneous matters together and could not devote the necessary time to any of his corporate debtors.


In another well-known case, Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors. the Hon’ble Adjudicating Authority held “27. The detailed provisions that have been stated hereinabove make it clear that the resolution professional is a person who is not only to manage the affairs of the corporate debtor as a going concern …..but is also a key person who is to appoint and convene meetings of the Committee of Creditors, so that they may decide upon resolution plans that are submitted following the detailed information given to resolution applicants by the resolution professional…..In fact, in ArcelorMital India (supra), this Court referred to the role of the resolution professional under the Code and the aforesaid Regulations, making it clear that the said role is not adjudicatory but administrative…”


The key takeaway from these judgments is that IPs must set a boundary or a limit for the number of assignments to be handled by them at a time, as this will help them provide adequate time and efforts for assignments they are handling. Further, it is expected that after limiting the number of assignments to be handled by IPs good quality of output is expected eventually which will facilitate the value maximization objective as set out by the Code.

bottom of page
ga('require', 'ipMeta', { serviceProvider: 'dimension1', networkDomain: 'dimension2', networkType: 'dimension3', }); ga('ipMeta:loadNetworkFields'); ga('send', 'pageview');