Professional and Ethical Practices for Insolvency Practitioners

The facts of the case are similar in case of Order No. IIIPI/DC/06/2019-20 dated 30th May 2019 In the matter of Mr. Sanjay Kumar Ruia (Respondent) under Clause 15(2) of the Disciplinary Policy of IIIPI read with Clause 24(1)(c) of IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, (2016), In the CIRP of S.N. Plumbing Private Limited:

The Disciplinary Committee, therefore, observed that Mr. Ruia appointed his spouse as IRP, which is a clear case of conflict of interest. Committee noted that being Professional, there is a clear case of Conflict of Interest and it would have been better if the Respondent could have submitted his in-ability to proceed with rather appointing relative (spouse) on a position which could hamper his independence, which is clear case of contravention of the provisions of sections 20, 23, 208(2)(a)

of the Code regulations 7(2)(a) and (h) of the IPR and clauses 1, 2, 3, 5, 9, 10, 12, 14 and 25 of the Code of Conduct thereof.

Committee on the allegation of charging exorbitant fee was of the opinion that IBC bestows massive responsibility on the IRP and it would not be an exaggeration to say that the same is the most important pillar in the entire process. Clause 25 of the Code of Conduct for Insolvency Professionals under the IBBI (Insolvency Professionals) Regulations, 2016 require that an insolvency professional must provide services for remuneration which is charged in a transparent manner, and is a reasonable reflection of the work necessarily and properly undertaken. He shall not accept any fees or charges which is not reasonable. Therefore, contentions of the respondent that the fee quoted by him was a reasonable reflection of his work is not acceptable and thereby contravened the provisions of sections 20, 208(2)(a) of the Code regulations 7(2)(a) and (h) of the IPR and clauses 1, 2, 3, 5, 10, 14 and 25 of the Code of Conduct thereof.

Going by the above order of Disciplinary Committee, it could be said that Gopika, in the given question, is not right in accepting the assignment when it was her husband who proposed her name. An insolvency professional must provide services for remuneration which is charged in a transparent manner, is reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations.

An Insolvency professional shall disclose the fee payable to him, the fee payable to the insolvency professional entity, and the fee payable to professionals engaged by him to the insolvency professional agency of which he is a professional member and the agency shall publish such disclosure on its website. An Insolvency professional must refrain from accepting too many assignments, if he is unlikely to be able to devote adequate time to each of his assignments.

Alternate Answer 3(a)

Independence and Impartiality:

The Code of Conduct requires the IP to maintain complete independence in professional relationships. It is not correct on part of Mrs. Gopika to accept assignments which affect her independence.

An insolvency professional must maintain complete independence in his professional relationship and should conduct the Insolvency resolution, liquidation or bankruptcy process, as the case may be, independent of external influences.

An insolvency professional shall not take up an assignment under the Code if he, any of his relatives, any of the partners or directors of the insolvency professional entity of which he is a partner or director, or the insolvency professional entity of which he is a partner or director is not independent, in terms of the regulations related to the processes under the code, in relation to the Corporate Person / Debtor and its related parties.

An insolvency professional shall ensure disclosure of the relationship, if any, of the other professionals engaged by it with itself, the corporate debtor, the financial creditor, the interim finance provider, if any, and the prospective resolution applicant, to the insolvency professional agency of which he is a member, within the time specified as per the Code.

Remuneration and Costs:

IBBI is empowered by the Insolvency and Bankruptcy Code, 2016 to issue a show cause notice even without a complaint made against IP if it has reasonable grounds to believe IP has contravened any provisions. An insolvency professional must provide services for remuneration which is charged in a transparent manner, is reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations. An Insolvency professional shall disclose the fee payable to him, the fee payable to the insolvency professional entity, and the fee payable to professionals engaged by him to the insolvency professional agency of which he is a professional member and the agency shall publish such disclosure on its website. An Insolvency professional must refrain from accepting too many assignments, if he is unlikely to be able to devote adequate time to each of his assignments. Thus, it was not right of Gopika to accept the assignments when it was her husband who proposed her name.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 3(a) (Syllabus 2017).

The IBBI (Insolvency Professionals) Regulations, 2016 makes provisions for the examination and registration of Insolvency Professionals with the Insolvency and Bankruptcy Board of India. These regulations also make provisions for the disciplinary proceedings against the insolvency professional as well as prescribes a code of conduct for insolvency professionals.

First Schedule to the aforesaid regulations prescribes a code of conduct for insolvency professionals.

According to regulation 7(2)(h) the registration of an insolvency professional shall be subject to the condition that he shall abide by the Code of Conduct specified in the First Schedule to the Regulations:

-An insolvency professional shall disclose as to whether he was an employee of or has been in the panel of any financial creditor of the corporate debtor, to the committee of creditors and to the insolvency professional agency of which he is a professional member and the agency shall publish such disclosure on its website. (Regulation 8A of the First Schedule to the Regulations).

As per the above regulation, an insolvency professional shall disclose his employment details to the committee of creditors. Accordingly, Neeraj shall disclose the details of his employment to the committee of creditors irrespective of the fact that he was employed 7 years back.

-An insolvency professional shall not influence the decision or the work of the committee of creditors or debtor, or other stakeholders under the Code, so as to make any undue or unlawful gains for itself or its related parties, or cause any undue preference for any other persons for undue or unlawful gains and shall not adopt any illegal or improper means to achieve any mala fide objectives. (Regulation 9 of the First Schedule to the Regulations).

'As per the above regulation, an insolvency professional shall not influence the decision or the work of the committee of creditors so as to make any undue or unlawful gains for his related parties. Accordingly, conduct of Neeraj to solicit work for Suraj is not correct as per the code of conduct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2(a) (Syllabus 2017).

The IBBI (Insolvency Professionals) Regulations, 2016 makes provision for the Examination and Registration of Insolvency Professionals with the IBBI. These regulations also make provisions for the disciplinary proceedings against the Insolvency Professional as well as prescribes a code of conduct for Insolvency Professionals.

First Schedule to the aforesaid regulations prescribe a code of conduct for the Insolvency Professionals (IP). According to Regulation 7(2)(h), the registration of an Insolvency Professional shall be subject to the condition that he shall at all times abide by the Code of Conduct specified in the First Schedule to the Regulations which provides for the following:

l Integrity and Objectivity l Independence and impartiality l Professional competence l Representation of correct facts and correcting misapprehensions.

l Timeliness l Information management l Confidentiality l Occupation, employability and restrictions l Remuneration and costs l Gifts and hospitality An Insolvency Professional must maintain integrity by being honest, straightforward and forthright in all professional relationships. (Clause 1 of the First Schedule to the Regulations) An Insolvency Professional must provide services for remuneration which he charged in transparent manner, is a reasonable reflection of the work necessarily and properly undertaken. and is not inconsistent with the applicable regulations. (Clause 25 of the First Schedule to the Regulations)

An Insolvency Professional shall disclose the fee payable to him, the fee payable to the IPE and the fee payable to Professionals engaged by it to the IPA of which he is a professional member and the agency shall publish such disclosure on its website. (Clause 25A of the First Schedule to the Regulations)

An Insolvency Professional shall not accept any fee or charges other than those which are disclosed to and approved by the persons fixing its remuneration. (Regulation 26 of the First Schedule to the Regulations)

In the NCLT Order dated 14.10.2019 in the matter of Anurag Nirbhaya Vs. Anuj Maheshwari & Ors, Resolution Professional (RP) claimed Rs. 12 Lakhs for the first month and Rs. 11 Lakhs per month for the period of rest of the two and half months and he was paid Rs. 6 Lakhs for the total period of three and half months. The AA observed that the exorbitant fee has been claimed by the IRP and stated that generally they allow fee @ Rs. 1 Lakh per month to the professionals.

Further, in the NCLT Order dated 13.03.2018 in the matter of Punjab National Bank Vs. Divyajyoti Sponge Iron Pvt. Ltd, the AA took notice of fixation of exaggerated insolvency resolution cost, inclusive of fixation of fee of RP in a lump sum manner by the CoC without applying its mind as regards to the fate of CD, the volume, nature and complexity of CIRP. It is observed that it is time to have legitimate guidelines or regulation in this regard so as to safeguard and to ensure the prospects and revival of a dying CD not be at the highest cost which canned be affordable by the CD.

An IP should not charge abnormally high fee in relation to the services: The Disciplinary Committee of IBBI found that an IP attempted to charge abnormally high fee in relation to the services. Besides, he acted malafide by seeking increase of his fee after approval of fee by the AA and displayed professional incompetence by using stale information for decision making. He, then signed the term sheet with the applicant, who is not legally competent to appoint RP or fix his fee, and thereby attempted to deprive the CoC of its legitimate right to appoint a RP of its choice and fix his fee.

The Disciplinary Committee suspended the registration of the IP for two years, directed the IP to undergo the pre-registration educational course and work for at least six months as an intern with a senior insolvency professional, at any time during the period of suspension.

In view of the above stated precedence, Sanjay Garg as a resolution professional is liable as per the provisions of the code of conduct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 4(c) (Syllabus 2022).

The IBBI (Insolvency Professionals) Regulations, 2016 makes provisions for the examination and registration of Insolvency Professionals with the Insolvency and Bankruptcy Board of India. These regulations also make provisions for the disciplinary proceedings against the insolvency professional as well as prescribes a Code of Conduct for insolvency professionals.

First schedule to the aforesaid regulations prescribes a Code of Conduct for insolvency professionals. According to regulation 7(2)(h), the registration of an insolvency professional shall be subject to the condition that he shall abide by the following Code of Conduct specified in the First Schedule to the Regulations.

Integrity and Objectivity An insolvency professional must disclose the details of any conflict of interests to the stakeholders, whenever he comes across such conflict of interest during an assignment.

Considering the above, since Raman is facing a direct conflict of interest because of he being acting as resolution professional in Delta Ltd. and Sigma Ltd. and his actions may get prejudiced; therefore, he shall promptly inform the Committee of Creditors of both the companies about the conflict of interest and tender his resignation from one of the companies to avoid such conflict of interest.

Remuneration and Costs As per Regulation 25 of the Code of Conduct, an insolvency professional must provide services for remuneration which is charged in a transparent manner, is a reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations.

Further Regulation 26 provides that an insolvency professional shall not accept any fees or charges other than those which are disclosed to and approved by the persons fixing his remuneration.

Regulation 27 makes it mandatory for an insolvency professional to disclose all costs towards the insolvency resolution process costs, liquidation costs, or costs of the bankruptcy process, as applicable, to all relevant stakeholders, and must endeavour to ensure that such costs are not unreasonable.

Considering the above, the fee demanded by Raman is not in accordance with the Code and work to be performed by him.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 6(a) (Syllabus 2017).

It is true to say that Insolvency professionals (IPs) are private persons, but are governed by Insolvency Regulator (Insolvency and Bankruptcy Board of India).

The Insolvency and Bankruptcy Code, 2016 provides for IPs to act as intermediary in the insolvency resolution process. Insolvency professionals are a class of regulated but private professionals having minimum standards of professional and ethical conduct.

Section 3(19) of the Code defines an ‘insolvency professional’ as a person enrolled under section 206 the Code with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207 of the Code.

Section 206 of the Code lays down that no person shall render his services as insolvency professional under this Code without being enrolled as a member of an insolvency professional agency and registered with the Board. Section 207(1) of the Code further lays down that every insolvency professional shall, after obtaining the membership of any insolvency professional agency, register himself with the Board within such time, in such manner and on payment of such fee, as may be specified by regulations. Section 207(2) of the Code 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 IBBI. Section 208 of the Code provides for the functions and obligations of IPs during any insolvency resolution, fresh start, liquidation or bankruptcy process.

IPs are required to follow Code of conduct, there performance is monitored by IPA and IBBI and also they are subject to disciplinary action by IBBI and IPA.

Thus, from the above discussions, it is very much clear that IPs though private professional, are regulated by the IBBI, the Insolvency Regulator.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2(a) (Syllabus 2017).

As a part of professional ethics, Code of Conduct for Insolvency Professionals in IBBI (IP) Regulations, 2016 states that an insolvency professional must provide services for remuneration which is charged in a transparent manner, is a reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations.

In one case of CIRP of Ariisto Developers Pvt Ltd, wherein NCLAT upheld the order of AA not approving the success fee of 3 cr. though approved by CoC, on the ground that this success fee was in the nature of a contingency and speculative, hence did not form part of the provisions of IBC and its regulations.

IBBI vide IBBI (CIRP) Regulations, 2016 effective from September 13, 2022, has inserted a new clause i.e., 34B to provide guidance over the remuneration structure comprising of: i. Minimum Remuneration ii. Performance Linked Incentive iii. Period of Remuneration.

This amendment provides a regulatory framework of professional fee payable to IPs comprising fixed and variable fee with a minimum and maximum basis.

Regulation 34B of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 states that the fee of interim resolution professional or resolution professional, under regulation 33 and 34, shall be decided by the applicant or committee in accordance with this regulation. The fee of the interim resolution professional or the resolution professional, appointed on or after 1st October 2022, shall not be less than the fee specified in clause 1 for the period specified in clause 2 of Schedule-II of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations.

Provided that the applicant or the committee may decide to fix higher amount of fee for the reasons to be recorded, taking into consideration market factors such as size and scale of business operations of corporate debtor, business sector in which corporate debtor operates, level of operating economic activity of corporate debtor and complexity related to process.

After the expiry of period mentioned in clause 2 of Schedule-II, the fee of the interim resolution professional or resolution professional shall be as decided by the applicant or committee, as the case may be. For the resolution plan approved by the committee on or after 1st October 2022, the committee may decide, in its discretion, to pay performance-linked incentive fee, not exceeding five crore rupees, in accordance with clause 3 and clause 4 of Schedule-II or may extend any other performance-linked incentive structure as it deems necessary.

The fee under this regulation may be paid from the funds, available with the corporate debtor, contributed by the applicant or members of the committee and/or raised by way of interim finance and shall be included in the insolvency resolution process cost.

Regulation 4 of the Liquidation Regulations provides that the liquidator is entitled to the fee as decided by the Committee of Creditors (CoC) during the CIRP under Regulation 39D of the CIRP Regulations. In case no such fee has been fixed, then the Stakeholders’ Consultation Committee (SCC) can fix the fee of the liquidator (this provision is applicable only from 16.09.2022). Further, in case, no fee is fixed in above-mentioned manners, the liquidator shall, for the period of compromise or arrangement, be entitled to a fee at the same rate as the resolution professional was entitled to during the CIRP, and for the balance period of the liquidation, a fee at a percentage specified in the table given in regulation 4(2)(b) of the Liquidation Regulations is applicable.

With the above regulatory framework being developed for fee of Resolution Professional(RP), RP cannot accept fee higher than fixed by CoC unless it is revised by CoC itself .

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 4(c) (Syllabus 2022).

The IBBI would have rejected his application, holding that Mr. Bikram Kumar was not fit and proper to be registered as an Insolvency Professional in view of the circumstances explained.

As per explanation to Regulation 4(1)(g), of IBBI (Insolvency Professionals) Regulations, 2016 for determining whether an individual is fit and proper, the IBBI may take into account any consideration as it deems fit, including but not limited to the following criteria, namely:

(i)integrity, reputation and character,

(ii)absence of convictions and restraint orders, and

(iii)competence, including financial solvency and net worth.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 2(c) (Syllabus 2022).

As per the provisions of regulation 7(2)(h) of the IBBI (Insolvency Professionals) Regulation, 2016 read with the First Schedule of the said Regulations, the Code of Conduct of Insolvency Professionals in conduct of Corporate Insolvency Resolution process (CIRP) are given below:

l An insolvency professional must refrain from accepting too many assignments, if he is unlikely to be able to devote adequate time to each of his assignments.

A clarification has been inserted (w.e.f. 21.07.2021) provides that an insolvency professional may, at any point of time, not have more than ten assignments as resolution professional in corporate insolvency resolution process, of which not more than three shall have admitted claims exceeding one thousand crore rupees each.

l An insolvency professional must not engage in any employment when he holds a valid authorization for assignment or when he is undertaking an assignment.

l Where an insolvency professional has conducted a corporate insolvency resolution process, he and his relatives shall not accept any employment, other than an employment secured through open competitive recruitment, with, or render professional services, other than services under the Code, to a creditor having more than ten percent voting power, the successful resolution applicant, the corporate debtor or any of their related parties, until a period of one year has elapsed from the date of his cessation from such process.

l An insolvency professional shall not engage or appoint any of his relatives or related parties, for or in connection with any work relating to any of his assignment.

l An insolvency professional shall not provide any service for or in connection with the assignment which is being undertaken by any of his relatives or related parties l Explanation: For the purpose of clauses 23A to 23C, “related party” shall have the same meaning as assigned to it in clause (24a) of section 5, but does not include an insolvency professional entity of which the insolvency professional is a partner or director.

l An insolvency professional must not conduct business which in the opinion of the Board is inconsistent with the reputation of the profession Further, in the matter of ‘IDBI Bank Ltd. v. Lanco Infratech Ltd’, the NCLT Hyderabad Bench also held that an insolvency Professional must refrain from accepting too many assignments, if he is unable to devote adequate time to each of his assignments as per Clause 22, Schedule I of the Code of Conduct for Insolvency Professionals.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 4(B) (Syllabus 2017).

Yes, it is true to say that the Insolvency and Bankruptcy Board of India (IBBI) and Insolvency Professional Agencies (IPAs) have come across some mistakes being committed by some of the IPs in conduct of CIRPs. These mistakes are costs to the Corporate Debtor (CD) and the economy, and often amount to contravention of provisions of the law.

The mistakes committed by the IPs and the relevant provisions of the IBC are as under:

(i)Assignment without having Authorisation : Regulation 7A of the IBBI (Insolvency Professionals) Regulations, 2016 (IP Regulations) requires that an IP shall not accept or undertake any assignment, including CIRP, unless he holds an authorisation for assignment (AFA) on the date of such acceptance or commencement of such assignment, as the case may be.

As per Regulation 12A(5) of Insolvency and Bankruptcy Board of India (Model Bye- Laws and Governing Board Of Insolvency Professional Agencies)

Regulations, 2016 i.e. (bye-laws of the IPAs) provide that, if the AFA is not issued, renewed or rejected by the IPA within 15 days of the date of receipt of application, the authorisation shall be deemed to have been issued or renewed, as the case may be, by the IPA. The Insolvency and Bankruptcy Board of India (IBBI) has made available an IT facility for the IPs to apply for the issuance or renewal of AFA and the IPAs to issue or renew AFAs, as the case may be, in a time bound manner. There are, however, instances where an IP undertook CIRP without having an AFA and in some cases, without even applying for an AFA, in contravention of the provisions of law.

(ii)Fee payable to IP : The Code of Conduct for Insolvency Professionals (IPs)

under the IBBI (Insolvency Professionals) Regulations, 2016 require that an IP must provide services for remuneration which is charged in a transparent manner, and is a reasonable reflection of the work necessarily and properly undertaken.

Regulation 33 of the IBBI (Insolvency Resolution Process for Corporate Persons)

Regulations, 2016 (CIRP Regulations) requires that the applicant shall fix the expenses to be incurred on or by the IRP. Regulation 34 requires that the committee of creditors (CoC) shall fix the expenses to be incurred on or by the RP. Regulation 39D requires the CoC to fix the fee payable to the liquidator, in the event the CD proceeds for liquidation.

It is, however, observed that in a few cases, the fee payable to an IP was not fixed beforehand and the IP drew a fee on his own without approval of such fee from the competent authority, in contravention of the provisions of law.

(iii)Appointment of professionals : It is the duty of the Resolution professional (RP)

to preserve and protect the assets of the Corporate Debtor (CD), including continuing its business operations. Section 25(2) of the Code empowers an RP to appoint accountants, legal or other professionals for this purpose. Clause 23B of the Code of Conduct under the IBBI (Insolvency Professionals)

Regulations, 2016 prohibits an IP from engaging or appointing any of his relatives or related parties for or in connection with any work relating to any of his assignment.

An IP is, therefore, required to satisfy himself that there is a need for services of a professional; such services are not available within the CD; the person is qualified to render professional service; the professional to be appointed is suitable for the purpose; the professional is not a relative or related party of the IP; the fee to be paid to the professional is reasonable; etc.

RP needs to apply his mind to these and other related aspects while appointing a professional. RP must not appoint any person who is not a professional, or who is his relative or a related party, or who is choice of a stakeholder. RP must not appoint a professional to provide services to a stakeholder, or a professional because a stakeholder wants that professional to be appointed. There are instances where the RP appointed a professional who is the choice of a stakeholder or a person who is not a professional for professional services. This compromises the independence of the IP as well as that of the professionals and imposes avoidable cost on the CD and other stakeholders.

(iv)Appointment of registered valuers : Regulation 27 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations)

envisages estimation of fair value and liquidation value of the assets of the Corporate Debtor (CD). These values serve as reference for evaluation of choices, including liquidation, and selection of the choice that decides the fate of the CD, and consequently of the stakeholders. A wrong valuation may liquidate an otherwise viable CD, which may be disastrous for an economy. Given the importance of valuation in CIRP, the CIRP Regulations require that fair value and liquidation value of the CD shall be determined by two registered valuers (RVs) and it is the duty of the RP to appoint RVs only. There are, however, a few instances where the RP appointed persons other than RVs for conduct of valuations and in some cases, appointed only one RV instead of two. This indicates lack of due diligence and sincerity of the IP and probably demonstrates mala fide intent in some cases to get a valuation done to subserve certain interests. This potentially risks the life of the CD and adversely affects the interests of stakeholders, and drives out qualified and regulated valuation professionals out of practice.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6 (Syllabus 2017).

As per Regulation 35(1) of the IBBI(CIRP) Regulations

(a)the two registered valuers appointed under regulation 27 shall submit to the resolution professional an estimate of the fair value and of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor; Provided that the resolution professional shall facilitate a meeting wherein registered valuers shall explain the methodology being adopted to arrive at valuation to the members of the committee before computation of estimates.

(b)if the two estimates of a value in an asset class are significantly different, or on receipt of a proposal to appoint a third registered valuer from the committee of creditors, the resolution professional may appoint a third registered valuer for an asset class for submitting an estimate of the value computed in the manner provided in clause (a).

As third registered valuer was appointed at the instance of CoC, therefore, there is no contravention.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 2(c)(i) (Syllabus 2022).

The issue in the present problem relates to the independence and eligibility of an Interim Resolution Professional (IRP) when the proposed professional had previously been employed by the financial creditor. A similar issue arose in the case of State Bank of India v.

Metenere Limited., where the courts examined whether past employment with a creditor creates bias or conflict of interest for an Insolvency Professional.

(i)Decision of NCLT When the application for initiation of CIRP was filed before the National Company Law Tribunal, the corporate debtor objected to the appointment of the proposed IRP on the ground that he had earlier served as a senior employee of the same bank for many years. The tribunal considered that the IRP plays a crucial and neutral role in the insolvency process. The IRP is required to take control of the corporate debtor’s management, verify claims, and conduct the process in a fair and impartial manner.

Therefore, the authority emphasized that the professional must not only be independent but must also appear to be independent.

Since the proposed IRP had a long association with the financial creditor and continued to receive pensionary benefits, the tribunal held that there could be a reasonable apprehension of bias. To maintain confidence in the insolvency process, the tribunal directed the financial creditor to propose another independent Insolvency Professional.

(ii)Decision of NCLAT The order of the tribunal was challenged before the National Company Law Appellate Tribunal. The appellate tribunal upheld the decision of the NCLT. It agreed that the IRP functions as an independent facilitator of the insolvency process, and therefore even the possibility of bias should be avoided. Accordingly, the appellate tribunal affirmed the direction to substitute the IRP to ensure fairness and transparency in the Corporate Insolvency Resolution Process.

(iii)Decision of the Supreme Court The matter was further appealed before the Supreme Court of India. The Supreme Court observed that under the Insolvency and Bankruptcy Code, there is no statutory provision which automatically disqualifies a person from acting as IRP merely because he was previously employed by the financial creditor. Past employment by itself cannot be treated as a legal ground for disqualification.

However, during the proceedings both parties agreed that another Insolvency Professional could be appointed so that the insolvency process could proceed without controversy.

In view of this consensus, the Supreme Court allowed the substitution of the IRP, while clarifying that mere past employment with a creditor does not automatically establish bias or ineligibility.

Thus, the present situation closely resembles with the above highlighting the importance of independence of Insolvency Professionals as well as established that Past employment by itself cannot be treated as a legal ground for disqualification.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 4(b) (Syllabus 2022).

l Section 17 of the of the Insolvency and Bankruptcy Code, 2016 vests the management and control of the CD with the RP and Section 25(2)(b) of the Code obligates the RP to represent and act on behalf of the CD with third parties, exercise rights on behalf of CD in judicial, quasi-judicial or arbitration proceedings.

l There was no reasonable ground as to why Arbitration proceeding was not within the knowledge of the RP as the notices / order / correspondence in the matter would be addressed to the CD at its registered address as against the residential address of its ex-director or promoter.

l RP having taken effective control on the records and documents of the CD cannot assert that proceedings were kept away from him in a wrongful or clandestine way.

l That the RP was ignorant of the award of insurance claim when an amount of INR 8.3 Crores was received in the bank account was unfathomable and reflects that RP failed to take due diligence in finding the reasons for the receipts, which is per se untenable under provisions of the Code l This issue requires further investigation and IP explanation is not correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 2(c)(ii) (Syllabus 2022).

The above facts are similar to the case of U. Balakrishna Bhat, Insolvency Professional (IP), decided on 11th January, 2021.

The credibility of the processes under the Insolvency & Bankruptcy Code (IBC)

depends upon the observance of the Code of conduct by the IRP/RP during the process.

Section 208 of the IBC casts an obligation on Insolvency Professional (IP) to abide by the code of conduct and comply with all requirements and terms and conditions specified in the byelaws of the IP agency of which he is a member. Section 208(2) which relates to the functions and obligations of insolvency professionals, states that every insolvency professional shall abide by the following code of conduct: -

(a)to take reasonable care and diligence while performing his duties;

(b)to comply with all requirements and terms and conditions specified in the byelaws of the insolvency professional agency of which he is a member; and

(c)to perform his functions in such manner and subject to such conditions as may be specified."

It was further noted that the certificate of registration granted to an IP is subject to the condition that he should follow at all times the provisions of the Code and Regulations and the bye-laws of Insolvency Professional Agency of which the IP is a member and also follow the Code of Conduct specified in the First Schedule to the IP Regulations including maintaining of integrity and professional competence for rendering professional service, representation of correct facts and correcting misapprehension, not to conceal material information and not to act with mala fide or with negligence.

In the present matter, Mr. Suresh Kumar had given consent to accept the assignment as IRP in June, 2018 in the CIRP of the CD and the CIRP commenced in November,

2019. However, it is also observed that Mr. Suresh Kumar was ratified as RP in the CIRP of the CD in the 1st meeting of the CoC held on 19th January, 2020, i.e., after the threshold date of 31st December, 2019 without having a valid AFA. Mr. Suresh Kumar has submitted that since the provision relating to AFA was newly inserted and made effective on 1st January, 2020, he was under the impression that it was not applicable for the ratification to act as RP.

Though acceptance of assignment was given prior to cut off date, i.e., 31st December, 2019, however, it was held that notification for AFA was issued on 23rd July 2019, hence RP was having sufficient time to apply for AFA.

In the above case, the IP has not complied with the section 208 of the IBC, therefore an order has been passed against the IP by the DC of IPA for accepting assignment as RP after 31st December, 2019 without holding a valid AFA in the CIRP of the CD and it has been decided that IP is guilty of Professional Misconduct and a penalty of Rs.

10,000/- has been imposed.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 6(a) (Syllabus 2017).

Integrity and Objectivity

1.An insolvency professional must maintain integrity by being honest, straightforward, and forthright in all professional relationships.

2.An insolvency professional must not misrepresent any facts or situations and should refrain from being involved in any action that would bring disrepute to the profession.

3.An insolvency professional must act with objectivity in his professional dealings by ensuring that his decisions are made without the presence of any bias, conflict of interest, coercion, or undue influence of any party, whether directly connected to the insolvency proceedings or not.

4.An insolvency professional appointed as an interim resolution professional, resolution professional, liquidator, or bankruptcy trustee should not himself acquire, directly or indirectly, any of the assets of the debtor, nor knowingly permit any relative to do so.

Independence

1.An insolvency professional must maintain complete independence in his professional relationships and should conduct the insolvency resolution, liquidation or bankruptcy process, as the case may be, independent of external influences.

2.In cases where the insolvency professional is dealing with assets of a debtor during liquidation or bankruptcy process, he must ensure that he or his relatives do not knowingly acquire any such assets, whether directly or indirectly unless it is shown that there was no impairment of objectivity, independence or impartiality in the liquidation or bankruptcy process and the approval of the Board has been obtained in the matter.

3.An insolvency professional shall not take up an assignment under the Code, if he, any of his relatives, any of the partners or directors of the insolvency professional entity of which he is a partner or director, or the insolvency professional entity of which he is a partner or director is not independent, in terms of the Regulations related to the processes under the Code, in relation to the corporate person/ debtor and its related parties.

4.An insolvency professional shall disclose the existence of any pecuniary or personal relationship with any of the stakeholders entitled to distribution under sections 53 or 178 of the Code.

5.An insolvency professional shall not influence the decision or the work of the committee of creditors or debtor, or other stakeholders under the Code, so as to make any undue or unlawful gains for himself or his related parties, or cause any undue preference for any other persons for undue or unlawful gains and shall not adopt any illegal or improper means to achieve any mala side objectives

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 5(b) (Syllabus 2017).

In the matter of Alchemist Asset Reconstruction Co. Ltd. vs. Hotel Gaudavan Pvt.

Ltd., the IRP prayed for protection for all acts done by him in good faith and to save him from the frivolous allegations made against him in a FIR filed by a former director of corporate debtor.

The NCLT observed that If, there is any complaint against the Insolvency Professional then the IBBI is competent to constitute a disciplinary committee and have the same investigated from an Investigating Authority as per the provision of Section 220 of the Code. If, after investigation IBBI finds that a criminal case has been made out against the Insolvency Resolution Professional then the IBBI has to file a complaint in respect of the offences committed by him. It is with the aforesaid object that protection to action taken by the IRP in good faith has been accorded by section 233 of the Insolvency and Bankruptcy Code (IBC). There is also complete bar of trial of offences in the absence of filing of a complaint by the IBBI as is evident from a perusal of section 236(1) & (2) of the Insolvency and Bankruptcy Code (IBC).

Therefore, a complaint by a former director with the SHO, Police Station would not be maintainable and competent as the complaint is not lodged by the IBBl. The jurisdiction would vest with Investigation Officer only when a complaint is filed by 'IBBI'.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2(b) (Syllabus 2017).

Powers of the Disciplinary Committee Section 220 of the Insolvency and Bankruptcy Code, 2016 deals with the appointment of disciplinary committee. It provides that-

1.The Board shall constitute a disciplinary committee to consider the reports of the investigating authority submitted under section 218(6).

Provided that the members of the disciplinary committee shall consist of whole-time members of the Board only.

2.On examination of the report of the Investigating Authority, if the disciplinary committee is satisfied that sufficient cause exists, it may impose penalty as specified in sub-section 3 or suspend or cancel the registration of the Insolvency Professional (IP) or suspend or cancel the registration of Insolvency Professional Agency (IPA) or Information Utility (IU).

3.Where any IPA or IP or an IU has contravened any provisions of this Code or rules or regulations made, thereunder, the disciplinary committee may impose penalty which shall be-i. Three time the amount of the loss caused, or likely to have been caused, to persons concerned on account of such contravention; or ii. Three times the amount of the unlawful gain made on account of such contravention, whichever is higher.

Provided that where such loss or unlawful gain is not quantifiable, the total amount of the penalty imposed shall not exceed more than one crore rupees.

4.Notwithstanding anything contained in sub-section (3), the board may direct any person who has made unlawful gains or averted loss by indulging in any activity in contravention of this Code, or the rules or regulations made thereunder, to disgorge an amount equivalent to such unlawful gain or aversion of loss.

5.The Board may take such action as may be required to provide restitution to the person who suffered loss on account of any contravention from the amount so disgorged, if the person who suffered such loss is identifiable and the loss suffered is directly attributable to such person.

6.The Board may make regulations to specify-a. the procedure for claiming restitution under sub-section (5), b. the period within which such restitution may be claimed, and c. the manner in which restitution of amount may be made.

Cancellation or suspensions of registration of IPA Section 201(5) of the Insolvency and Bankruptcy Code, 2016 deals with the provisions relating to the cancellation or suspension of registration of IPA. It provides that the Board may, by order, suspend or cancel the certificate of registration granted to an IPA on any of the following grounds namely:

a.that is has obtained registration by making a false statement or misrepresentation or by any other unlawful means; b. that it has failed to comply with the requirements of the regulations made by the Board or bye-law made by the IPA; c. that is has contravened any of the provisions of the Act or the rules or the regulations made thereunder; d. on any other ground as may be specified by regulations.

Provided that no order shall be made under this sub-section unless the IPA concerned has been given a reasonable opportunity of being heard.

Provided further that no such order shall be passed by any member except whole-time members of the Board.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 3(b) (Syllabus 2017).

Schedule I of IBBI (Insolvency Professionals) Regulations, 2016 deals with Code of Conduct for the Insolvency professional:

Remuneration and Costs

25.An insolvency professional must provide service for remuneration which is charged in a transparent manner, is a reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations.

25A. An insolvency professional shall disclose the fee payable to him, the fee payable to the insolvency professional entity, and the fee payable to professionals engaged by him to the insolvency professional agency of which he is a professional member and the agency shall publish such disclosure on its website.

25B. An insolvency professional shall raise bills or invoices in its name towards its fees, and such fees shall be paid to it through banking channel.

25C. An insolvency professional shall ensure that the insolvency professional entity or the professional engaged by it raises bills or invoices in their own name towards their fees, and such fees shall be paid to them through banking channel.

26.An insolvency professional shall not accept any fees or charges other than those which are disclosed to and approved by the persons fixing its remuneration.

26A. An insolvency professional shall not accept /share any fees or charges from any professional and/or support service provider who are appointed under the processes.

27.An insolvency professional shall disclose all costs towards the insolvency resolution process costs, liquidation costs, or costs of the bankruptcy process, as applicable, to all relevant stakeholders, and must endeavour to ensure that such costs are not unreasonable.

27A. An insolvency professional shall, while undertaking assignment or conducting processes, exercise reasonable care and diligence and take all necessary steps to ensure that the corporate person complies with the applicable laws.

27B. An insolvency professional shall not include any amount towards any loss, including penalty, if any, in the insolvency resolution process cost or liquidation cost, incurred on account of non-compliance of any provision of the laws applicable on the corporate person while conducting the insolvency resolution process, fast track insolvency resolution process, liquidation process or voluntary liquidation process, under the Code.

Gifts and Hospitality

28.An insolvency professional, or his relative must not accept gifts or hospitality which undermines or affects his independence as an insolvency professional.

29.An insolvency professional shall not offer gifts or hospitality or a financial or any other advantage to a public servant or any other person, intending to obtain or retain work for himself, or to obtain or retain an advantage in the conduct of profession himself.

(ii)Arun Verma’s acceptance of gifts and lavish hospitality created a conflict of interest, undermining his impartiality and objectivity. As an insolvency professional, he was expected to act in the best interests of all stakeholders and maintain transparency, but his actions raised questions about his integrity and the fairness of his decisions in the insolvency proceedings.

(iii)Consequences of Arun Verma’s Unethical Behaviour:

1.Removal from the Case: Arun Verma’s actions came to light after an investigation, and as a result, he was removed from his role as the insolvency resolution professional (IRP).

His unethical behaviour undermined the trust and integrity of the insolvency process, and therefore, the creditors and the Adjudicating Authority decided to appoint a new, impartial IRP to ensure that the process would continue in a transparent and fair manner.

2.Legal and Professional Consequences: Arun Verma faced legal action for his unethical conduct. He was charged with misconduct and breach of duty, which could lead to significant legal consequences, including fines or even criminal charges depending on the nature and severity of the fraudulent activities. Additionally, his actions would have severely impacted his professional reputation. He might have faced suspension or disbarment from the professional body overseeing insolvency practitioners.

3.Reputation Damage: The damage to Arun Verma’s reputation in the industry would be significant. As an insolvency resolution professional, credibility and integrity are essential.

His unethical behaviour would lead to a loss of confidence from both creditors and stakeholders, making it difficult for him to secure future appointments in similar roles.

Insolvency professionals are trusted with sensitive financial matters, and any breach of this trust can have long-lasting effects on their career.

4.Increased Scrutiny on the Insolvency Process: The unethical conduct also led to scrutiny and challenges in the overall insolvency resolution process for XYZ Ltd. Other creditors and stakeholders questioned the legitimacy of the entire process, potentially delaying or complicating the resolution. The National Company Law Tribunal (NCLT) might have intervened to reassess the fairness of the proceedings, which could prolong the resolution and increase costs for all involved parties.

5.Impact on Stakeholders: The unethical behaviour affected various stakeholders, including creditors, employees, and investors. Since the bidding process was skewed, certain creditors did not receive a fair share of the settlement, leading to dissatisfaction.

The employees of XYZ Ltd. were also impacted by the delays and uncertainty, potentially facing prolonged periods of job insecurity. Unethical behaviour can have a ripple effect that harms all stakeholders in the insolvency process.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 5(a) (Syllabus 2017).