The Insolvency and Bankruptcy Code, 2016 (31 of 2016) seeks to regulate and simplify the insolvency proceedings in India. In that endeavour, the Insolvency and Bankruptcy Board of India (IBBI) has been established under Section 188 (1) of Chapter I of Part IV of the Code. The Section 196 (1) of the Code (Chapter II of Part I) allows the IBBI to make regulations relating to the Insolvency Professional Agencies. In light of this power conferred on it by Section 196 and the powers conferred on it by Sections 201, 202, 219, and 220 read with Section 240, the IBBI on 21st November, 2016, has notified the Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016. The particulars and highlightingcharacteristics of this Notification can be enumerated as under:
Date of Publication
- 21st November, 2016
- Insolvency and Bankruptcy Board of India, Ministry of Corporate Affairs
- Notification Number – IBBI/2016-17/GN/REG002
- Sections under which the regulations have been notified – “In exercise of the powers conferred by sections 196, 201, 202, 219, and 220 read with section 240 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Board hereby makes the following Regulations to provide a framework for regulation of insolvency professional agencies in terms hereof, namely.”
- Four (4) Chapters with Form A and Form B appended in the Schedule
- Chapter I – Preliminary (Consists of the Short Title and Commencement and Definitions), Chapter II – Registration (Deals with Registration procedure of Insolvency Professional Agencies), Chapter III – Surrender or Cancellation of Registration (Deals with surrender reasons and procedure and Disciplinary Proceedings, i.e., why and how a registration would stand cancelled), Chapter IV – In-Principle Approval (Deals with In-Principle Approval / quick temporary approval from the IBBI), Schedule – Form A – Application for Certificate of Registration and Annexure to Form A, Form B – Certificate of Registration.
Relation to the Companies Act, 2013 – The regulations in Regulation 2 (1) (b) and (d) states that the definition of “control” will be the same as the definition given in Section 2 (27) of the Companies Act, 2013 and that the definition of “net worth” will be the same as Section 2 (57) of the Companies Act. It also mentions in Regulation 3 that an Insolvency Professional Agency must be a company registered under Section 8 of the Companies Act, 2013.
Registration of Insolvency Professional Agency –
- Only a company registered under the Section 8 of the Companies Act, 2013 is eligible to be registered as an Insolvency Professional Agency. This means that a non-profit entity can be registered as an IPA as Section 8 deals mostly with those entities. An IPA can also be a One-Person Company.
- It’s bye-laws and governance structure must be in accordance with the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies), 2016.
- It must have a minimum net worth of Rs. 10 crores and a paid-up share capital of Rs. 5 crores.
- It’s control (not more than 49% of its share-capital) should not be in the hands of persons residing outside India. It should also not be a subsidiary of a company through more than one layer.
- It (in case of a One-Person Company) or its promoters, directors and persons holding more than 10% of its share-capital should be fit and proper persons. That is to mean, they should be of good integrity, reputation and character, should not be convicted of any offence or be in the possession of any restraint orders and should not be declared insolvent.
- The registration application fee is a non-refundable fee of Rs. 10 lakhs which must be given with the Form A and the Annexure of the Form A as prescribed in the Schedule. An IPA who has been granted registration under Regulation 5 must make an application for renewal in Form A along with a non-refundable application fee of Rs. 5 lakhs, before 6 months of expiry of such registration.
- The registration will be subject to certain conditions, such as, the IPA has to (a) abide by the Code, rules, regulations, and guidelines thereunder and its bye-laws; (b) at all times after the grant of the certificate continue to satisfy the requirements under Regulation 5 (1); (c) pay a fee of five lakh rupees to the Board, payable every year after the year in which the certificate is granted or renewed; (d) seek approval of the Board when a person, other than a statutory body, seeks to hold more than ten per cent, directly or indirectly, of the share capital of the insolvency professional agency; (e) take adequate steps for redressal of grievances; and (f) abide by such other conditions as may be specified.
- The Certificate of Registration will be valid for a period of 5 years from the date of issue.
Prima Facie opinion of the Board – The prima facie opinion of the Board plays a major role and such an opinion is strong enough to send a notice of rejection of registration application and start a disciplinary proceeding by giving a notice of show-cause under this Regulation.
Disciplinary Committee – The Board has to establish a Disciplinary Committee to dispose of a show-cause notice under Regulation 8 (5), i.e., for conducting Disciplinary Proceedings. Such Committee has to adhere to the principals of natural justice and dispose of the show-cause notice within 6 months of its assignment. After considering the submissions made by the IPA, relevant material facts and circumstances and material on record, the Committee shall dispose of the show-cause notice by a reasoned order. The order in disposal of a show-cause notice may provide for- (a) no action; (b) warning; (c) any of the actions under section 220(2) to (4) of the Code; or (d) a reference to the Board to take any action under section 220(5) of the Code. Such order will not be effective unless 30 days have lapsed from the date of order unless otherwise stated. It will also have other functions as specified in the Regulation. An appeal from the Disciplinary Committee lies before the National Company Law Tribunal.
In-Principle Approval – The Board allows in-principle approval of the registration of an IPA with a non-refundable fee of Rs. 10 lakhs. This concept is a new one and it seeks to do away with the lengthy registration procedure and the waiting period for the IPA (before completion of registration) for an unnecessarily long time. It is basically a quick temporary approval granted by the Board if the valid requisites of Regulation 5 (1) are met, the validity of which will last for 1 year. The IPA has to apply for the regular permanent registration but need not pay the application fee once again.