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 Professionals and Insolvency Professional Agencies. In light of this power conferred on it by Section 196 and the powers conferred on it by Sections 203 and 205 read with Section 240, the IBBI on 21st November, 2016, has notified the Insolvency and Bankruptcy Board of India (IBBI) (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. The particulars and highlighting characteristics 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/REG001
- Sections under which the regulations have been notified – “In exercise of the powers conferred by sections 196, 203 and 205 read with section 240 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Insolvency and Bankruptcy Board of India hereby makes the following Regulations, namely.”
- Three (3) Chapters with Model Bye-laws of an Insolvency Professional Agency with annexure of Form A appended in the Schedule.
- Chapter I – Preliminary (Consists of the Short Title and Commencement and Definitions), Chapter II – Bye-laws (Deals provisions for bye-laws and their amendment), Chapter III – Governing Board (Deals its composition), Schedule – Model Bye-laws of an Insolvency Professional Agency (mentions the bye-law’s provisions and format in which each IPA has to form them), Form A – Certificate of Professional Membership.
Relation to the Companies Act – It is mentioned in the Regulation 2 that “Governing Board” means the Board of Directors as defined under Section 2 (10) of the Companies Act, 2013. The Schedule to the regulations further mentions that “relative” shall have the same meaning assigned to it under Section 2 (77) of the Companies Act, 2013. Also as can be seen from the Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016, an IPA has to be a registered company under Section 8 of the Companies Act, 2013.
IPAs will have Bye-Laws – As per the Regulation 3, a company shall submit to the Board its bye-laws along with the application for its registration as an IPA. The bye-laws of the IPA shall provide for all matters specified in the model bye-laws and be consistent with it. The IPA has to publish its bye-laws, the composition of all committees formed, and all policies created under the bye-laws on its website. These by-laws can be amended by the Governing Board as per Regulation 4.
- As mentioned in the Regulation 2, the “Governing Board” means the Board of Directors as defined under Section 2 (10) of the Companies Act, 2013 which states that “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company.
- As per Regulation 5 (1), the Governing Board shall have a minimum of seven directors. More than half of the directors shall be persons who are residing in India at the time of their appointment, and at all times during their tenure as directors. Not more than one fourth of the directors shall be insolvency professionals. More than half of the directors shall be independent directors at the time of their appointment, and at all times during their tenure as directors.
- As per Regulation 4, the Governing Board has the power to amend the bye-laws made by the IPA. The amendments to the bye-laws shall come into effect on the seventh day of the receipt of the approval.
- As per the Schedule, the Governing Board shall constitute an Appellate Panel that will look into the appeals from the aggrieved parties from the orders of the Disciplinary Committee.
- The Directors will elect an Independent Director as the Chairperson.
- An independent director shall be an individual who is – (a) a person of ability and integrity; (b) has expertise in the field of finance, law, management or insolvency; (c) not an insolvency professional; (d) not a relative of the directors of the Governing Board; (e) had or has no pecuniary relationship with the insolvency professional agency, or any of its directors, or any of its shareholders holding more than ten percent of its share capital, during the two immediately preceding financial years or during the current financial year; (f) not a shareholder of the insolvency professional agency; (g) not a member of a governing council of any of the shareholders holding more than ten percent of the share capital of the insolvency professional agency.
- No meeting of the Governing Board shall be held without the presence of at least one independent director.
Objectives and Duties of the IPA – The objectives and duties an IPA must have are specified in the Schedule’s Model Bye-Laws.
- The objective is to carry on the prescribed functions and that there are activities which it should statutorily abstain from carrying on.
- The duties of an IPA are – (1) to maintain high ethical and professional standards in the regulation of its professional members; (2) and also to (a) ensure compliance with the Code and rules, regulations and guidelines issued thereunder governing the conduct of insolvency professional agencies and insolvency professionals; (b) employ fair, reasonable, just, and non-discriminatory practices for the enrolment and regulation of its professional members; (c) be accountable to the Board in relation to all bye-laws and directions issued to its professional members; (d) develop the profession of insolvency professionals; (e) promote continuous professional development of its professional members; (f) continuously improve upon its internal regulations and guidelines to ensure that high standards of professional and ethical conduct are maintained by its professional members; and (g) provide information about its activities to the Board.
Committees of the Agency – The IPA is required by the Schedule’s Model Bye-Laws to constitute certain committees. The Chairperson of each of these Committees shall be an Independent Director.
- Advisory Committee of Professional Members – It shall advise it on any matters pertaining to- (a) the development of the profession; (b) standards of professional and ethical conduct; and (c) best practices in respect of insolvency resolution, liquidation and bankruptcy. It will meet according to the directions of the Governing Body.
- Membership Committee – One or more Membership Committee(s) consisting of such members as it deems fit. An applicant aggrieved of a decision rejecting his application may appeal to the Membership Committee of the Agency within thirty days from the receipt of such decision. The Membership Committee shall pass an order disposing of the appeal in the manner it deems expedient, within thirty days of the receipt of the appeal.
- Monitoring Committee – Consisting of such members as it deems fit. The Monitoring Committee shall review the information and records submitted by the professional members in accordance with the Monitoring Policy.
- Grievance Redressal Committee – One or more, with not less than three members, at least one of whom shall be a professional member of the Agency. The Grievance Redressal Committee is based on the IPA’s Grievance Redressal Policy and after examining the grievance against the IPA or any professional member, it may- (a) dismiss the grievance if it is devoid of merit; or (b) initiate a mediation between parties for redressal of grievance. It shall refer the matter to the Disciplinary Committee, wherever the grievance warrants disciplinary action.
- Disciplinary Committee – One or more, consisting of at least one member nominated by the Board. The orders that may be passed by the Disciplinary Committee shall include- (a) expulsion of the professional member; (b) suspension of the professional member for a certain period of time; (c) admonishment of the professional member; (d) imposition of monetary penalty; (e) reference of the matter to the Board, which may include, in appropriate cases, recommendation of the amount of restitution or compensation that may be enforced by the Board; and (f) directions relating to costs.
- Appellate Panel – The Governing Board shall constitute an Appellate Panel consisting of one independent director of the Agency, one member from amongst the persons of eminence having experience in the field of law, and one member nominated by the Board. Any person aggrieved of an order of the Disciplinary Committee may prefer an appeal before the Appellate Panel within thirty days from the receipt of a copy of the final order. The Appellate Panel shall dispose of the appeal in the manner it deems expedient, within thirty days of the receipt of the appeal.
Policies of the Agency – The Schedule’s Model Bye-Laws prescribe the formulation of certain policies by the IPA.
- Monitoring Policy – The Agency shall have a Monitoring Policy to monitor the professional activities and conduct of professional members for their adherence to the provisions of the Code, rules, regulations and guidelines issued thereunder, these bye-laws, the Code of Conduct and directions given by the Governing Board. The Monitoring Policy shall provide for the following – (a) the frequency of monitoring; (b) the manner and format of submission or collection of information and records of the professional members, including by way of inspection; (c) the obligations of professional members to comply with the Monitoring Policy; (d) the use, analysis and storage of information and records; (e) evaluation of performance of members; and (f) any other matters that may be specified by the Governing Board. Further, the Monitoring Policy shall – (a) have due regard for the privacy of members, (b) provide for confidentiality of information received, except when disclosure of information is required by the Board or by law, and (c) be non-discriminatory.
- Grievance Redressal Policy – The Agency shall have a Grievance Redressal Policy providing the procedure for receiving, processing, redressing and disclosing grievances against the Agency or any professional member of the Agency. The Grievance Redressal Policy shall provide for- (a) the format and manner for filing grievances; (b) maximum time and format for acknowledging receipt of a grievance; (c) maximum time for the disposal of the grievance by way of dismissal, reference to the Disciplinary Committee or the initiation of mediation; (d) details of the mediation mechanism (e) provision of a report of the grievance and mediation proceedings to the parties to the grievance upon dismissal or resolution of the grievance; (f) action to be taken in case of malicious or false complaints; (g) maintenance of a register of grievances made and resolutions arrived at; and (h) periodic review of the Grievance Redressal Mechanism.
- Disciplinary Policy – The Agency shall have a Disciplinary Policy, which shall provide for the following – (a) the manner in which the Disciplinary Committee may ascertain facts; (b) the issue of show-cause notice based on the facts; (c) disposal of show-cause notice by a reasoned order, following principles of natural justice; (d) timelines for different stages of disposal of show cause notice; and (e) rights and obligations of the parties to the proceedings.
Professional Membership – The Schedule’s Bye-laws provide that no individual shall be enrolled as a professional member if he is not eligible to be registered as an insolvency professional with the Board provided that the Governing Board may provide additional eligibility requirements for enrolment provided further that such additional requirements shall not discriminate on the grounds of religion, race, caste, gender, place of birth or professional affiliation. It is further provided that what shall be the procedure for enrolling as a professional member, fees required and that there shall be a register of their names which can be inspected by the Board and the Adjudicating Body. The Schedule also provides for temporary surrender, surrender and expulsion from professional membership.