Alerts & Updates

IBC | Legislative Alert | Pending disciplinary proceedings against Insolvency Professionals | Ineligibility to accept fresh assignment under the Code

Banking & Finance | Apr 25, 2018

The Insolvency and Bankruptcy Board of India (“IBBI”) has issued a circular dated April 23, 2018 (“Circular”) (available here) to clarify the circumstances when disciplinary proceedings are said to be pending against an insolvency professional (“IP”), and when such IPs should not accept any fresh assignment under the Insolvency and Bankruptcy Code, 2016 (“Code”).

As per the Circular:

1. The Code provides that an IP may be appointed as an interim resolution professional, resolution professional, liquidator or bankruptcy trustee if no disciplinary proceeding is pending against him/her, the Code however does not define the term ‘disciplinary proceeding’.

2. The IBBI took note of the following provisions under the Code:

(a) Section 219 of the Code envisages issue of show cause notice (“SCN”) following an inspection or investigation and Section 220 of the Code envisages constitution of a disciplinary committee for consideration of the inspection or investigation report.

(b) Various regulations made under the Code envisage issue of SCN based on findings of an inspection or investigation or on material otherwise available on record. They also envisage constitution of disciplinary committee for disposal of SCN.

(c) A SCN is issued after application of mind to the material available on record or on consideration of the inspection or investigation report. The disciplinary committee disposes of the SCN by a reasoned order in adherence to principles of natural justice.

(d) The reasoned order carries the determination of contravention, if any, of the provisions of the Code, the rules and regulations, or guidelines, directions or orders issued by the IBBI. Thus, a disciplinary proceeding commences with the issue of SCN and concludes with the disposal of SCN by a reasoned order.

3. Basis the aforementioned provisions under the Code (provided in detail in the Circular), the IBBI clarified that:

(a) a disciplinary proceeding is considered as pending against an IP from the time it has been issued a SCN by the IBBI till its disposal by the disciplinary committee; and

an IP who has been issued a SCN shall not accept any fresh assignment as interim resolution professional, resolution professional, liquidator, or a bankruptcy trustee under the Code.

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