INSOLVENCY AND BANKRUPTCY BOARD OF INDIA
INTRODUCTION
For the longest time, India's corporate regulatory system, for the resolution or reconstruction of failing enterprises and their liquidation, operated within the confines of a patchwork of various fragmented laws.[1] Moreover, the absence of a well-tailored insolvency and bankruptcy regulatory body made it difficult and challenging to regulate corporate shortcomings, like company failures and the subsequent reformation of such failing companies. The situation was in demand of immediate attention since it adversely affected the interests of both the creditor and the failing corporation.[2] It is in this light, that the government, in a way to provide relief to the chaos that had ensued, introduced, and enacted the Insolvency and Bankruptcy Code (IBC) in 2016.
Consequently, it was understood that while the IB code provided a basic legal framework to facilitate the resolution process of companies, an ecosystem of agencies and boards, headed by relevant professionals would have to be established under the code, to give the IB code practical legitimacy.[3] The establishment of the Insolvency and Bankruptcy Board of India is one step to this process.
1. THE IBBI: AN OVERVIEW
The Insolvency and Bankruptcy Board of India (Board), also known as the IBBI which was established on 1st October 2016 under the Insolvency and Bankruptcy Code, assumes itself as the most important organ in the new corporate regulation regime. This is because it helps the implementation of the IBC by acting as a governing body for all Insolvency Resolution Professionals, Insolvency Professional Agencies, and Information Utilities. It not only amends laws under the IBC to suit contemporary corporate scenario, but also enacts and enforce rules to resolve corporate insolvency, corporate liquidation, individual insolvency, and individual bankruptcy as per the Insolvency and Bankruptcy Code, 2016.[4] All this is further done in a time-bound fashion to maximize the value of the insolvent entity and give back the due amount to the creditors.
2. CONSTITUTION OF THE BOARD
The IBBI is headquartered in New Delhi and is currently headed by Shri Ravi Mittal, the Chairman of the board (since 2022).[5]
This Board in question, according to Section 189(1) of the Insolvency and Bankruptcy Code (IBC), consists of the following members appointed by the Central Government,[6]
- a Chairperson;
- three members from amongst the officers of the Central Government not below the rank of Joint Secretary or equivalent, one each to represent the Ministry of Finance, the Ministry of Corporate Affairs and Ministry of Law, ex officio;
- one member to be nominated by the Reserve Bank of India, ex officio;
- five other members to be nominated by the Central Government, of whom at least three shall be the whole-time members.
While it is to be noted that the appointment of these members is subject to their eligibility under Section 189 of the IBC, we can observe from Section 189(2), that the basic criteria for every member is that they shall be persons of ability, integrity and standing, who have shown capacity in dealing with problems relating to insolvency or bankruptcy and have special knowledge and experience in the field of law, finance, economics, accountancy or administration.[7]
Subsection (4) of Section 189 further mentions that the term of office of the Chairperson and members, with the exception of the ex-officio members, is five years or until they attain the age of sixty-five years and that members would be eligible for re-appointment provided that the criteria for that particular position are met.[8]
3. POWERS AND FUNCTIONS OF THE IBBI
The powers it exercises as well as the functions of the Board have been conferred to it under the Section196 of the IBC.
3.1 Functions
The general functions of the board as per Section 196 are as follows:[9]
a) Registration and Oversight
Register, renew, suspend, withdraw, cancel and specify the minimum eligibility requirements for registering insolvency professionals, insolvency professional agencies and information utilities
b) Regulatory Standards
Promote the development and regulate the practices and working of the insolvency professionals, insolvency professional agencies, information utilities and other institutions
c) Education and Examination
Lay down the minimum curriculum for the examination of the insolvency professionals for their enrolment as members of the insolvency professional agencies
d) Compliance and Monitoring
Carry out inspections, investigations, monitor the performance and audit the functioning of the insolvency professional agencies, insolvency professionals and information utilities and pass the required orders for compliance with the provisions of IBC and the regulations
e) Information Dissemination
The Board can call for any records and information from the insolvency professional agencies, insolvency professionals and information utilities and then publish such information, data, research studies, and other information as may be specified by regulations; the Board also has to Maintain and collect records and disseminate information relating to bankruptcy and insolvency cases, and in turn also specify the manner in which it is to be done
f) Committees and Governance
Constitute committees as needed and promote transparency and best practices in its governance
g) Technology and Communication
Maintain websites and other universally accessible necessary repositories of electronic information and specify data collection and storage mechanisms for
h) Collaboration and Guidelines
Enter into a memorandum of understanding with other statutory authorities and Issue necessary guidelines to the insolvency professionals, insolvency professional agencies and information utilities
i) Grievance Redressal
Specify mechanism for redressal of grievances against insolvency professionals, insolvency professional agencies, and information utilities and pass orders for their compliance with the provisions of the IBC and the regulations
j) Research and Audit
Conduct periodic study, research and audit the functioning and performance of to the agencies, professionals, and information utilities under it
k) Regulatory Processes
Specify mechanisms for issuing regulations, and conducting public consultation processes before notification of any regulations
l) Regulations and Guidelines
Make regulations and guidelines on matters relating to insolvency and bankruptcy, including mechanism for time bound disposal of the assets of the corporate debtor or debtor
m) Miscellaneous
Perform any other functions as may be prescribed under the IBC
3.2 Powers
Subsection (2) of Section 196 of the IBC states that the Board can make bye-laws to be adopted by the insolvency professional agencies covering various aspects like,[10]
a) Minimum standards for professional competence of agency members
b) Standards for professional and ethical conduct of agency members
c) Non-discriminatory requirements for enrolment as agency members
d) Procedures for granting membership
e) Establishment of a governing board for internal governance
f) Information submission requirements for members
g) Identification of specific classes of persons who would be provided with concessional or pro bono services by members
h) Grounds and procedures for imposing penalties on agency members
i) Establishment of a fair and transparent mechanism for grievance redressal
j) Grounds for expulsion of insolvency professionals from agency membership
k) The quantum of fee and manner of its collection for member induction
l) Procedures for enrolment of individuals as agency members
m) Manner of conducting examinations for enrolment of insolvency professionals
n) Manner of monitoring and reviewing the performance of agency members
o) Defining duties and activities for agency members
p) Procedures for disciplinary proceedings and penalty imposition on members
q) Utilization of penalty funds received from insolvency professionals
Subsection (3) of Section 196 of the IBC states that the Board while exercising the powers under IBC, shall be conferred with the same powers as are vested in a civil court under the CrPC. However, it is to be noted that such is application only when it is trying a suit in respect to the following matters,[11]
a) Discovery and production of books of account and documents at a specified place and time
b) Summoning and compelling the attendance of individuals for examination under oath
c) Inspection of books, registers, and documents of any person at any location
d) Issuing commissions for the examination of witnesses or documents
4. MEETINGS OF THE BOARD
The meetings of the Board are conducted in compliance with the provisions of Insolvency and Bankruptcy Board of India (Procedure for Governing Board Meetings) Regulations, 2017.
The provisions of the regulation state a few important things:[12]
- The Board shall meet at least four times a year and conduct at least one meeting in one quarter.
- The Chairperson shall preside at the Board meeting. However, in cases where the Chairperson cannot attend the Board meeting, the members present at the meeting can choose any other member to preside at the meeting.
- The Board meetings will be ordinarily held at the head office (New Delhi) of the IBBI. However, the Chairperson and the members of the Board can also hold meetings at other offices of the IBBI or any other place in India if they believe that it is expedient to do so.
- The quorum of the Board meeting is five members when the Board consists of eight or more members. On the other hand, the quorum is three members when the Board consists of less than eight members.
- All questions that come up in the Board meetings will be decided by the majority vote of the present and voting members. In the event of an equality of votes, the Chairperson, or in his absence, the person presiding, will have a casting or second vote.
5. LIMITATIONS OF THE IBBI
The implementation of the Insolvency and Bankruptcy Code (IBC) by the IBBI has significantly enhanced the legal environment for insolvency proceedings, ensuring justice and transparency. This, as a result, has led to the resolution process becoming more efficient and expeditious, benefiting both creditors and debtors. The IBC and IBBI regulations also assist in the development of a positive credit culture, promoting responsible lending and borrowing practices.[13] Furthermore, the Boards regulatory oversight encourages increasing transparency and accountability in the insolvency processes, in hindsight striving for the establishment of trust and confidence in the system as a whole.[14]
However, the functioning of the IBBI has its own limitations,
a) Potential for conflict of interests
The IBBI's members are appointed by the central government. If the government has a financial stake in the outcome of an insolvency or bankruptcy proceeding, it may create a situation of conflict of interests. As a result, the entire process is jeopardized.[15]
b) Limited scope of authority
The authority of the IBBI is confined to managing and regulating the insolvency and bankruptcy process; it has no jurisdiction over other parts of the financial system, such as banking, insurance, or securities markets. This may prevent it from addressing broader issues of financial stability and market integrity.[16]
c) Potential for regulatory burden and compliance costs
The IBBI oversees the enforcing of the IBC as well as supervising the insolvency procedure in India. This may entail the introduction of new legislation and requirements, which may result in increased compliance costs and administrative obligations for insolvency professionals and other stakeholders.[17]
CONCLUSION
The establishment of the IBBI in response to the period of chaos that had assumed prior to the introduction of the Insolvency and Bankruptcy Code in 2016, can be marked as a significant stride towards a more efficient and transparent corporate regulatory system.
The IBBI, as a governing body, plays a pivotal role in implementing the IBC, overseeing Insolvency Resolution Professionals, Insolvency Professional Agencies, and Information Utilities. By setting regulatory standards, facilitating education and examination, and ensuring compliance and monitoring, the IBBI contributes to the streamlined resolution of corporate insolvency and bankruptcy, thereby maximizing the value for creditors and debtors alike.
Now, while it is true that the IBBI has brought about notable improvements in the insolvency landscape, its success is not without limitations, including potential conflicts of interest, limited scope of authority, and the possibility of regulatory burdens. However, despite these obstacles, the IBBI's role in fostering a credit-positive culture and enhancing transparency remains crucial for the continued development of India's corporate regulatory structure. In addition, its efforts to promote public awareness of the insolvency and bankruptcy laws and processes in India help foster and encourage entrepreneurship, ultimately benefiting the country as a whole. The only possible way onward then, is with the realization that regular examination and adaptation will have to be employed to resolve the shortcomings and further refine the country's contemporary insolvency and bankruptcy processes.
REFERENCES
1. What is Insolvency and Bankruptcy Board of India (IBBI)?, India, available at: https://www.indianeconomy.net/splclassroom/what-is-insolvency-and-bankruptcy-board-of-india-ibbi/ (last visited on December 10, 2023)
2. Ibid.
3. Ibid.
4. What is Insolvency and Bankruptcy Board of India (IBBI)?, India, available at: https://www.taxmann.com/post/blog/412/what-is-insolvency-and-bankruptcy-board-of-india-ibbi (last visited on December 10, 2023).
5. Senior IAS officer Ravi Mittal takes charge as IBBI chairperson, India, available at: https://government.economictimes.indiatimes.com/news/psu/senior-ias-officer-ravi-mittal-takes-charge-as-ibbi-chairperson/89470224 (last visited on December 10, 2023).
6. The Insolvency and Bankruptcy Code, 2016 (No. 31 of 2016), s. 189.
7. Ibid.
8. Ibid.
9. The Insolvency and Bankruptcy Code, 2016 (No. 31 of 2016), s. 196.
10. Ibid.
11. Ibid.
12. Insolvency and Bankruptcy Board of India, India, available at: https://cleartax.in/s/insolvency-bankruptcy-board-india (last visited on December 11, 2023).
13. Insolvency and Bankruptcy Board of India (IBBI), India, available at: https://lawbhoomi.com/insolvency-and-bankruptcy-board-of-india-ibbi/ (last visited on December 10, 2023).
14. Ibid.
15. Ibid.
16. Ibid.
17. Ibid.
