Duties, fees and discipline of the resolution professional

Section 206 bars anyone from rendering services as an insolvency professional under the Code without being enrolled as a member of an insolvency professional agency and registered with the Board. Section 207 requires registration with the Board after obtaining membership, and lets the Board specify the categories of professionals and the qualifications and experience in finance, law, management or insolvency that qualify. An agency itself needs a certificate of registration from the Board under section 199.

Section 196 makes the Board responsible for registering, renewing, suspending and cancelling the registration of professionals and agencies, for specifying minimum eligibility and standards by regulation, and for inspections and investigations. Independence and conflict rules are in the code of conduct for insolvency professionals set out in the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, and the written communication a proposed interim resolution professional files under the Application to Adjudicating Authority Rules, 2016 includes disclosures made under that code. The Code itself fixes the duty of reasonable care and diligence in section 208(2).

Section 16 requires the Tribunal to appoint the interim resolution professional on the insolvency commencement date. Where a financial creditor or the company applies, the professional named in the application is appointed if no disciplinary proceeding is pending against him. Where an operational creditor applies without proposing one, the Tribunal refers the matter to the Board, which must recommend a name within ten days.

Section 22 requires the committee's first meeting within seven days of its constitution, at which a vote of not less than sixty-six per cent. of the voting share either confirms the interim professional as resolution professional, with his written consent, or proposes a replacement. The Tribunal sends the proposed name to the Board for confirmation, and if the Board does not confirm within ten days, the interim professional continues until it does.

Section 27 lets the committee, at any time during the process and by sixty-six per cent. of the voting shares, replace the resolution professional with another who has given written consent, subject to the Board's confirmation. On a liquidation order, section 34 makes the resolution professional the liquidator on written consent, and section 34(4) requires the Tribunal to replace him where his plan was rejected for failing section 30(2), or where the Board recommends replacement for reasons recorded in writing.

Section 25(1) makes it the professional's duty to preserve and protect the assets of the company, including its continued business operations. Section 25(2) then lists what the professional must do: take immediate custody and control of the assets and business records; represent the company with third parties and in judicial, quasi-judicial and arbitration proceedings; raise interim finance subject to the committee's approval under section 28; appoint accountants, legal or other professionals as the Board specifies; maintain an updated list of claims; convene and attend all committee meetings; prepare the information memorandum under section 29; invite prospective resolution applicants on criteria approved by the committee; present all resolution plans at committee meetings; and file avoidance applications under Chapter III.

Before the resolution professional is appointed, sections 17 and 18 place the interim professional in charge of management, with the board's powers suspended, and require him to collect information on the company's assets, finances and operations, receive and collate claims, constitute the committee and take custody of the assets. Section 21(10) requires the professional to give the committee any financial information it asks for within seven days.

Section 28(1) lists thirteen actions that need the committee's prior approval, including raising interim finance beyond the limit it has set, creating security, changing the capital structure, related party transactions, changing management and changing the statutory or internal auditors. Section 28(4) makes an action taken without approval void, and section 28(5) lets the committee report the professional to the Board.

In Swiss Ribbons Pvt. Ltd. v. Union of India the Supreme Court upheld the Code's provisions on the powers of resolution professionals and read the regulations as giving the resolution professional administrative, not quasi-judicial, powers. The professional collates and estimates claims, but where a determination on a transaction is made, the professional applies to the Tribunal for relief rather than deciding the matter. A liquidator, by contrast, admits or rejects claims under sections 38 to 40, with an appeal to the Tribunal under section 42.

The suspended directors are also entitled to the material. In Vijay Kumar Jain v. Standard Chartered Bank the Supreme Court held that members of the suspended board, who receive notice of committee meetings under section 24(3)(b), must be given the resolution plans and other relevant documents, and that confidentiality can be protected by non-disclosure undertakings. A professional who withholds plans from them on grounds of confidentiality alone is acting against that ruling.

Section 5(13) defines insolvency resolution process costs to include interim finance and the cost of raising it, the fees payable to any person acting as a resolution professional, the costs the professional incurs in running the business as a going concern, costs incurred at the Government's expense to facilitate the process, and other costs the Board specifies. Section 30(2)(a) requires every resolution plan to pay these costs in priority to other debts, and section 61(3)(iv) makes their omission a ground of appeal against the plan.

In liquidation, section 53(1)(a) pays the resolution process costs and the liquidation costs in full before any other class, and section 53(3) deducts the liquidator's fee proportionately from the proceeds payable to each class of recipient. Section 24(5) makes a creditor who appoints its own insolvency professional to represent it at committee meetings bear that professional's fee.

In Sunil Kumar Jain v. Sundaresh Bhatt the Supreme Court held that wages and salaries of workmen and employees for the period of the process form part of the resolution process costs only where the company was run as a going concern and they actually worked, and that provident fund, gratuity and pension fund dues are outside the liquidation estate and are paid separately. A professional who keeps the business running must account for those wages as costs.

Section 25(2)(j) requires the professional to file applications for avoidance of transactions under Chapter III, and section 26 lets them proceed without holding up the process. Under regulation 35A of the CIRP Regulations the professional forms an opinion on transactions covered by sections 43, 45, 50 or 66 by the seventy-fifth day of the insolvency commencement date, makes a determination by the one hundred and fifteenth day, and applies to the Tribunal by the one hundred and thirtieth day, the date substituted by the Fourth Amendment Regulations of 2022, which also require a copy of the application to go to prospective resolution applicants. The text the Supreme Court quoted in Swiss Ribbons in 2019 gave the one hundred and thirty-fifth day. Since 2021, regulation 40B(1B) requires Form CIRP 8 with the opinion and determination by the one hundred and fortieth day, and since 2022 regulation 35A(4) requires creditors to give the professional relevant extracts of their stock, transaction or forensic audits of the company.

Under section 47, if a creditor or member shows that an undervalued transaction took place and that the professional had sufficient information or opportunity to find it but did not report it, the Tribunal must reverse the transaction and require the Board to start disciplinary proceedings against the professional.

Section 208(2) binds every insolvency professional to a code of conduct: to take reasonable care and diligence, to comply with the bye-laws of the agency, to allow the agency to inspect his records, to submit copies of the records of every proceeding before the Tribunal to the Board and the agency, and to perform his functions as specified. Section 208(1) extends his functions to the corporate process, the pre-packaged process, liquidation and the individual processes, and section 208(1A) adds the duties before a pre-pack starts.

Any person aggrieved by a professional's functioning may complain to the Board under section 217. Under section 218 the Board may appoint an investigating authority on a complaint or where it has reasonable grounds to believe there has been a contravention, and section 219 then provides for a show cause notice. Section 220 sends the investigating authority's report to a disciplinary committee of whole-time members of the Board.

If the committee finds sufficient cause, section 220(2) lets it impose a penalty or suspend or cancel the professional's registration. Under section 220(3) the penalty is three times the loss caused or likely to have been caused, or three times the unlawful gain, whichever is higher, and where neither can be quantified it may not exceed one crore rupees. A professional facing a pending disciplinary proceeding also cannot be appointed on a creditor's or the company's proposal, because sections 7(5), 9(5), 10(4) and 16 all treat a pending proceeding as a bar.