INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (INSOLVENCY PROFESSIONAL AGENCY) REGULATIONS, 2016 – AN OVERVIEW

[Mr. M. GOVINDARAJAN]

Section 196 of Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) gives powers to the Insolvency and Bankruptcy Board of India (‘Board’ for short) to register Insolvency Professional Agency (‘Agency’ for short), regulate and monitor the agencies.

Section 201 of the Code provides for the procedure of registration of Agency under the Code.  Section 202 of the Code provides for the procedure of filing appeal before the National Company Law Tribunal (‘Tribunal’ for short) against the order passed by the Board by the aggrieved party.

Section 219 gives powers to the Board to issue show cause notice to Agency and its member or information utility.  Section 220 of the Code provides for the appointment of disciplinary Committee.  Section 240 gives powers to the Board to frame regulations.

Code

In exercise of the powers conferred by Sections 196, 201, 202, 219 and 220 read with Section 240 of the Code, the Board made the ‘Insolvency and Bankruptcy of India (Insolvency Professional Agencies) Regulations, 2016 (‘Regulations’ for short) vide Notification No. IBBI/2016-17/GN/REG002, dated 21.11.2016.  These regulations came into effect from 21.11.2016.  The code provides for the procedure of registration of Agency, renewal, granting of certificate of registration, procedure for rejection application, surrender or cancellation of registration, taking of disciplinary proceedings, in-principal approval.  These regulations contain two schedules

Eligibility for registration

Regulation 3 provides for the criteria for the eligibility for Insolvency Professional Agency.  According to this regulation  the application should be a company registered under Section 8 of the Companies Act and-

• its sole object is to carry on the functions of an insolvency professional agency under the code;
• it has bye-laws and governance structure in accordance with the IBBI (Model Bye Laws and Governing Board of Insolvency Professional Agencies),2016;
• it has a minimum net worth of ₹ 10 crores;
• it has a paid up share capital of ₹ 5 crores;
• it is not under the control of person(s) resident outside India;
• not more than 49% of its share capital is held, directly or indirectly, by persons resident outside India; and
• it is not a subsidiary of a body corporate through more than one layer (subsidiary);
• itself, its promoters, its directors and persons holding more than 10% of its share capital are fit and proper persons; For determining whether a person is fit and proper the Board may take into account of any consideration as it deems fit, including but not limited to the following criteria-

• integrity, reputation and character;
• absence of convictions and restraint orders; and
• competence including financial solvency and net worth.

Registration procedure

The procedure for registration by a Insolvency Professional Agency is as detailed below-

• Eligible company may make an application to the Board in Form A which contains the application along with the Annexure-

• Part I – General Information;
• Part II – Memorandum of Association, Articles of Association and Bye-laws;
• Part III – Shareholding and financial strength;
• Part IV – Details of Directors and Employees;
• Part V – Infrastructure details;
• Part VI – Compliance (for renewal)

• The fee shall a non refundable of ₹ 10 lakhs;
• The Board shall acknowledge the application within 7 days of its receipt;
• The Board shall examine the application and given an opportunity to the applicant to remove the deficiencies, if any, in the application;
• The Board may require the applicant to submit additional documents, information or clarification that it deems fit;
• The Board may require the applicant to appear, within reasonable time, before the Board in person, or through its authorized representative for clarifications required for processing the application;
• If the Board is satisfied that the applicant is eligible and has adequate infrastructure to perform its functions under the code and has in its employment, persons having adequate professional and other relevant experience, to enable it to perform its functions and has complied with the conditions of the certificate of registration, it may grant a certificate of registration to the applicant to carry on the activities of an insolvency professional agency inform B;
• The certificate is to be granted within 60 days of the receipt of the application;
• The limitation shall exclude the time given by the Board for removing the deficiencies or presenting additional documents, information or clarification or appearing in person;

Conditions for registration

The registration shall be subject to the conditions, that the Agency shall-

• abide by the Code, rules, regulations and guidelines there under and its bye-laws;
• at all times after the grant of certificate continue to satisfy the requirements;
• pay a fee of ₹ 5 lakhs to the Board payable every year in which the certificate is granted;
• seek approval of the Board when a person, other than a statutory body, seeks to hold more than 10% directly or indirectly, of the share capital of the Agency;
• take adequate steps for redressal of grievances; and
• abide by such other conditions as may be specified.

Rejection of application

If the Board is prima facie opinion the registration ought not be granted or granted with additional conditions, it shall communicate the reasons for forming such an opinion and given the applicant an opportunity to explain why its application should be accepted within 15 days of the receipt of the communication from the Board, to enable it for a final opinion.  The said communication shall be made within 45 days of receipt of the application, to the applicant.  The said 45 days may exclude the time given by the Board for removing the deficiencies, presenting additional documents, information or clarifications or appearing in person, as the case may be.

After considering the explanation, if any given by the applicant the Board shall communicate its decision to accept the application, along with the certificate of registration or reject the application by an order, giving reasons thereof, within 30 days of receipt of explanation.

Renewal of registration

An Agency, who has been granted registration, may make an application for renewal in Form A six months before the expiry of such registration along with a non refundable application fee of ₹ 5 lakhs.  The applicant is to give additional information in Part V of Form A for compliance of the following-

• compliance with the conditions of its certificate of registration;
• compliance with the Board’s requirements in respect of reporting;
• providing details of any grievance redressal proceedings instituted against the agency.

The procedure applicable to registration shall apply for renewal of registration also.  The Board may renew a certificate of registration to the applicant in Form B within 60 days of receipt of the application.

The order rejecting an application for renewal of registration shall require the Agency to-

• discharge the pending obligations;
• continue its functions till such time as may be specified, to enable the enrolment of its members with another insolvency professional agency; and
• comply with any other directions as considered appropriate.

Surrender of registration

Regulation 7 provides that an Agency may submit an application for surrender of a certificate of registration to the Board, providing-

• the reasons for such surrender;
• the details of all the pending or ongoing engagements under the Code of the Insolvency Professionals enrolled with it;
• details of its pending or ongoing activities; and
• the manner in which it seeks to wind up its affairs as an Agency.

The Board shall publish notice of receipt of such application on its website within 7 days of the receipt of the application and invite objections to the surrender of registration to be submitted within 14 days of the publication of the notice.  If any objection is received the Board may considered the same within 30 days from the last date of submission of objections, approve the application for surrender of registration subject to the conditions as it deems fit.

The approval may require the Agency to discharge any pending obligations or continue its functions till such time as may be specified, to enable the enrolment of its members with another Agency.  The Board, after being satisfied that the requirements have been complied with by the Agency, shall publish a notice on its website stating the surrender of registration by the Agency has taken effect.

Disciplinary proceedings

Regulation 8 provides that the Board is of the prima facie opinion on the findings of an inspection or investigation or on material otherwise available on record, that sufficient cause exists to take actions it shall issue a show cause notice to the Agency.  The show cause notice shall be in writing and state the following-

• the provisions of the Code under which it has been issued;
• the details of the alleged facts;
• the details of the evidence in support of the alleged facts;
• the provisions of the Code, rules, regulations or guidelines there under allegedly violated or the manner in which the public interest is allegedly affected;
• the actions or directions that the Board proposes to take or issue if the allegations are established;
• the manner in which the Agency is required to respond to the show cause notice;
• consequences of failure to respond to the show cause notice; and
• procedure to be followed for disposal of the show cause notice.

The notice shall enclose copies of relevant documents and extracts of relevant portions from the report of the investigation or inspection or other records.  The notice shall be issued on the Agency in the following manner-

• by sending it to the Agency at its registered office, by registered post with acknowledgement due; or
• by email address provided by the Agency to the Board;

The Board shall constitute a Disciplinary Committee for disposal of the show cause notice.  The Committee shall dispose of the notice by a reasoned order in adherence to the principles of Natural Justice.  The Committee shall try to dispose of the notice within a period of 6 months of the assignment.  The Committee shall consider the submissions of the Agency.  After considering the relevant material facts and circumstances and material on record, the Committee shall dispose of the notice by a reasoned order.  The order may provide for-

• no action;
• any of the actions under Sections 220(2) to (4) or
• a reference to the Board to take any action under Section 220(5)

• Section 220(2) of the Code provides that penalty may be imposed on the Agency or cancel or suspend the registration of the agency;
• Section 220(3) of the Code provides that the Board may impose penalty-

• three times the amount of loss caused, or likely to have been caused, to persons concerned on account of such contravention; or
• three times the amount of unlawful gains made on account of such contravention

whichever is higher.  The total penalty shall not exceed ₹ 1 crore;

• Section 220(4) provides that the Board may direct any person to disgorge an amount equivalent to such unlawful gain or aversion of loss;
• Section 220(5) provides that the Board may take such action as may be required to provide restitution to the person who suffered loss on account of any contravention from the amount so disgorged, if the person who suffered such loss is identifiable and the loss is so suffered is directly attributable to such person.

The order of the Board shall not become effective until 30 days have lapsed from the date of issue of order.  The order shall be issued to the Agency and published on the website of the Board.

 In case the Board cancels the registration, the Disciplinary Committee shall require the Agency to-

• discharge pending obligations;
• continue its functions till such time as may be specified, to enable the enrolment of its members with another Agency; and
• comply with any other directions as considered appropriate.

Appeal

Regulation 9 provides that an appeal may be preferred within a period of 30 days of the receipt of the impugned order in the manner prescribed in Part III of the National Company Law Tribunal Rules, 2016.

In-Principal approval

Regulation 10 provides that any  person who seeks to establish an insolvency agency may make an application for an in-principal approval along with non refundable application fee of ₹ 10 lakhs.  If the Board is satisfied after such inspection or inquiry as it deems necessary, that-

• the applicant is a fit and proper person; and
• the proposed or existing company which may receive registration would be able to meet the requirements for grant of registration

it may grant in-principle approval.  This approval shall be valid for a period of one year and subject to such conditions as it deems fit.  During the validity period, the company may make an application for a certificate of registration as an Agency to the Board in accordance with the Regulations, but shall not be required to pay the application fees for registration.