Insolvency Professional Entity & RTI

Following institutions were created under the provisions of Insolvency & Bankruptcy Code, 2016 (IBC, 2016).

1. Insolvency & Bankruptcy Board of India (IBBI).

2. Insolvency Professional (IP).

3. Insolvency Professional Agency (IPA).

4. Information Utility (IU).

Board (IBBI), under Chapter V of Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 (IP Regulations), created the institution of “Insolvency Professional Entity” (IPE).

I raised certain queries in respect IPE’s with the Insolvency & Bankruptcy Board of India (IBBI) vide RTI dated 14.01.2020. Board replied to the RTI on 11.02.2020. Queries raised & reply of the Board (IBBI) are given below in tabular form.

Comparative study of RTI Query Dated 14.01.2020 & Board’s (IBBI) Reply Dated 11.02.2020

S. No.	RTI Query Dated 14.01.2020	IBBI Reply Dated 11.02.2020
1	1. Details of provisions of the Code (IBC, 2016) or any other law of the land from which the authority flows to the Board (IBBI) for creation of the institution of Insolvency Professional Entity (IPE).	1. See sub-section 1 of section 240 of the Code read with Insolvency and Bankruptcy Board of India Insolvency Professionals Regulations, 2016.
2	2. Amount of fees earned by Insolvency Professionals and Insolvency Professional Entities separately for the financial years ending March 2017, 2018 & 2019, as per yearly return being submitted by IPs & IPEs.	2. This is information is exempted under Section 8 (d) of the RTI Act.
3	3. Scope of support services being provided by IPEs to IPs in terms of Regulation 12(1)(a) of IP Regulations. Whether IPEs can provide support services during the liquidation process.	3. Kindly refer to Insolvency and Bankruptcy Board of India Insolvency Professionals Regulations, 2016.
4	4. Details of regulatory & disciplinary control over the IPEs.	4. Kindly refer to Insolvency and Bankruptcy Board of India Insolvency Professionals Regulations, 2016.
5	5. Whether IPE, an institution created by the Board, attracts the provisions of Chapter VI of Part IV of the Code, which specify provisions for Inspection and Investigation of service providers. If yes, please quote relevant sections of the Code, if not why.	5. This is not information under provisions of Section 2 (f) of the RTI Act.
6	6. Details of Compliances & disclosures required to be filed / submitted by IPEs, besides annual return of fees earned.	6. Kindly refer to Insolvency and Bankruptcy Board of India Insolvency Professionals Regulations, 2016.

Analysis;-

1. Reply is evasive. Board had been unable to quote provisions of the Code (IBC, 2016) or any other law of the land from which the authority flows to the Board (IBBI) for the creation of the institution of “Insolvency Professional Entity” (IPE). Sub-section 1 of section 240 of the Code reads as under;

• # Section 240. Power to make regulations. –

(1) The Board may, by notification, make regulations consistent with this Code and the rules made thereunder, to carry out the provisions of this Code.

Section 240 (1) does not empower the Board for the creation of an institution. Board can frame regulations consistent with the Code and the rules made thereunder, to carry out the provisions of this Code. In fact there is no mention of IPE in the entire Code (IBC, 2016) or any other law of the land.

2.  The information called for is not exempt as the information of a particular individual has not been called. Rather the information pertains to a class of individuals / professionals collectively. Board has not provided the information as the same could have revealed the malpractices in charging of fees by these  IPE’s. 

It is worthwhile to mention here that As per IBBI Circular no. IBBI/IP/013/2018 dated 12.06.2018, disclosures in respect of fee & expenses are to be made in individual cases & these disclosures are visible on the website of the concerned Insolvency Professional Agency (IPA).

a).  Form I : Details of Corporate Debtor Undergoing Insolvency Resolution Process

b). Form II : Insolvency Resolution Process Cost of Corporate Debtor for the period under IRP (Form l & ll are to  be submitted by IRP within 7 days of demitting of the office as IRP.)

c). Form III: Insolvency Resolution Process Cost of Corporate Debtor for the period under RP.  (Form lll is to be submitted by RP within 7 days of demitting of the office as RP.)

3. Reply is evasive. Regulation 12(1)a of Insolvency Professionals Regulations reads as under;

• # Regulation 12. (1) A company, a registered partnership firm or a limited liability partnership may be recognised as an insolvency professional entity, if –

(a) its sole objective is to provide support services to insolvency professionals, who are its partners or directors, as the case may be;

Neither the Code nor any of the rules or regulations, have defined the scope of the support services as mentioned in the regulation 12(1)(a) quoted supra above, which these IPE’s are required to provide. In fact there is no mention of IPE’s in the entire Code or the rules framed by the GOI. For the management of operations of CD as a going concern, section 20 of the Code reads as under;

• # Section 20. Management of operations of corporate debtor as going concern. -

(1) The interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.

(2) For the purposes of sub-section (1), the interim resolution professional shall have the authority-

• (a) to appoint accountants, legal or other professionals as may be necessary;

4. Reply is evasive. Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016. does not provide for any regulatory & disciplinary control over the IPEs.

5. Reply is evasive, as provisions (Chapter VI of Part IV of the Code) which specify for Inspection and Investigation of service providers, are not applicable on IPE’s. 

6. Reply is evasive. Board has not been able to provide the details of  Compliances & disclosures required to be filed / submitted by IPEs, other than annual return of fees earned by the IPE’s.

From the reply of the Board, it is clear that;

1. The institution of “Insolvency Professional Entity” (IPE) was created by the Board without any authority & mandate of “IBC, 2016” or any other law of the land. 

2. Scope of “support services” purported to be provided by these IPE’s are not defined. This provision of these “support services” is ultra- vires of the provisions of the Code under section 20, quoted supra above.

3. These institutions “IPE’s” are not subjected to;

• Any regulatory & disciplinary control under the Code / rules & regulations.

• Any Inspection and Investigation under the Code / rules & regulations..

• Any Compliances & disclosures under the Code / rules & regulations.

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.