Multiple CIRP Assignments .

Board vide Extraordinary Gazette Notification dated 22.07.2021 amended Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 (IPR). Now the amended clause 22 of “Code of Conduct for Insolvency Professional” (CCIP) reads as under;

Occupation, employability and restrictions.

# 22. An insolvency professional must refrain from accepting too many assignments, if he is unlikely to be able to devote adequate time to each of his assignments.

“Clarification: An insolvency professional may, at any point of time, not have more than ten assignments as resolution professional in corporate insolvency resolution process, of which not more than three shall have admitted claims exceeding one thousand crore rupees each.

The above clause of CCIP under IPR is violative of the provisions of the Code. Lets look into the provisions of the Code.

 

# Section 17. Management of affairs of corporate debtor by interim resolution professional. -

(1) From the date of appointment of the interim resolution professional, -

(a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional;

(b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional;

(c) the officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be required by the interim resolution professional;

(d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional.

(2) The interim resolution professional vested with the management of the corporate debtor, shall -

(a) act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other documents, if any;

(b) take such actions, in the manner and subject to such restrictions, as may be specified by the Board;

(c) have the authority to access the electronic records of corporate debtor from information utility having financial information of the corporate debtor;

(d) have the authority to access the books of accounts, records and other relevant documents of corporate debtor available with government authorities, statutory auditors, accountants and such other persons as may be specified; and

(e) be responsible for complying with the requirements under any law for the time being in force on behalf of the corporate debtor.

 

Section 17(2)(e) specifically provides that IRP in management of the affairs of the corporate debtor (CD/company under insolvency), shall be responsible for complying with the requirements  under any law for the time being in force. Thus as far as management of the CD is concerned, provisions of the Code or Regulations cannot override the requirements under any law for the time being in force.

 

Now let's look into the relevant provisions of “The Companies Act, 2013.

 

The  Companies Act,2013;

# Section 203. Appointment of key managerial personnel.—

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(3) A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time :

Provided that nothing contained in this sub-section shall dis-entitle a key managerial personnel from being a director of any company with the permission of the Board:

Provided further that whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel:

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(5) If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.

Key managerial personnel has been defined in Section 2(51) of The Companies Act, 2013, as under;

# Section 2(51) - key managerial personnel , in relation to a company, means—

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; 

(v) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and

(vi) such other officer as may be prescribed

# Section 2(53) “manager”, means an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, whether under a contract of service or not;

# Section 2(54) “managing director”. means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.

 

Duties of IRP detailed under section 17(1) falls within the definitions of managing director as per section 2(54) of The Companies Act,2013.

 

Thus, Section 17(2)(e) of the Code read with section 203(3) of “The Companies Act,2013, prohibits handling of multiple CIRP assignments by an Insolvency Professional. 

 

Here it is important to note that besides section 17, no other section of the Code directs for complying with the requirements under any law for the time being in force on behalf of the corporate debtor.

 

Besides above, as the Code does not have specific provisions on this aspect of the number of assignments an Insolvency Professional can handle at any one point of time, the provisions of Section 203 of “The Companies Act, 2013” shall prevail . 

 

Though nothing has been specified in the Code, on this aspect, the Board by incorporating the clause mentioned supra above in the “Code of Conduct for Insolvency Professionals”, has become complicit in violation of the “Law of the Land”. 

 

As per section 240(1) Board can frame regulations which are consistent with the Code.

Insolvency and Bankruptcy Code, 2016.

# 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.

 

Hon’ble Supreme Court (24.03.2006) in Kerala Samsthana Chethu Thozhilali Union v. State of Kerala [Appeal (civil) 1732 of 2006] held that: 

• "A rule is not only required to be made in conformity with the provisions of the Act where under it is made, but the same must be in conformity with the provisions of any other Act, as a subordinate legislation cannot be violative of any plenary legislation made by the Parliament or the State Legislature.” 

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.

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