A charter of responsibilities of IPs and CoC
Subject: In aid of Insolvency Professionals and Committee of Creditors involved in the Corporate Insolvency Resolution Process.
Ref: IBBI-Facilitation / 002 / 2019 dt. 01st March, 2019
The Insolvency Professionals (IPs) and the Committee of Creditors (CoC) constitute key institutions of public faith under the Insolvency and Bankruptcy Code, 2016 (Code). The Code read with Regulations made thereunder has demarcated responsibilities of an IP and of the CoC in the corporate insolvency resolution process (CIRP) and also assigned certain responsibilities to them jointly. The emerging jurisprudence is bringing further clarity about their roles in a CIRP.
2. An IP, when acting as an Interim Resolution Professional or Resolution Professional, is vested with an array of statutory and legal duties and powers. He exercises the powers of the board of directors of the corporate debtor undergoing resolution. He manages operations of the corporate debtor as a going concern, protects the value of its property and complies with applicable laws on its behalf. In fact, he conducts the entire CIRP. The stakeholders are required to co-operate with him in discharge of his functions. In its order dated 16th January, 2019 in the matter of Asset Reconstruction Company (India) Pvt. Ltd. Vs. Shivam Water Treaters Pvt. Ltd., the Hon’ble Adjudicating Authority held: “.. RP (Resolution Professional) is acting as an officer of the Court and any hindrance in the working of the CIRP will amount to contempt of court.” In its order dated 18th February, 2019 in the same matter, the Hon’ble Adjudicating Authority held: “It is to be clarified that RP is discharging her duties as Court Officer and any non-compliance of the Court Officer will be deemed as Contempt of Court.”.
3. The Code shifts the control of a corporate debtor, when it is admitted into CIRP on its failure to service a debt, to creditors represented by a CoC for resolving its insolvency. The CoC holds the key to the fate of the corporate debtor and its stakeholders. Several actions under the Code require approval of the CoC. It may approve a resolution plan after considering its feasibility and viability.In the judgement dated 5th February, 2019 in the matter of K. Sashidhar Vs. Indian Overseas Bank &Ors., the Hon’ble Supreme Court held: “The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors.” It further observed: “Besides, the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. ………. The legislature, consciously, has not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the adjudicating authority. That is made non-justiciable.”
4. There are certain matters where both the IP and the CoC have defined roles. Various actions under section 28 are taken by the IP only with the prior approval of the CoC. In the judgement cited in Para 3 above, the Hon’ble Supreme Court held: “The CoC is called upon to consider the resolution plan under section 30(4) after it is vetted and verified by RP as being compliant with all the statutory requirements specified under section 30(2).” While specifying their roles, the Code does not envisage one assuming the role of the other. In the said judgement, the Hon’ble Supreme Court observed: “The Resolution Professional is not required to express his opinion on matters within the domain of the financial creditors, to approve or reject the resolution plan, under section 30(4) under the I&B Code”.
5. It is, therefore, necessary that the IP and the CoC have a complete and clear understanding of their roles and responsibilities in a CIRP under the Code. A charter of their responsibilities prepared in consultation with the three insolvency professional agencies is at Annexure for guidance. This charter is only indicative and meant for the sole purpose of educating the
stakeholders. A stakeholder must refer to the Code and Rules/Regulations made thereunder or seek professional advice if he intends to take any action or decision in any matter under the Code.
All Insolvency Professionals and other stakeholders.
Encl.: Annexure as above.