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B. Insolvency Professional Agencies (IPAs) IPAs are self-regulating professional bodies that focus on developing the profession ofinsolvency professionals. The IBBI has oversight over the functioning of IPAs who in turnregulate the functioning of Insolvency Professionals and monitors their performance underthe IBC1. IPAs carry out functions in furtherance of their powers as prescribed in the IBC,including2:- regulatory functions, such as drafting detailed standards and codes of conduct that aremade public and are binding on all members;- executive functions, such as monitoring, inspecting and investigating members,gathering information on the performance of insolvency professionals;- quasi-judicial functions, such as addressing grievances of aggrieved parties, hearingcomplaints against members and taking suitable actions. The Model Bye-Laws of an IPA require the IPA to continuously improve upon its internalregulations and guidelines to ensure that high standards of professional and ethical conductare maintained by its professional members. It further recommends the IPAs to form anAdvisory Committee of professional members of the IPA to advise the IPA on the mattersrelated to standards of professional and ethical conduct. At present, there are 3 IPAs promoted by the Institute of Chartered Accountants of India,the Institute of Company Secretaries of India, and the Institute of Cost Accountants of Indiarespectively. IPAs develop professional standards and code of ethics under the Code, audit thefunctioning of their members, discipline them and take actions against them if necessary. The Code mandates monitoring of the performance of IPs with respect to legal complianceand empowers IPAs to call for information and records. As part of this, an IP, inter alia, is required to file the following key disclosures with respectto each of his on-going assignments:- Month end disclosures on the status / progress of CIRP (progress reports)- Relationship disclosures (vide IBBI Circular no. No. IP/005/2018) with legal counsel,financial creditors, resolution applicants, valuers, other appointed professionals etc, atvarious milestones of the CIRP12Report of the Bankruptcy Law Reforms Committee Volume I: Rationale and Design, November 2015.IbidOverview of the Existing Ethical and RegulatoryFramework for Insolvency Professionals11

C. Insolvency Professional (IPs) An IP is a person who is enrolled with an IPA as a member and registered with the IBBIafter qualifying Limited Insolvency Examination. Any eligible person having the requiredexperience and qualifications including a chartered accountant, cost accountant, companysecretary, advocate, managerial person can seek registration with an IPA and IBBI aftermeeting the requirements of the regime. The Code has provided for a two-tier regulation of IPs:- The first-tier regulation of IPs is steered by the IPAs who administer the registration ofIPs and promote and supervise their continuous development- The second-tier regulation is steered by the IBBI which maintains a panel of IPs whohave no disciplinary proceedings pending or against them and who hold Authorisationfor Assignment or consented for assignments. This saves judicial time in appointments. Thus, an IP is a crucial pillar responsible for the effective, timely and credible functioning ofthe entire edifice of the insolvency and bankruptcy resolution process. In administering theresolution outcomes, the role of the IP encompasses a wide range of functions, whichinclude adhering to procedure of the law, as well as general management and financerelated functions. The IP is required to adhere to a strict code of conduct while performing his obligationsunder the Code and also ensuring there are adequate procedures and policies laid downand implemented by his team deployed on any ongoing CIRP.D. Information Utilities (IU) The IBC has introduced a new competitive industry ofIUs to provide core services and other services anddischarge such functions as may be necessary forproviding these services. Accordingly, the CodeThere is only 1 IU so farnamely National eGovernance ServicesLtd (NeSL)defined the term core services as services rendered by an IU for; (a) acceptance ofelectronic submission of financial information; (b) safe and accurate recording of financialinformation; (c) authentication and verification of financial information; and (d) providingaccess to information stored with the IU to persons as specified by the IBBI. In addition, aninsolvency professional may submit reports, registers and minutes in respect of anyOverview of the Existing Ethical and RegulatoryFramework for Insolvency Professionals12

insolvency resolution, liquidation or bankruptcy proceedings to an IU for storage, and the IUin turn holds the information as a custodian. Thus, the primary function of IUs is to provide high-quality and authenticated informationabout debts and defaults, potentially making them the backbone of a time-bound andeffective insolvency process. Information available with the utility can be used as evidence in bankruptcy cases beforethe National Company Law Tribunal. Moreover, the database and records maintained bythem would help lenders in taking informed decisions about credit transactions. It wouldalso make debtors cautious as credit information is available with the utility. While Section 215(2) of the Code stipulates that a financial creditor shall submit financialinformation and information relating to assets in relation to which any security interest hasbeen created, Section 215(3) of the Code suggests that operational creditors may alsosubmit financial information to the IU. Vide regulation 38(1) of the IBBI (Information Utilities) Regulations, 2017 an IP may alsosubmit reports, registers and minutes in respect of any insolvency resolution, liquidation orbankruptcy proceedings to an IU for storage. The details of information filed with the National e-Governance Services Limited (NeSL),registered as the first IU by the IBBI, show a growing trend of use of IUs by creditors. In thequarter ending March 2019, 173 financial creditors entered into agreement with NeSL and15,085 were registered as users, up from 108 and 10.247 respectively one quarter earlier.Further, as on September 30, 2020, a total of 1,86,091 loan records have beenauthenticated by debtors. Increased use of IUs is expected to eliminate informationasymmetry and improve implementation timelines under the IBC.E. Disciplinary Committee The conduct of insolvency professionals is overseen by the IBBI. Any person aggrieved bythe functioning of an insolvency professional can file a complaint with the insolvencyregulator. The IBBI, on receipt of a complaint, may cause for an inspection or investigationof the insolvency professional to be conducted within a fixed period of time in accordancewith the Insolvency and Bankruptcy Board of India (Inspection and Investigation)Regulations, 2017 with effect from June 12, 2017. Consequently, a disciplinary committeewill be constituted to consider the results of such an inspection or investigation. If thedisciplinary committee is satisfied that sufficient cause exists, it may impose a penalty on,Overview of the Existing Ethical and RegulatoryFramework for Insolvency Professionals13

or suspend or cancel the registration of, the insolvency professional. The IBBI is alsoempowered to direct any person who has made an unlawful gain or averted loss byindulging in any activity in contravention of the IBC to disgorge an amount equivalent tosuch unlawful gain made or loss averted. IBBI has constituted a Disciplinary Committee to consider and evaluate any contraventionof the Code by IPs, IPAs or IUs. No authority except the disciplinary committee appointedby IBBI is authorised to initiate, hear and dispose of disciplinary proceedings againstprofessionals and professional entities. These committees are constituted under various provisions of the Code and have the powerto impose penalties or suspend or cancel the registration of the IPs/ IPAs/ IUs as the casemay be. The Disciplinary Committee shall act on the basis of the findings of an investigation orinspection conducted by the Investigating Authority. IP is duty bound to provide appropriatedocumentation / information and timely responses to the Show Cause Notices issued bythe Disciplinary Committee with respect to any matter being investigated / inspected.Overview of the Existing Ethical and RegulatoryFramework for Insolvency Professionals14

CODE OF CONDUCT FOR INSOLVENCYPROFESSIONALSCODE OF CONDUCT FOR INSOLVENCYPROFESSIONALS

The First Schedule of the Insolvency and Bankruptcy Board of India (Insolvency Professionals)Regulations, 2016 provides for the Code of Conduct for Insolvency Professionals, as reproducedbelow. The detailed code of conduct has been included as an Annexure to this handbook.Integrity & Objectivity16

INTERPRETATION AND BEST PRACTICES FORINTERPRETATION ANDBEST PRACTICES FORINSOLVENCY PROFESSIONALSINSOLVENCY PROFESSIONALIntegrity & Objectivity17

INTEGRITY AND OBJECTIVITYIntegrityand Objectivity are among the fundamental principles of ethics for InsolvencyProfessionals. As per the First Schedule of the IP Regulations, an IP is required to: Maintain integrity by being honest and straight forward in all professional relationships Not misrepresent facts and refrain from actions that bring disrepute to the profession Be objective in his dealings i.e. decisions be made without conflict of interest, bias, coercion,or undue influence of any party, whether direct or indirect Disclose conflict of interest as soon as he comes to know of it Refrain from himself acquiring, whether directly or indirectly, the assets of the CD orknowingly permit his relatives to do soIntegrity envisages being straightforward and honest in all professional and businessrelationships. It implies fair dealing and truthfulness. The most important attribute of a professionalfor which he is accountable is integrity in character and conduct.Integrity, reputation and character are also pre-requisites for being considered as ‘fit and proper’ forregistration as IP under regulation 4 of the IP Regulations. A profession is only as good as itsmembers. Thus, it is necessary to ensure that a person with clean hands only can enter thisprofession to manage the operation of the CD and conduct the insolvency resolution process.In the matter of rejection of application for registration as an IP on the ground that the applicant isnot a fit and proper person as criminal proceedings were pending against him, the Board observed3:“ What is material is that what others feel about the applicant who has beencharge sheeted for offences such as criminal conspiracy, cheating Does such aperson inspire confidence of the stakeholders who can entrust him with propertyof lakhs of crores for management under corporate insolvency resolution process?Pendency of serious criminal proceedings against the applicant adversely impactshis reputation and makes him not a person fit and proper to become an IP.”3Order dt. 26.02.2018 passed by Whole Time Member of IBBIIntegrity & Objectivity18

A professional's reputation once dented, not onlyimpairs his own ability to render professionalFive Commandmentsservices, but also tarnishes the image of the entireRegulation 7(2) of the IP Regulationsprovides that the registration of an IP issubject to the conditions that the IPshall:profession. Accordingly, while every professionshould have tight entry criteria which allow only 'fitand proper' persons to become its members, it shouldalso have procedures in place to regularly screen itsmembers to determine whether they continue to meetthe 'fit and proper' criteria.An IP should consider himself an ambassador ofthe ecosystem as a whole and perform his dutiestowards his clients, being mindful of his largerresponsibility towards the ecosystem. At no pointshould his individual interests or the interests ofhis clients, or any stakeholder involved be placedA) at all times abide by the code, rules,regulations, and guidelines thereunderand the bye-laws of the IPA with whichhe is enrolled;B) at all times continue to satisfy therequirements under Regulation 4;C) undergo continuing professionaleducation;D) not outsource any of his duties andresponsibilities under the code, exceptthose specifically permitted by IBBI; andE) abide by the code of conduct.above the letter and spirit of the standards andlaws governing the profession.The IPs should not bring disrepute to the profession when undertakingmarketing or promotional activities, ensuring honesty and truthfulness, and shallrefrain from: Charging exaggerated claims for the services offered, or the qualificationsor experience of, the IP; or Disparaging references or unsubstantiated comparisons to the work ofothers. 44Ethics Code for Members issued by the Insolvency Practitioners Association of UK, dated March 2020 (InsolvencyPractitioners Association March 2020)Integrity & Objectivity19

Objectivity requires IP not to compromise professional or business judgements because ofbias, coercion, conflict of interest or undue influence of others, whether directly or indirectly. The IPmust visibly demonstrate his impartiality and lack of bias by: being transparent in all his interactions anddecisions, being collaborative and consultative with allparticipants of the CoC, and ensuring that all decisions are arrived at by activeconsensus and are not bull-dozed by a dominantparticipant or by the IP himself.An IP shall not undertake aprofessional activity if acircumstance orrelationship undulyinfluences the IP’sprofessional judgementregarding that activityAll actions of the office of the IP must speak for- Ethics Code for Members, InsolvencyPractitioners Association of UK, March 2020themselves as being honest, without fear and favour and keeping the best interests of all concerned.This was also aptly captured in the Order of the Disciplinary Committee of IBBI, dated April 17,20195, where the Committee opined that:“When relationship triumphs over merits in professional matters, there is no placefor independence, integrity and impartiality. A professional must not only beimpartial, but also appear to be impartial Any conduct, whether explicitlyprohibited in the law or not, is unfair if it impinges on independence, integrity andimpartiality of an IP or inconsistent with the reputation of the profession.”A conflict of interest creates threats to compliance with the principle of objectivity. An IP shouldnot allow a conflict of interest to compromise his professional or business judgement. Theenvironment in which IPs work and the relationships formed in their professional and personal livescan also lead to threats to the fundamental principle of objectivity. Objectivity may also be threatenedif: any individual within the firm, the close or immediate family of an individual within the firm or the firm itself,has or has had a professional or personal relationship which relates to the insolvency appointmentbeing considered.5IBBI Disciplinary Committee Case No. IBBI/DC/16/2019Integrity & Objectivity20

It is therefore necessary that before accepting an insolvency appointment, an IP takes reasonablesteps to identify circumstances (including any relationships) that might create a conflict of interest,and therefore a threat to compliance with objectivity or other fundamental principles of the Code ofConduct. Such steps shall include identifying: the nature of the relevant interests and relationships between all stakeholders; and the nature, extent and timing of any prior work for the entity or connected entities and itsimplication for all stakeholders.Timely disclosure of any conflict identified above, whether identified prior to appointment or duringthe performance of duties under the appointment to all stakeholders is critical. This might also requireconsent from various stakeholders such as CoC, creditors, etc to continue the appointment.Upon appointment, if the IP realises assets or sells business of the CD shortly after his appointmenton pre-agreed terms, this could also lead to an actual or perceived threat to objectivity. The salecould be seen as a threat to objectivity by creditors or others not involved in the prior agreement. Itis therefore important for the IPs to ensure that their decision-making processes are transparent,understandable and readily identifiable to all third parties who could be affected by a sale orproposed sale.THREAT FOR NON-COMPLIANCEThere are several factors and circumstances that could lead to threat for the IP to uphold his integrityand objectivity. While an exhaustive lis

3 PROLOGUE The profession of Insolvency Professionals (IPs) has evolved considerably in the short span of 4 years since December, 2016 with almost 3,200 IPs as on 30th September 2020 registered with the Insolvency and Bankruptcy Board of India ("IBBI" / "Board").