Introduction: The Insolvency and Bankruptcy Code, 2016, mandates a seamless transition of assets and records during the Corporate Insolvency Resolution Process (CIRP). This article dissects the regulatory framework and operational challenges associated with the handing over and taking over of assets and records in the corporate insolvency landscape.
Section 19 of the Insolvency and Bankruptcy Code, 2016 (Code) imposes an obligation on the personnel and promoters of the Corporate Debtor to extend all assistance and co-operation required by the Interim Resolution Professional (IRP) in the management of the affairs of the Corporate Debtor. Where the personnel of the Corporate Debtor or any other person required to co-operate with the IRP do not extend co-operation or assistance to the IRP, the IRP may apply to the Adjudicating Authority for an order. The Adjudicating Authority may, by order, direct the person to comply with the instructions of the IRP or to provide information to the IRP.
It is to be noted that the Corporate Debtor does not fully cooperate with the Interim Resolution Professional/Resolution Professional and that is one of the major reasons for delay in the entire CIRP. It has been seen that even though Resolution Professional have a recourse under Section 19(2) of the Code to approach the courts to compel the cooperation by the corporate debtor, only 3% of the RPs have filed such an application and approached the courts on grounds of non-cooperation by the Corporate Debtor. It may be said that Section 19(2) of the Code is not being fully utilized by RPs to take recourse to the courts, on grounds of non-cooperation by the Corporate Debtor.
Section 19(2) of the Code do not describe what types of orders may be passed by the Adjudicating Authority. Generally, it has been seen that the Adjudicating Authority by order under Section 19(2) of the Code, direct the person to comply with the instructions of the IRP or to provide information to the IRP. Further, Adjudicating Authority has, many times, observed in the application under section 19(2) of the Code that there was no specific list of records or documents which could be provided by the Corporate Debtor and only general prayer was made by RP regarding non-cooperation by the Corporate Debtor.
Regulation 4(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016 (CIRP Regulations) stipulates that the personnel of the Corporate Debtor, its promoters or any other person associated with the management of the Corporate Debtor shall provide the information within such time and in such format as sought by the IRP or the RP, as the case may be. Further, it is the duty of the IRP under Section 18(1)(f) of the Code to take control and custody of any asset over which the Corporate Debtor has ownership rights as recorded in the balance sheet of the Corporate Debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets.
It is to be noted that the cooperation and timely communication of such information is crucial for the smooth conduct of the CIRP. However, there are instances where such information is not provided in a timely or efficient manner. Further, the regulations do not lay down how the control and custody of assets and records will be taken over.
In view of the above, a new Regulation 3A has been inserted by Notification No. No. IBBI/2023-24/GN/REG106, dated 18th September, 2023 (w.e.f. 18-09-2023).
It is provided under this new regulation that IRP/RP shall and collect all information relating to the assets, finances and operations of the Corporate Debtor as referred in Section 18(1)(a) of the Code. He shall take custody and control over the assets over the assets as per the balance sheet of the Corporate Debtor or in any other records referred in Section 18(1)(f) of the Code.
If such list of assets as per the balance sheet or in any other records is not readily available, the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall prepare a list of assets and records being handed over to the RP. In case the assets are not handed over or the list of documents is not prepared by CD, the same may be prepared by the RP at the time of taking custody of assets and records. Such list shall be signed by the parties present and by at least two individuals who have witnessed the act of taking control and custody of such assets and records.
The RP shall requisition from the Corporate Debtor, the assets which are recorded in the balance sheet or in any other records referred in Section 18(1)(f) and whose custody has not been handed over. The RP shall requisition from the Corporate Debtor, information relating to the assets, finances and operations of the corporate debtor referred in Section 18(1)(a) and which were required to be maintained by the Corporate Debtor but have not yet been handed over.
Any application made under Section 19(2) of the Code by the RP, in respect of failure to provide such assets or records as requisitioned shall be filed with the notice of such requisition. The application shall also demonstrate the absence of such asset and record in the list of assets and records (whose custody has been taken).
Conclusion: Efficient asset and record handover is essential for the successful resolution of corporate insolvency. However, challenges such as non-cooperation and procedural ambiguities hinder the process. Regulatory amendments like Regulation 3A aim to address these challenges, promoting transparency and expediting the resolution process. By adhering to regulatory guidelines and fostering cooperation between stakeholders, the insolvency ecosystem can achieve greater efficiency and effectiveness.
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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
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