The Insolvency and Bankruptcy Code (IBC) came into existence in 2016 as a crucial legal framework designed to address financial challenges faced by companies, organizations, and individuals. The IBC comprises four integral pillars, which collectively oversee the Corporate Insolvency Resolution Process (CIRP). These pillars include Insolvency Professionals (IP), Information Utilities (IU), Adjudicating Authority (AA), and the focus of our exploration, the Insolvency and Bankruptcy Board of India (IBBI).
IBBI – The Regulator of CIRP:
IBBI, established on October 1, 2016, operates under Section 188 of the IBC, playing a pivotal role in fostering efficiency and transparency within the nation’s insolvency and bankruptcy framework. IBBI serves as the regulator, overseeing both the profession and the procedures that govern the IBC.
The membership of IBBI consists of officers from the central government, including the Chairperson, a nominee of the Reserve Bank of India (RBI), and additional members appointed by the central government. Notably, three of these members must be full-time members. Section 232 classifies all IBBI members as public servants, as per Section 21 of the Indian Penal Code 1860. Moreover, Section 233 safeguards the Chairperson and other members from lawsuits or prosecutions, provided their actions are carried out in good faith.
Powers Bestowed upon IBBI:
The Insolvency and Bankruptcy Board of India is equipped with extensive powers to regulate and administer various aspects of the IBC. Section 196 of the IBC empowers IBBI to create regulations consistent with the code and its rules. These regulations encompass rules and guidelines to govern different aspects of insolvency and bankruptcy proceedings. Notably, IBBI holds authority over Insolvency Professionals (IP), Information Utilities (IU), and Insolvency Professional Agencies (IPA).
IBBI’s responsibilities extend to overseeing the registration of these service providers to ensure that qualified and ethical professionals handle insolvency cases. The board also formulates procedures for adjudicating authorities to effectively manage insolvency matters. Under Section 196(3), IBBI holds the powers of a civil court during trial proceedings, and it can establish fees and charges for various services, registrations, and processes.
Additionally, IBBI has the discretion to delegate powers or functions to its members when necessary, although powers outlined in Section 240 remain non-delegable.
Functions of IBBI:
The principal functions of IBBI encompass inspection and investigation of matters related to insolvency proceedings. Under Section 217, individuals may file complaints against Insolvency Professionals (IP), Information Utilities (IU), and Insolvency Professional Agencies (IPA) if there is a violation of fundamental rights or deviations from prescribed functions.
Upon finding evidence of breaches or misconduct, IBBI can appoint an investigating authority under Section 218 to conduct a thorough investigation. Following an investigation, IBBI may issue show-cause notices to the implicated service providers, as stipulated in Section 219.
Section 220 prescribes the appointment of a disciplinary committee to adjudicate cases of wrongdoing. In instances where IPs, IUs, or IPAs are proven guilty, IBBI holds the authority to impose penalties, including fines of up to three times the loss caused or three times the unlawful gain. Furthermore, it can suspend or revoke the registration of the involved IP, IU, or IPA.
Challenges Faced by IBBI in Implementing the IBC:
One of the primary challenges encountered by IBBI is the substantial delays in the resolution process. Extended legal proceedings, ongoing disputes, and the complex nature of cases can all contribute to these delays, adversely impacting the efficiency of the IBC.
The need for an adequate number of insolvency experts and effective information systems has also been a hurdle, requiring enhancements to fulfill the IBC’s requirements effectively. In certain instances, creditors have had to bear significant losses or experience reductions in the value of their claims, which can deter lending and influence credit markets negatively. These scenarios have occasionally necessitated considerable concessions or losses on owed amounts, potentially leading to decreased lending activity and repercussions in the credit markets.
Recent Improvements & Developments of IBBI:
In recent years, IBBI has leveraged technology to expedite and simplify the management of financial issues and bankruptcies. The utilization of digital tools has enabled the efficient monitoring of cases, enhancing comprehension and expediting resolution.
Efforts have been made to provide more clarity in insolvency regulations and procedures to ensure stakeholders have a better understanding of the process. Improved engagement and communication with various stakeholders, including creditors, debtors, and insolvency professionals, have been prioritized to facilitate smoother operations.
Furthermore, IBBI is committed to streamlining the Corporate Insolvency Resolution Process (CIRP), focusing on faster resolution and adherence to stringent schedules. The board continues to emphasize high standards for insolvency professionals through certification, training, and the enforcement of a code of conduct. An integral area of development includes the creation of a more effective case management system to track and manage insolvency cases.
The Insolvency and Bankruptcy Board of India stands at the core of India’s economic framework, entrusted with managing the intricacies of the Insolvency and Bankruptcy Code. Despite facing various challenges, substantial progress has been made in simplifying the resolution process and promoting transparency.
Through the strategic application of technology, the clarification of regulations, and an unwavering commitment to engaging all stakeholders, IBBI has fortified the structure for addressing financial challenges and corporate insolvencies. Looking forward, the prospects for IBBI and the IBC are promising. As the IBC matures and establishes itself, it will foster a culture of responsible lending and borrowing, boosting investor confidence and expediting the resolution of financial issues. IBBI’s role in prudent resource allocation will also help mitigate the burden of nonperforming assets on banks.