A recent circular No. No. IP/003/2018 dated 03.01.2018 by IBBI puts virtually a complete ban on outsourcing of the activities required to be done for performing his duty and responsibility by nsolvency resolution professional. It states that –
“It is hereby directed that an insolvency resolution professional shall not outsource any of his duties and responsibilities under the Code. He shall not require any certificate from another person certifying eligibility of a resolution applicant.
This has generated utter confusion in the minds of the entire community of Insolvency Professionals who are already sandwiched between many stakeholders –
Let us examine the homogenous responsibility cast upon Interim Resolution Professional / Resolution Professional (IRP / RP) under IBC
Section 18- Duties of interim resolution professional
1. The interim resolution professional shall perform the following duties, namely:–
(a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to–
(i) business operations for the previous two years;
(ii) financial and operational payments for the previous two years;
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified;
(b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15;
(c) constitute a committee of creditors;
(d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors;
(e) file information collected with the information utility, if necessary; and
(f) 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 including–
(i) assets over which the corporate debtor has ownership rights which may be located in a foreign country;
(ii) assets that may or may not be in possession of the corporate debtor;
(iii) tangible assets, whether movable or immovable;
(iv) intangible assets including intellectual property;
(v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies;
(vi) assets subject to the determination of ownership by a court or authority;
(g) to perform such other duties as may be specified by the Board.
Explanation.– For the purposes of this sub-section, the term “assets” shall not include the following, namely:–
(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;
(b) assets of any Indian or foreign subsidiary of the corporate debtor; and
(c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.]
Section 25- Duties of resolution professional
1. [(1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.
(2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:–
(a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor;
(b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings;
(c) raise interim finances subject to the approval of the committee of creditors under section 28;
(d) appoint accountants, legal or other professionals in the manner as specified by Board;
(e) maintain an updated list of claims;
(f) convene and attend all meetings of the committee of creditors;
(g) prepare the information memorandum in accordance with section 29;
(h) invite prospective lenders, investors, and any other persons to put forward resolution plans;
(i) present all resolution plans at the meetings of the committee of creditors;
(j) file application for avoidance of transactions in accordance with Chapter III, if any; and
(k) such other actions as may be specified by the Board.
Let us also understand the hugely varying size of the corporate debtor which can be a tiny trading unit to mammoth industrial house having manufacturing facilities at multiple locations. The amount of financial exposure by the Financial Creditors can range from few lakhs of Rupees to thousand of crore.
We are trying to bring resolution to all corporate entities of varying sizes and volume by one uniform law through Insolvency Professional who is at the centre of complex drama with conflicting interests.
The magician in the form of IP who is being seen as a solution Provider has ostensibly been empowered by IBC is to even wear the cap of Managing Director of the corporate Debtor is practically at the mercy of all the stakeholders who are in most of the times are even capable of manoeuvring the movers and shakers of the government.
How do we expect IP to discharge his duties and responsibilities without hiring the services of others who must be required to give an expert opinions and advice on a number of issues since IP cannot be reservoir of expertise of all the subjects on the universe . IS HIRING OF SERVICES OF OTHER PROFESSIONALS WOULD ALSO BE DEEMED TO BE OUTSOURCING THE DUTY AND RESPONSIBILITY ?
The basic question arises where is the need for such a regulation – I P is mostly a professional who is already subject to regulation from his or her parent institute/ body he or she is member of with minimum of 10 years of experience is holding a legal and fiduciary position to perform the duties enshrined in our IBC is also bound to follow law of the nation without fail while discharging his function . As a matter of fact , no person holding legal position can outsource his or her responsibility is an in built feature in every act of the legislation .
Can any other professional or holder of any responsible position viz a civil servant , Bank Manager , Magistrate , judge, police officer outsource his or her responsibility? CERTAINLY NOT. Responsibility and Accountability is always of the person who has been entrusted to play a specific role under any law of the nation . But He or she can certainly delegate and outsource certain tasks depending upon the nature , volume , size and materiality on the whole of his or her responsibility
So why this wonderful restriction for Insolvency Professional ?
What purpose this restriction would serve ?
Are we distrusting the who lot of IPs?
What prompted the issuance of this circular ?
The circular smells that there is a perception building that I Ps are in collusion with promoters and resolution applicant by allowing otherwise ineligible applicants to submit Resolution Plan under the shelter of affidavit from the applicant and or a certificate from any other professional .This is the example given in the circular of IBBI itself .
There are following conditions which a resolution applicant to comply with before it becomes an eligible applicant —
Section 29A. Persons not eligible to be resolution applicant.
A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly with such person, or any person who is a promoter or in the management or control of such person,—
(a) is an undischarged insolvent;
(b) has been identified as a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949;
(c) whose account is classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 and period of one year or more has lapsed from the date of such classification and who has failed to make the payment of all overdue amounts with interest thereon and charges relating to non-performing asset before submission of the resolution plan;
(d) has been convicted for any offence punishable with imprisonment for two years or more; or
(e) has been disqualified to act as a director under the Companies Act, 2013;
(f) has been prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets;
(g) has indulged in preferential transaction or undervalued transaction or fraudulent transaction in respect of which an order has been made by the Adjudicating Authority under this Code;
(h) has executed an enforceable guarantee in favour of a creditor, hi respect of a corporate debtor under insolvency resolution process or liquidation under this Code;
(i) where any connected person in respect of such person meets any of the criteria specified in clauses (a) to (h).
Explanation.— For the purposes of this clause, the expression “connected person” means—
(i) any person who is promoter or in the management or control of the resolution applicant; or
(ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or
(iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii)
(j) has been subject to any disability, corresponding to clauses (a) to (i), under any law in a jurisdiction outside India.
IP has to verify every condition within a highly scare stipulated time frame because by the time IP reaches the stage of accepting Resolution Plan , the Corporate Insolvency Resolution Process ( CIRP period) is mostly about to end with or without available extension period of 90 days.
IP irrespective of the size of Insolvency Professional Entity (IPE ) he or she is affiliated to has to hire the services of other technical experts and professional s before a firm view on the eligibility can be framed by IP. Hiring of these services is definitely not outsourcing his or her responsibility .
IP has every right to rely upon the findings and report of these processionals of course after applying due diligence and intelligence as to the process adopted by these professionals for arriving at the findings reported.
Should a medical Doctor not trust a report from Pathology ?
This calls for immediate clarification distinguishing between outsourcing responsibilities and tasks and well defined circumstances under which outsourcing tasks would be construed to be outsourcing responsibility
The bigger need for the success of IBC is to further strengthen IP who is one of the four pillars of the eco system governing I BC and some of the actions required are –
There are many more amendments in act, rules and regulations which would find their ways so as to enable this IB Code serve it’s purpose it has been legislated for .The government, regulators, bankers and opinion makers must rise to the occasion that too timey to clean up the accumulated financial mess and bring a minimum Financial discipline which an economy of our size can absorb to distribute the dividends of growth beyond RICH AND MIGHTY.
Anil Kumar, FCA, M.COM, Insolvency Professional, Email – [email protected], Cell Phone – +91-9873121883 & 9999458899