Insolvency rules change likely to strengthen Bankruptcy Board of India

The ministry of corporate affairs (MCA) is planning to give more powers to the Insolvency and Bankruptcy Board of India (IBBI) by empowering it to look into irregularities in transactions even after an insolvency case has been approved by the National Company Law Tribunal (NCLT).
 
Rules under the Insolvency and Bankruptcy Code (IBC) may be amended for this purpose, sources in the MCA said. “IBBI may be empowered to take the complaint to its logical conclusion,” the sources said. 
 
If the complaint is proven correct, the IBBI would be able to punish the offender. 
 
At present, IBBI is empowered to take punitive action against professionals who do not declare their relationship with the parties concerned on the case within three days of them taking charge after a resolution process begins.

The interim professional (IP) has to disclose whether he or his family members are shareholders or directors of the debtor. Once the committee of creditors is set up, he also has to disclose if he has any relationship with the creditors.
 

The IBBI has penalised and cancelled licenses of a number of insolvency professionals on account of misconduct in the recent past. According to Sections 219 and 220 of the IBC, IBBI can issue show-cause notices against erring professionals. It can form a disciplinary committee for consideration of the inspection or investigation report. These processes are, however, done before the NCLT approves resolution plans. 
 
An amendment in the IBC will clear any ambiguity regar­ding the rules on punitive action that can be taken by the regulator after an NCLT approval, sources said. Once the amendment to the rules takes place, the IBBI would be able to open up cases suo-moto or on complaints and take penal action, the sources added. 
 

Since the IBBI deals with the IBC, the first authority for an aggrieved party is the IBBI, according to insolvency experts. According to the experts, only as a last resort they would have to move NCLT once this change is brought about.
 
So far, IBBI has not taken any case after NCLT has approved the resolution plan. However, parties have moved National Company Law Appellate Tribunal (NCLAT) or the Supreme Court against the order of the NCLT. 

For instance, Rajputana Properties had in July approached the Supreme Court challenging the committee of creditors’ decision to consider UltraTech’s revised proposal for Binani Cement. The court referred the matter to the NCLAT, which dismissed the appeal, saying the objective of insolvency process should be to maximise the value of stressed assets.