Is Resolution Professional Truly Independent Under Current IBC Framework?
Table of Contents
Under the Insolvency and Bankruptcy Code, 2016 (IBC), the resolution professional (RP) is appointed to manage the affairs of a corporate debtor as a going concern during the corporate insolvency resolution process (CIRP), oversee the formation of the Committee of Creditors (CoC), collate and verify creditor claims, and facilitate the submission and evaluation of resolution plans, making the RPs role is administrative rather than adjudicatory. RP’s independence is important for the credibility of CIRP as it ensures impartiality in handling claims and decisions, preventing bias that could favour any creditor or stakeholder and undermining the fair and time-bound resolution of insolvency. However, a core question arises: while the law mandates independence through eligibility criteria, disclosure requirements, and prohibitions on conflicts. In practice, the RP’s appointment and removal rest largely with the CoC, which may create a perception or reality of dependence on financial creditors, challenging the ideal of true independence.
Statutory Position of the Resolution Professional
The interim resolution professional (IRP) is appointed by the Adjudicating Authority (AA) under section 16 of the IBC to manage the affairs of the corporate debtor immediately after the commencement of CIRP. The IRP is responsible for constituting the CoC under section 18 and managing the debtor’s operation as a going concern until the coC appoints a RP. Within 7 days of the CoC’s constitution, the committee must decide, by a majority of at least 66%, whether to appoint IRP as the RP or to replace them with another licensed insolvency professional (IP). If replacement is decided, the CoC applies to the AA, which forwards the proposed name to the Insolvency and Bankruptcy Board of India (IBBI) for confirmation, and until confirmation, the IRP continues to act as RP to ensure continuity. The RP, once appointed, is vested with full powers under section 23 to conduct the entire CIRP, manage the debtor’s operations, and exercise the powers of the Board of Directors. The RP’s statutory duties under section 25 include preserving and protecting the debtor’s assets, maintaining an updated list of claims, preparing the information memorandum, examining resolution plans, and ensuring compliance with the IBC and IBBI regulations.
Concept of Independence Under IBC
The concept of independence under the IBC mandates that an RP must act impartially, free from bias, conflict of interest, coercion, or undue influence from any party involved in CIRP, ensuring fairness. An RP is considered only if they are eligible to be appointed as an independent director on the board of the corporate debtor under section 149 of the Companies Act, 2013, and must not be an employee, partner, or related party of the debtor or any financial creditor. RP’s are required to make mandatory disclosures regarding any pecuniary or personal relationships with stakeholders, prior employment with financial creditors, or beneficial ownership interests, and must avoid acquiring assets of the director directly or indirectly, with the IBBI (Insolvency Professional) Regulations (IP Regulations) preserving a strict code of conduct to uphold integrity and transparency.
Role of Committee of Creditors in RP’s Functioning
- RP is accountable to the CoC for all administrative actions, including claim verification, meeting convening, and plan evaluation, and operates under the CoC’s supervision rather than having independent authority.
- The CoC has the power to replace the RP with a 66% majority under section 27 of the IBC.
- Voting thresholds for approving a simple majority, 51%, for most decisions, a 66% threshold for approving resolution plans and replancing the RP, and a 90% autonomy by ensuring decisions are made collectively by creditors.
RP as a Facilitator vs RP as a Decision-Maker
- The RP’s role is strictly administrative and procedural, involving functions like claim verification and ensuring compliance with timelines, without possessing adjudicatory or quasi-judicial powers.
- Limitations on commercial decision-making rest with the CoC, which holds the ultimate authority to approve or reject resolution plans, appoint or replace the RP, and determine the course of the CIRP based on commercial wisdom.
- The boundaries between RP functions and CoC commercial wisdom are clearly defined, with the RP executing administrative duties under the oversight of the CoC and the AA, while the CoC retains exclusive control over strategic and commercial decisions, including the initiation of liquidation or approval of resolution plans.
Influence of Major Financial Creditors on RP Independence
Major financial creditors influencing the independence of the RP through their voting power in the CoC, which can shape the resolution process and potentially prioritize creditor interests over the company’s operational continuity:
- The dominance of lead bands and institutional lenders in CIRP is evidence in their control over the CoC, where voting rights are proportional to debt exposure, often allowing them to dictate the outcome of resolution plans.
- Practical pressure points during CIRP include significant delays in initiating the process by financial creditors, which can lead to value erosion before the CIRP begins.
- There are concerns in large insolvency concerns regarding prolonged litigation, promoter resistance, operational mismanagement, and the risk of asset depletion due to limited creditor control over the debtor’s management during the process.
Read more :Information Utility Upload Alone Cannot Extend Limitation
Judicial Interpretation on RP Independence
The Supreme Court in Adani Power Limited vs. Shapoorji Pallonji and Company affirmed that the approved RP is binding on all parties, and their decisions cannot be challenged through arbitration, reinforcing RP independence and procedural finality. However, the judiciary has also highlighted the need for RPs to exercise due diligence before approving resolution plans, thus suggesting that while independence is crucial, it must be balanced with accountability to prevent procedural impropriety. Further, the National Company Law Appellate Tribunal (NCLAT) in Vijay Kumar Singhania v. Bank of Baroda clarified that RPs must act impartially and cannot be influenced by the debtor’s interests, reinforcing neutrality in the insolvency process. Despite these safeguards, concerns remain about potential bias particularly in cases where RPs are appointed by the CoC, underscoring the need for clear procedural fairness standards to maintain public confidence in the IBC framework.
Disciplinary Control Over RPs by IBBI
- The role of the IBBI is to regulate and oversee the conduct of RPs, ensuring compliance with the IBC, and its associated regulations.
- Disciplinary proceedings may result in penalties such as suspension of registration, monetary fines, and mandatory reimbursement of improperly charged costs.
- Regulatory oversight by IBBI enhances RP independence by enforcing impartiality and objectively, though concerns exist about potential conflicts due to dual regulatory authority.
Practical Challenges Faced by RPs
- The CoC holds substantial power and can replace a RP if they perceive a lack of performance or bias, creating a constant pressure on RPs to align with CoC expectations.
- RPs are subjected to litigation from various stakeholders, including challenging the validity of claims, objections to resolution plans, and dispute over the conduct of the process, which prolongs timelines and increases uncertainty.
- RPs must maintain neutrality while managing diverse and often conflicting expectations from financial creditors, operational creditors, employees and other stakeholders, requiring careful balancing to ensure procedural fairness and effective resolution.
Comparison with International Insolvency Regimes
In the United States (US) and the United Kingdom (UK), IPs operate under a debtor-in-possession model where the company’s management retains control during restructuring, with the IP acting as a monitor or advisor rather than a full replacement of management. In contrast, IPs under the IBC are appointed as IRP upon initiation of the CIRP, superseding the Board of Directors. This gives RPs under the Indian insolvency framework a significantly higher degree of operational independence and authority compared to their counterparts in the UK and US, where the focus remains on preserving the existing management’s role in reorganisation. The US and UK frameworks emphasise a more collaborative approach between management and IPs, while India’s model prioritizes creditor control and swift decision-making through empowered RPs. India can adopt a more balanced approach to management retention, enhancing the independence and oversight of IPs, and integrating cross-border cooperation mechanisms to align with international standards.
Does the Current Framework Adequately Protect RP Independence?
The current framework provides a statutory foundation for RP independence through clear mandates under sections 18(f), 25(2)(a), and 29, empowering RPs to take control, preserve assets, and prepare the information memorandum. The legal structure strengthens RP authority by enabling forensic audits and judicial recognition of beneficial ownership, allowing RPs to trace and include third-party held assets used by the corporate debtor. However, structural weaknesses persist, as RPs lack unilateral power to control assets not legally owned by the corporate debtor and must seek National Company Law Tribunal (NCLT) intervention, creating delays and dependency on judicial processes. This gap between statutory intent and practical realities is where RPs face procedural hurdles, creditor influence, and inconsistent judicial interpretations, undermining operational independence and resolution efficiency.
Suggested Reforms and Way Forward
- There is a need for clearer statutory safeguards
- Reducing excessive CoC influence can be achieved by limiting mandatory provisions that restrict disciplinary orders.
- Strengthening professional autonomy while maintaining accountability involves reinforcing the role of the RP and AA’s with statutory obligations, thereby balancing commercial wisdom with legal accountability.
Conclusion
The independence of RPs under the IBC is constrained by structural dependencies, as their appointment and removal rest primarily with the CoC, which undermines their role as impartial umpires despite statutory and regulatory mandates for impartiality. This imbalance risks bias, particularly when RPs have prior ties to financial creditors and prompts judicial interventions. Moving forward, evolving jurisprudence emphasises the RP’s role as a fiduciary and compliance officer, with calls for institutional appointments to enhance genuine independence and ensure effective, timely, and equitable insolvency resolution.
Recent Posts
