THE INSOLVENCY AND BANKRUPTCY BOARD OF INDIA

[Mr. M. GOVINDARAJAN]

The ‘Insolvency and Bankruptcy Code, 2016’ got the assent of the President of India on 28.05.2016.  This is an Act to consolidate and amend the laws relating to re-organization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.

In this article the establishment of ‘the Insolvency and Bankruptcy Board of India’ and its functions and powers are discussed in detail.

Board

Section 3(1) defines the term ‘Board’ as the Insolvency and Bankruptcy Board of India (‘Board’ for short) established under Section 188 (1) of the Act.

Establishment of Board

Section 188 of the Act provides that with effect from such date as the Central Government may, by notification, appoint, there shall be established  a Board by the name of the Insolvency and Bankruptcy Board of India.  The Board shall be a  body corporate, having perpetual succession and a common seal.   It is having power, subject to the provisions of the Code, to acquire, hold and dispose of property, both moveable and immovable and to contract, and shall, by the said name, sue or be sued.

The Head office shall be at such place in the National Capital Region, as the Central Government may, by notification, specify.   The Board may establish offices at other places in India.

Members of Board

Section189 (1) provides that the Board shall consist of the following members who shall be appointed by the Central Government, namely-

• a Chairperson;
• three members from amongst the officers of the Central Government not below the rank of Joint Secretary or equivalent, one each to represent the Ministry of Finance, the Ministry of Corporate Affairs and Ministry of Law – ex-officio;
• one member to be nominated by the RBI – ex-officio;
• five other members to be nominated by the Central Government, of whom at least three shall be the whole-time members.

The Ministry of Corporate Affairs issued advertisement inviting application for the post of Chairperson and three whole time Members

Qualification

Section 189 (2) provides that the Chairperson and the others Members shall be persons of ability, integrity and standing, who have shown capacity in dealing with problems relating to insolvency or bankruptcy and have special knowledge and experience in the field of law, finance, economics, accountancy or administration.

Appointment procedure

Section 189 (3) provides that the appointment of the Chairperson and the Members of the Board other than the appointment of ex-officio member under this section shall be made after obtaining the recommendation of a selection committee considering of-

• Cabinet Secretary – Chairperson;
• Secretary to the Government of India to be nominated by the Central Government – Member;
• Chairperson of the Board (in case of selection of members of the Board – Member;
• Three experts of repute from the field of finance, law, management, insolvency and related subjects, to be nominated by the Central Government – Members.

Tenure

Section 189 (4) provides that the term of office of the Chairperson and Members, other than ex-officio members, shall be five years or till they attain the age of 65 years, whichever is earlier, and they shall be eligible for reappointment.

Salary and allowances

Section 189 (5) provides that the salaries and allowances payable to, and other terms and conditions of service of, the Chairperson and Members, other than the ex-officio Members, shall be such as may be prescribed.

The Ministry of Corporate Affairs made the Insolvency and Bankruptcy Board of India (Salary, Allowances and other Terms and Conditions of Service of Chairperson and Members) Rules, 2016.  This Rule is approved by the Competent Authority yet to be legislatively vetted.

Removal from office

Section 190 provides that the Central Government may remove a Member from office if he-

• is an undischarged bankrupt as defined under Part III;
• has become physically or mentally incapable of acting as a Member;
• has been convicted of an offence, which in the opinion of the Central Government involves moral turpitude;
• has, so abused his position as to render his continuation in office detrimental to public interest;

No member shall be removed under (d) unless he has been given a reasonable opportunity of being heard in the matter.

Powers of Chairperson

Section 191 provides that save as otherwise determined by regulations, the Chairperson shall have powers of general Superintendence and direction of the affairs of the Board and may also exercise such other powers as may be delegated to him by the Board.

Meeting of the Board

Section 192 provides that the Board shall meet at such times and places and observe such rules of procedure in regard to the transaction of business at its meeting, including quorum at such meetings, as may be determined by regulations.  The Chairperson, or if, for any reason, the Chairperson is unable to attend the meeting of the Board, any other Member chosen by the Members present at the meeting shall preside the meeting.  All questions which come up before any meeting of the Board shall be decided by a majority votes of the Members present and voting, and, in the event of an equality of votes, the Chairperson, or in his absence, the person presiding, shall have a second or casting vote.

Member not to participate in meetings in certain cases

Section 193 provides that any Member, who is a director of a company and who as such director has any direct or indirect pecuniary interest in any manner coming up for consideration at a meeting of the Board, shall, as soon as possible after relevant circumstances have come to his knowledge, disclose the nature of his interest at such meeting and such disclosure shall be recorded in the proceedings of the Board, and the Member shall not take any part in any deliberation or decision of the Board with respect to that matter.

Vacancies not to invalidate proceedings

Section 194 provides that no act or proceedings of the Board shall be invalid merely by reason of-

• any vacancy in , or any defect in the constitution of, the Board; or
• any defect in the appointment of a person acting as a member of the Board; or
• any irregularity in the procedure of the Board not affecting the merits of the case;

The Board may appoint such other officers and employees as it considers necessary for the efficient discharge of its functions in such manner as may be specified. 

Power to delegate financial sector regulator

Section 195 gives powers to the Central Government to designate any financial sector regulator to exercise the powers and functions of the Board under this code, till the Board is established.

Functions of the Board

Section 196 provides that the Board shall, subject to the general direction of the Central Government, perform all or any of the following functions-

• register insolvency professional agencies, insolvency professionals and information utilities and renew, withdraw, suspend or cancel such registration;
• specify the minimum eligibility requirements for registration of insolvency professional agencies, insolvency professionals and information utilities;
• levy fee or other charges for registrationof the above categories;
• specify by regulations standards for functioning;
• lay down by regulations the minimum curriculum for the examination of the insolvency professionals for their enrolment as members of the insolvency professional agencies;
• carry out inspections and investigations on insolvency professional agencies, insolvency professionals and information utilities and pass such orders as may be required for compliance of the provisions of this code and the regulations issued hereunder;
• monitor the performance of insolvency professional agencies, insolvency professionals and information utilities and pass any directions as may be required for compliance of the provisions of this code and the regulations issued hereunder;
• call for any information and records from them;
• publish such information, data, research studies and other information as may be specified by regulations;
• specify by regulations the manner of collecting and storing data by the information utilities and for providing access to such data;
• collect and maintain records relating to insolvency and bankruptcy cases and disseminate information relating g to such cases;
• constitute such committees as may be required including in particular advisory and executive committees or such other committees, as it may deem fit, consisting of a Chairperson and such other Members as may be specified by regulations;
• promote transparency and best practices in the governance;
• maintain website and such other universally accessible repositoriesof electronic information as may be necessary;
• enter into memorandum of understanding with any other statutory authorities;
• issue necessary guidelines to the insolvency professional agencies etc.,;
• specify mechanism for redress of grievances against insolvency professions, insolvency professional agencies and information utilities and pass order relating to complaints filed against the aforesaid for compliance of the provisions of this Code and the regulations issued hereunder;
• conduct periodic study, research and audit the functioning and performance of to the insolvency professional agencies, insolvency professionals and information utilities at such intervals as may be specified by the Board;
• specify mechanisms for issuing regulations, including the conduct of public consultation processes before notification of any regulations;
• make regulations and guidelines on matters relating to insolvency and bankruptcy as may be required under this Code, including mechanism for time bound disposal of the assets of the corporate debtor or debtor; and
• perform such other functions as may be prescribed.

Powers of the Board

The Board may make model bye-laws to be adopted by insolvency professional agency.  While exercising the powers under this Code, the Board shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit, in respect of the following matters, namely-

• the discovery and production of books of account and other documents, at such place and such time as may be specified by the Board;
• summoning and enforcing the attendance of persons and examining them on oath;
• inspection of any books, registers and other documents of any person at any place;
• issuing of commissions for the examination of witnesses or documents.

Governing Board of insolvency professional agency

Section 203 provides that the Board may, for the purposes of ensuring that every insolvency professional agency takes into account the objectives sought to be achieved, make regulations to specify-

• the setting up of a governing Board of an insolvency professional agency;
• the minimum number of independent members to be on the governing Board of the insolvency professional agency; and
• the number of the insolvency professionals being its members who shall be on the governing Board of the insolvency professional agency.

Investigation by Board

Section 217 provides that any person aggrieved by the functioning of an insolvency professional agency or insolvency professional or an information utility may file a complaint to the Board in such form, within such time and in such manner as may be specified.   On completion of an investigation, the Board may issue a show cause notice to such insolvency professional agency etc., giving time for giving reply.  The Board shall constitute a disciplinary committee to consider the reports of the Investigation Authority.   The Board may take such action as may be required to provide restitution to the person who suffered loss on account of any contravention from the amount so discharged, if the person who suffered such loss is identifiable and the loss so suffered is directly attributable to such person.

Accounts and Audit

There shall be constituted a fund to be called the Fund of the Insolvency and Bankruptcy Board.  The Board shall maintain proper accounts and other relevant records and prepare an annual statement of accounts.  The accounts shall be audited by C&AG at such intervals as may be specified by him.  The accounts of the Board as certified by the C&AG shall be forwarded annually to the Central Government which is laid before each House of Parliament.

Budget

Section 228 provides that the Board shall prepare in each financial year, its budget for the next financial year, showing the estimated receipts and expenditure of the Board and forward the same to the Central Government.

Annual Report

Section 229 provides that the Board shall prepare its annual report, giving a full account of its activities during the previous financial year and submit a copy thereof to the Central Government.  A copy of the report shall be laid before each House of Parliament.

Delegation

Section 230 provides that the Board may, by general or special order in writing, delegate to any member or officer of the Board, subject to such conditions, such of its powers and functions as it may deem necessary.

Power of Central Government to supersede Board

Section 226 provides that if at any time the Central Government is of opinion-

• that on account of grave emergency, the Board is unable to discharge the functions and duties imposed on it by or under the provisions of this Code; or
• that the Board has persistently not complied with any direction issued by the Central Government under this Code or in the discharge of the functions and duties imposed on it by or under the provisions of this Code and as a result of such non compliance the financial position of the Board or the administration of the Board has deteriorated; or
• the circumstances exist which render it necessary in the public interest so to do,

the Central Government may, by notification, supersede the Board for such period, not exceeding six months, as may be specified in the Notification.  On the expiration of the said period the Central Government may reconstitute the Board by a fresh appointment.