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Insolvency regulator IBBI has barred insolvency professionals from accepting fresh assignments if a show-cause notice is issued to them under a disciplinary proceeding.
An insolvency professional (IP) who has been issued a show-cause notice should not accept any fresh assignment as interim resolution professional, resolution professional, liquidator or a bankruptcy trustee under the IBC, said a circular issued by the Insolvency and Bankruptcy Board of India (IBBI).
The Insolvency and Bankruptcy Code 2016 (IBC) envisages that an insolvency professional may be appointed as interim resolution professional, resolution professional, liquidator, or a bankruptcy trustee if “no disciplinary proceeding is pending against him.”
Although the IBC does not define a ‘disciplinary proceeding,’ there is a provision in the Code that envisages issue of a show-cause notice following an inspection or investigation. There is also a provision in the IBC that envisages constitution of a disciplinary committee for consideration of the inspection or investigation report.
The IBBI has, in the latest circular, highlighted that a disciplinary proceeding commences with the issue of show-cause notice and concludes with the disposal of the notice by a reasoned order. The insolvency regulator’s circular has also said that a disciplinary proceeding is considered pending against an IP from the time he has been issued a show-cause notice by the IBBI till its disposal.
Expert take
Diwakar Maheshwari, Dispute Resolution Partner, Khaitan & Co, a law firm, said: “While this appears to be a positive step in ensuring fairness and transparency in the working of the insolvency professional, clause 4(ii) seems to be fairly onerous and arguably against the settled principles of natural justice and could be a victim of judicial challenge.”
A disqualification in accepting assignments on the mere issuance of a show-cause notice seems akin to a situation where an individual is presumed guilty until proved innocent, he said.
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