Difficulties Faced by Insolvency Professionals in India

Insolvency professionals appointed under the Insolvency and Bankruptcy Code, 2016 (IBC) face recurring legal and practical difficulties: fees fixed too low or paid too late by the committee of creditors, non-cooperation from a corporate debtor's erstwhile management despite Section 19 of the Code, and disciplinary proceedings that can suspend a professional's authorisation to accept new work before any misconduct is proved. Regulation 34B of the CIRP Regulations, 2016 has partly addressed the fee problem since October 2022, but non-cooperation and pre-finding suspension remain unresolved. This article sets out these difficulties as recorded in IBBI disciplinary orders and in rulings of the Bombay High Court, together with the responses currently available.

Fee Recovery: The Gap Between Entitlement and Realisation

Committee of Creditors Leverage and the 2022 Minimum Fee Regulations

A recurring complaint among resolution professionals is that the committee of creditors (CoC), whose commercial wisdom governs the resolution process, also effectively controls the fee of the professional conducting it. Before October 2022, this produced fee quotations with little relationship to the scale of the assignment: unreasonably low fees fixed by a CoC keen to preserve recoveries at one end, and, in isolated instances, inflated claims that drew regulatory censure at the other. Regulation 34B of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, effective 1 October 2022, addressed the underpayment side of the problem. It prescribes a floor fee linked to admitted claims, set out in Schedule I, below which a CoC may not fix the IRP's or RP's remuneration without recording reasons, and it permits a capped, performance-linked incentive fee once a resolution plan is approved. The regulation narrows the dispute considerably. It does not eliminate it, particularly where a CoC delays convening or drags its feet on approving costs already incurred.

Why the Bombay High Court Struck Down Part of the IBBI's 2023 Fee Circular

In the same Amit Gupta proceedings, the Bombay High Court separately examined an IBBI circular dated 28 September 2023 that purported to clarify how a liquidator's fee should be calculated under the Liquidation Process Regulations. The Court struck down paragraph 2.1 (defining "amount realised") and paragraph 2.5 (the period for calculating the fee) as ultra vires the Liquidation Process Regulations and the IBC. A circular, the Court held, cannot expand or restrict a liquidator's entitlement beyond what the regulations themselves prescribe; it may only clarify. Paragraphs 2.2 to 2.4, dealing with other liquidation costs and amounts distributed to stakeholders, were upheld. The ruling gives IPs who believe a circular has been used to alter, rather than explain, a regulatory entitlement a legitimate ground of challenge. Separately, the National Company Law Appellate Tribunal has held that a resolution professional is not entitled to a success fee contingent on the outcome of the process; remuneration under the IBC has to correspond to services actually rendered, not a share of the recovery achieved.

Non-Cooperation by the Corporate Debtor's Erstwhile Management

How Effective Is a Section 19 Cooperation Order in Practice?

Section 19 of the IBC obliges any person who is or has been personnel, a promoter, or otherwise associated with the corporate debtor's management to extend all cooperation an IRP requires to manage its affairs. Where cooperation is withheld, sub-section (2) allows the IRP to apply to the Adjudicating Authority, the National Company Law Tribunal (NCLT), for necessary directions. In practice, this remedy moves slower than the CIRP timeline tolerates. An application under Section 19(2) has to be drafted, listed and heard, and, if the erstwhile management still will not comply, potentially followed by enforcement proceedings, all while the statutory outer limit for completing the process keeps running. Promoters facing a loss of control have little reason to speed up compliance with an order that only hastens their own removal from the business, and IPs say as much often enough that it counts as one of the profession's standing complaints.

Missing Records and Their Effect on Claims Verification and Avoidance Applications

The absence of financial records compounds this problem well past the initial takeover of management. Claims verification under the CIRP Regulations, resolution plan preparation, and applications concerning preferential, undervalued, fraudulent or extortionate transactions under Sections 43, 45, 50 and 66 of the IBC all depend on documents the IP frequently has to reconstruct from banks, statutory filings and third parties rather than obtain from the corporate debtor directly. Outside a subset of secured lending, information utilities are still not routinely used to authenticate debt. So the IP ends up doing the investigative work an information utility was designed to make unnecessary, at the assignment's cost and within the same compressed timeline.

Personal and Professional Exposure Beyond the Fee

When Are an Insolvency Professional's Costs Reimbursed?

An IP or IRP frequently incurs costs, valuers' fees, forensic audit charges, legal opinions and public announcement expenses, before the committee of creditors is even constituted or has approved a budget. These amounts are recoverable as insolvency resolution process costs. But recovery follows CoC approval, or, where the CoC delays or disputes an item, an application to the NCLT. The lag between spending the money and getting it back is a recurring strain, and it falls hardest on individual IPs who do not have a firm's balance sheet behind them to absorb it.

Criminal Exposure and the Unsettled "Public Servant" Question

Section 233 of the IBC protects an IP, IRP, RP or liquidator from suit or legal proceedings for anything done, or intended to be done, in good faith under the Code. The protection is not absolute. It does not extend beyond acts done in good faith, and it does not resolve a separate question that has split High Courts: whether a resolution professional is a "public servant" for the purposes of the Prevention of Corruption Act, 1988. At least one High Court has answered that question in the affirmative on its facts, which exposes IPs handling a corporate debtor's assets to a category of criminal liability ordinarily associated with government office. Add to that the volume of litigation IPs are routinely made party to, resolution plan challenges, Section 12A withdrawal applications, disputes between rival claimants, and the personal legal exposure of accepting a CIRP mandate now reaches well past the professional's own conduct.

A Compliance Regime With Little Room for Error

The Volume of Filings Under the CIRP and Liquidation Regulations

Beyond the substantive resolution work, an IP manages a dense filing calendar: public announcements, information memoranda, progress reports, prescribed CIRP forms and their liquidation equivalents, and periodic disclosures to the IBBI and the relevant insolvency professional agency. Each carries its own timeline under the CIRP Regulations or the Liquidation Process Regulations. Each lapse can be treated, on its own, as a contravention of the Code of Conduct under the First Schedule to the IBBI (Insolvency Professionals) Regulations, 2016.

Disciplinary Proceedings for Procedural Lapses, Not Only Misconduct

Published IBBI disciplinary orders show the Disciplinary Committee treating procedural defaults, a missed filing deadline, a fee claim without adequate justification, a resignation without the Adjudicating Authority's leave, with much the same seriousness as substantive misconduct. Sanctions range from a warning to suspension or cancellation of registration. For an IP running several simultaneous corporate insolvency resolution process (CIRP) mandates at once, each with its own overlapping compliance calendar, avoiding a technical default has become a distinct professional risk in its own right, separate from how the resolution process itself turns out.

When a Show Cause Notice Becomes a De Facto Suspension

Bye-Law 23A and the Automatic Bar on Fresh Assignments

Under the Model Bye-Laws forming the Second Schedule to the IBBI (Insolvency Professional Agencies) Regulations, 2016, the issuance of a show cause notice (SCN) against an insolvency professional triggers an automatic consequence. Bye-Law 23A suspends the professional's authorisation to accept new assignments for the duration of the proceedings. No finding of misconduct is required for this to take effect; the SCN alone is sufficient. For an IP who depends on a continuous pipeline of CIRP and liquidation mandates for income, this is functionally a suspension of practice pending an inquiry whose outcome, and timeline, is uncertain.

What Amit Gupta v. IBBI Left Open, and What a Later Ruling Closed

In Amit Gupta v. Insolvency and Bankruptcy Board of India & Anr. [(2024) ibclaw.in 250 HC], the Bombay High Court took judicial notice of exactly this problem. The Division Bench observed that automatic suspension of authorisation on mere issuance of an SCN carries serious professional and financial consequences, and that this punitive effect could itself discourage the IBBI from initiating disciplinary proceedings in genuine cases, an outcome at odds with the regulatory scheme's own purpose. The Court did not strike down Bye-Law 23A. It recorded that the position "deserves to be reviewed by the IBBI" and left the underlying question open for a later bench.

That later bench did not take long to arrive. Four months on, a Division Bench of the same High Court heard a direct challenge to the validity of Bye-Law 23A and rejected it, holding that the provision was not ultra vires the IBC and that suspending an IP's authorisation pending consideration of a show cause notice was not contrary to law on the facts before it. Bye-Law 23A therefore remains in force, and has now survived a validity challenge, even as the concern the Bombay High Court raised in Amit Gupta about its severity as a consequence remains unaddressed by any amendment. That combination, upheld but unreformed, is what makes the completeness of contemporaneous records, and the timeliness of a reply to any complaint, disproportionately important for any IP served with a notice.

Frequently Asked Questions

Can an insolvency professional refuse an assignment because of the personal liability involved?

An IP is not obliged to accept every assignment offered. Before consenting to an appointment, an IP must disclose relationships that could give rise to a conflict of interest and satisfy themselves that the assignment can be discharged within the applicable timeline. Declining an assignment on grounds of capacity, workload or an identified conflict is a legitimate exercise of professional judgment, and it does not by itself expose the IP to disciplinary action.

What happens if the committee of creditors refuses to approve the IP's fee?

The IP may raise the dispute before the Adjudicating Authority, which retains jurisdiction to examine whether the fee fixed, or refused, is consistent with Regulation 34B of the CIRP Regulations and the material placed before the CoC. Because Regulation 34B introduced a minimum fee floor tied to admitted claims from October 2022, a CoC seeking to fix a lower fee must record its reasons, which gives the IP a documented basis to challenge an unreasonably low figure.

Is a show cause notice from the IBBI the same as a finding of guilt?

No. An SCN records the Board's prima facie view that an inquiry is warranted; it is not a determination of misconduct, which follows only after the Disciplinary Committee considers the IP's response and, where applicable, holds a hearing. Even so, under Bye-Law 23A of the Model Bye-Laws, the practical consequence, suspension of authorisation to accept new assignments, takes effect on issuance of the notice itself. The Bombay High Court flagged the severity of this consequence for the IBBI's reconsideration in Amit Gupta, and a later bench of the same court upheld the underlying bye-law against a direct validity challenge, so the position stands unless and until the IBBI amends it.

Can directors or promoters be compelled to hand over company records to the resolution professional?

Yes. Section 19 of the IBC requires personnel, promoters and persons associated with the corporate debtor's management to extend all cooperation the IRP or RP requires. If cooperation is withheld, the IP may apply to the NCLT for directions under Section 19(2), and continued non-compliance with such directions can attract further consequences before the Tribunal.

Does the IBC protect an insolvency professional from being sued personally?

Section 233 of the IBC bars suits or legal proceedings against an IP, IRP, RP or liquidator for anything done, or intended to be done, in good faith under the Code or its rules and regulations. The protection is confined to good faith acts within the statutory role. It does not resolve separate questions, such as potential liability under anti-corruption legislation, that are still being litigated before different High Courts.

How long does an IBBI disciplinary proceeding typically take to resolve?

There is no fixed statutory timeline for the Disciplinary Committee to conclude proceedings once an SCN is issued, and the duration varies with the complexity of the allegations and the IP's response. Because Bye-Law 23A suspends fresh assignments for as long as the proceedings run, this absence of a fixed timeline is itself one of the more significant practical difficulties IPs raise: the professional and financial consequences accrue well before any final finding.

What is the minimum fee an insolvency professional is entitled to under Regulation 34B?

Regulation 34B of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, effective 1 October 2022, sets a floor fee for the interim resolution professional and resolution professional linked to the value of admitted claims, as set out in Schedule II. A committee of creditors may fix a lower fee only if it records its reasons for doing so, and the regulation additionally permits a capped, performance-linked incentive fee once a resolution plan is approved.

Can a resolution professional charge a fee that depends on the outcome of the resolution process?

No. The National Company Law Appellate Tribunal has held that a resolution professional is not entitled to a success fee contingent on the outcome of the corporate insolvency resolution process. Remuneration under the Insolvency and Bankruptcy Code, 2016 has to correspond to the services actually rendered during the assignment, not to a share of the amount ultimately recovered by creditors.

Is a resolution professional treated as a public servant under the Prevention of Corruption Act, 1988?

The question remains unsettled and has divided High Courts. At least one High Court has held, on its facts, that a resolution professional handling a corporate debtor's assets qualifies as a public servant for the purposes of the Prevention of Corruption Act, 1988, which exposes the professional to a category of criminal liability ordinarily associated with government office. Other High Courts have not adopted the same position, so the answer currently depends on the jurisdiction.

What kinds of past transactions can an insolvency professional apply to have set aside as an avoidance transaction?

Sections 43, 45, 50 and 66 of the Insolvency and Bankruptcy Code, 2016 allow a resolution professional to apply to the National Company Law Tribunal to avoid preferential transactions, undervalued transactions, extortionate credit transactions and transactions defrauding creditors respectively. Building these applications is often the hardest part of the assignment in practice, because the underlying evidence usually has to be reconstructed from banks, statutory filings and third parties where the corporate debtor's own records are incomplete or withheld.

What can an insolvency professional do if the erstwhile management ignores an NCLT direction issued under Section 19(2)?

Continued non-compliance with a direction issued under Section 19(2) of the Insolvency and Bankruptcy Code, 2016 can be brought back before the National Company Law Tribunal for enforcement, including contempt proceedings against the defaulting individual. In practice this further extends an already compressed CIRP timeline, which is why insolvency professionals treat a Section 19(2) application as a step to be taken early rather than as a last resort.

Where does an insolvency professional recover forensic audit or valuer's costs incurred before the committee of creditors is constituted?

Costs such as valuers' fees, forensic audit charges and public announcement expenses incurred before the committee of creditors is constituted, or before it approves a budget, are recoverable as insolvency resolution process costs. Recovery, however, follows the committee's approval, or, where the committee delays or disputes an item, an application to the National Company Law Tribunal, so there is often a real lag between when the professional spends the money and when it comes back.

Can an insolvency professional appeal an adverse order of the IBBI Disciplinary Committee?

Yes. An affected insolvency professional can challenge an order of the Disciplinary Committee constituted under the IBBI (Insolvency Professionals) Regulations, 2016, and in practice such challenges have been brought by way of writ proceedings before the jurisdictional High Court, as in the Amit Gupta litigation before the Bombay High Court concerning Bye-Law 23A. An IP should preserve the full record generated during the disciplinary proceeding, since that record forms the basis for any subsequent challenge.

Does the fee floor under Regulation 34B apply during liquidation as well as during the resolution process?

No. Regulation 34B of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 sets the minimum fee floor specifically for the interim resolution professional and resolution professional during the corporate insolvency resolution process. A liquidator's fee is instead governed by the Liquidation Process Regulations, which the Bombay High Court examined separately in the Amit Gupta proceedings when it struck down parts of the IBBI's 2023 fee circular relating to liquidator remuneration.

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Vikrant D. Shetty | Vikrant D. Shetty leads the Insolvency and Arbitration Practice at Vikrant D. Shetty & Associates, Advocates & Solicitors. The firm advises insolvency professionals, financial creditors, operational creditors, corporate debtors in proceedings before the National Company Law Tribunal (NCLT), Mumbai Bench.

This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please seek direct consultation with an advocate.