Professional and Ethical Practices for Insolvency Practitioners: formula sheet

Key formulas

Registration sequence (Section 207(1))

Membership of an IPA → registration with the Board → function as IP

The Code says an IP registers with the Board after obtaining IPA membership. Do not reverse the order.

Functions of an IP (Section 208(1))

Take necessary actions in: fresh start; individual insolvency resolution; corporate insolvency resolution; pre-packaged insolvency resolution; individual bankruptcy; liquidation of a corporate debtor firm

The duty arises where the relevant process has been initiated. Clause (ca) on the pre-pack was inserted in 2021.

Pre-pack IP before initiation (Section 208(1A))

IP proposed as resolution professional and approved under Section 54A(2)(e) → acts before the pre-pack process starts

The IP performs functions and duties needed before the pre-packaged process is initiated.

Code of conduct (Section 208(2))

(a) reasonable care and diligence; (b) comply with IPA bye-laws; (c) allow the IPA to inspect records; (d) submit copy of records of every proceeding before the Adjudicating Authority to the Board and the IPA; (e) perform functions as specified

Five items. Learn them as a list with the key word in each.

Board's power on registration (Section 196(1)(a))

Board registers IPAs, IPs and information utilities, and may renew, withdraw, suspend or cancel registration

Use this to show the Board's control over the IP's registration.

Registration of IPAs (Section 199)

No registration certificate from the Board → no business as an IPA and no enrolling of IPs

Applies 'save as otherwise provided in this Code'.

Functions of an IPA (Section 204)

Grant membership; set conduct standards; monitor members; safeguard members' interests; suspend or cancel membership; redress grievances; publish information

Seven functions, clauses (a) to (g).

Section 199 - bar on functioning without registration

No valid certificate of registration from the Board = no business as an IPA and no enrolment of insolvency professionals

Applies to carrying on business as an IPA under the Code. The wording begins 'Save as otherwise provided in this Code'.

Section 200 - five principles for registration

(a) professional development and regulation; (b) competent services to debtors, creditors and other specified persons; (c) good professional and ethical conduct; (d) protect interests of debtors, creditors and other specified persons; (e) growth of IPAs for effective resolution

These guide the Board while registering IPAs. Learn them as a list of five.

Section 201 - registration timelines

Acknowledge application: within 7 days. Communicate rejection order: within 15 days. No rejection without hearing.

Both timelines run from different events: seven days from receipt of application, fifteen days for communicating the order.

Section 201(5) - suspension or cancellation grounds

False statement or unlawful means; failure to comply with regulations or bye-laws; contravention of the Act, rules or regulations; other ground specified by regulations

Reasonable opportunity of being heard is mandatory. The order cannot be passed by any member except whole-time members of the Board.

Section 203 - governing board

Board may make regulations on: setting up a governing board; minimum number of independent members; number of insolvency professional members on it

The Act itself does not fix the numbers. Regulations do.

Section 204 - functions of an IPA

Grant membership; lay down conduct standards; monitor members; safeguard members' rights and interests; suspend or cancel membership per bye-laws; redress grievances of consumers; publish information

Seven functions, (a) to (g).

Section 205 - bye-laws

IPA makes bye-laws, with Board approval, consistent with the model bye-laws specified under section 196(2)

The bye-laws are subject to the Code, rules and regulations.

No practice without enrolment and registration

IP services = IPA membership + Board registration (s. 206, s. 207)

Both are needed. Membership alone is not enough.

IPA duty on conduct

IPA: lay down conduct standards, monitor members, suspend or cancel membership on bye-law grounds (s. 204)

Also redresses grievances of consumers against its members.

Board powers over IPs

Board: register, specify standards, inspect, investigate, direct, decide complaints (s. 196)

Board can also suspend or cancel registration.

Investigation trigger

Complaint or reasonable grounds of contravention → written order appointing investigating authority (s. 218)

The investigating authority submits a detailed report to the Board.

Core conduct standards

Integrity, independence, impartiality, confidentiality, competence, disclosure

Use as a checklist to tag each fact in a case.

Complaint (section 217)

Any person aggrieved → complaint to the Board, in the specified form, time and manner

Covers insolvency professional agencies, insolvency professionals and information utilities.

Investigation (section 218)

Complaint or reasonable grounds → written order appointing investigating authority → detailed report to the Board

Reasons must be given before requiring a third party to furnish documents.

Show cause notice (section 219)

After inspection or investigation → show cause notice → reply within time specified by regulations

The Board issues it; it comes before the disciplinary committee acts.

Disciplinary committee (section 220(1))

Members = whole-time members of the Board only

Examiners like this proviso.

Penalty (section 220(3))

Penalty = higher of (3 × loss caused or likely to be caused) and (3 × unlawful gain)

If loss or gain is not quantifiable, total penalty cannot exceed ₹1 crore.

Disgorgement and restitution (section 220(4)-(5))

Disgorge amount = unlawful gain or averted loss; restitution only if the loser is identifiable and loss directly attributable

Applies in addition to the penalty; the Board may direct it against any person who contravened the Code.

Cancellation of agency registration (section 201(5))

Grounds: false statement or misrepresentation; non-compliance with regulations or bye-laws; contravention of Code, rules or regulations; other specified grounds

Needs reasonable opportunity of being heard, and the order must be passed by whole-time members only.

Route to practice

Membership of an insolvency professional agency → registration with the Board

Section 207(1). Registration must be within the time, manner and fee specified by regulations.

Agency functions

Grant membership + set conduct standards + monitor + safeguard members' interests + suspend or cancel membership + redress grievances + publish information

Section 204. Suspension or cancellation is only on grounds set out in the agency's bye-laws.

Board functions on IPs

Register, specify standards, inspect and investigate, monitor, call for records, redress complaints

Section 196(1). The Board also has civil court powers on discovery, summons, inspection and commissions (section 196(3)).

Fee approval rule (pre-pack RP)

Fees fixed in specified manner; CoC may impose limits and conditions; pre-CoC fees need CoC ratification

Section 54F(6). Use it as the model rule for fee questions on that process.

Cooperation duty

Personnel, promoters and managers must assist the RP; financial institutions must give information

Section 54F(4) and (5).

Ethics test

Disclose → avoid or recuse → act impartially → document

A working answer structure, not a statutory formula.

Quick revision

• An insolvency professional must first become a member of an IPA, then register with the Board (section 207(1)).
• The Board may specify categories of professionals by qualification and experience in finance, law, management or insolvency (section 207(2)).
• No person may act as an IPA or enrol insolvency professionals without a certificate of registration from the Board (section 199).
• Section 200 sets principles for registering IPAs, including professional development, competence, ethical conduct and protecting debtors and creditors.
• Section 196 lists the Board's functions, including registering, regulating, inspecting, investigating and hearing grievances against professionals, agencies and information utilities.
• Under section 196(3), the Board has civil court powers on discovery, summoning, inspection and commissions.
• IPA functions in section 204 include granting membership, laying down conduct standards, monitoring members, and suspending or cancelling membership on bye-law grounds.
• IPAs make bye-laws with Board approval, consistent with the model bye-laws (section 205).
• The disciplinary committee has whole-time members of the Board only (section 220(1)).
• Penalty under section 220(3) is three times the loss caused or three times the unlawful gain, whichever is higher.
• If loss or gain is not quantifiable, the penalty cannot exceed one crore rupees.
• The Board may order disgorgement of unlawful gain and arrange restitution to identifiable persons (section 220(4) and (5)).

Common mistakes

• Saying an IP registers with the Board first and then joins an IPA. Fix: Remember Section 207(1): the IP registers with the Board after obtaining IPA membership.
• Quoting exact educational or experience conditions from memory as if they were in the Code. Fix: State that Section 207(2) lets the Board specify categories, and that detailed conditions are in the Board's regulations and IPA bye-laws. Quote numbers only if you are sure of them.
• Treating section 200 as a list of IPA functions. Fix: Section 200 is guidance for the Board when registering. Section 204 lists what the IPA does after registration.
• Mixing the seven-day and fifteen-day periods in section 201. Fix: Seven days: acknowledge the application. Fifteen days: communicate a rejection order to the applicant.
• Treating IPA membership as enough to practise Fix: Quote s. 206: enrolled with an IPA and registered with the Board. Both are required.
• Mixing up the roles of the IPA and the Board Fix: IPA lays down standards and monitors members under s. 204. The Board registers, regulates and investigates under ss. 196 and 218.
• Saying only the aggrieved person can start proceedings. Fix: Write both triggers: a complaint, or the Board's own reasonable grounds to believe there is a contravention.
• Adding the loss and gain figures, or taking the lower one. Fix: Compute three times each and pick the higher.
• Treating independence and impartiality as the same thing. Fix: Independence concerns relationships and interests. Impartiality concerns how you decide and treat stakeholders. Write one line for each.
• Saying the IP can fix and pay his own fees. Fix: Say fees are determined in the specified manner and the committee of creditors can set limits and conditions. Pre-CoC fees need ratification.

Exam tips

• Write the chain IPA → Board → IP in the first line. It shows the examiner you know the structure.
• Cite Section 208(2) and list all five items whenever the facts show a lapse by an IP.
• For eligibility questions, mention Section 207(2) and the Board's regulations. Do not invent figures. Say that detailed conditions are in the regulations and bye-laws.
• Keep the IP, IPA and Board separate in case studies. State who has the power to act in the answer.
• Use a short heading style in answers: provision, analysis, conclusion. Add a drafting or compliance point at the end.
• Write the section number beside each rule. Examiners reward the provision-analysis-conclusion format.
• Learn the five section 200 principles as keywords: development, competent services, ethical conduct, protection of interests, growth of IPAs.
• For cancellation questions, always mention the hearing and the whole-time members condition.