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Corporate Restructuring, Valuation and Insolvency · Insolvency

Code of Conduct and Disciplinary Action for Insolvency Professionals

Updated 11 October 2026 · Fact-checked

Insolvency professionals must follow standards of professional and ethical conduct set under the IBC. Insolvency professional agencies monitor members and act on grievances. The Board receives complaints, investigates, and through its disciplinary committee can impose penalties or suspend or cancel registration. Answer by stating the provision, applying the facts, then concluding.

Understand Code of Conduct and Disciplinary Action

An insolvency professional (IP) runs a process that affects creditors, debtors and employees. So the Code builds a three-layer control system: the IP, the insolvency professional agency (IPA) the IP belongs to, and the Insolvency and Bankruptcy Board of India (the Board).

The first layer is conduct standards. An IPA must lay down standards of professional conduct for its members (Section 204(b)). The Board issues model bye-laws that cover standards for professional and ethical conduct, duties of members, and disciplinary procedure (Section 196(2)). Each IPA must make its own bye-laws, consistent with the model bye-laws, after the Board approves them (Section 205). The Board also specifies, by regulations, standards for the functioning of IPs, IPAs and information utilities (Section 196(1)(d)). The detailed code of conduct for IPs sits in the Board's regulations. For exact clause wording, use the regulations text given in your paper.

The second layer is the IPA. It monitors the performance of its members, safeguards their rights, and redresses grievances of consumers against its members. It can suspend or cancel membership on grounds set out in its bye-laws (Section 204(c)-(f)). The model bye-laws also cover grounds for penalties, grounds for expulsion, and the manner of disciplinary proceedings (Section 196(2)).

The third layer is the Board. It registers IPAs and IPs, and can renew, withdraw, suspend or cancel registration. It carries out inspections and investigations, monitors performance, calls for records, and specifies a grievance mechanism (Section 196(1)). Any person aggrieved by an IPA, an IP or an information utility may file a complaint with the Board in the form, time and manner specified (Section 217).

Penalties are imposed by the Board's disciplinary committee, made up only of whole-time members of the Board. It acts on the investigating authority's report if it is satisfied that sufficient cause exists (Section 220).

Key rules to remember

Penalty for contravention
Penalty = higher of (3 × loss caused or likely to be caused) and (3 × unlawful gain)
Section 220(3). Applies to an IPA, IP or information utility that contravenes the Code, rules or regulations.
Penalty cap where loss or gain is not quantifiable
Total penalty ≤ ₹1 crore
Proviso to Section 220(3). Use only when loss or unlawful gain cannot be quantified.
Disciplinary committee outcomes
Penalty, or suspension or cancellation of registration
Section 220(2). For an IP, the registration can be suspended or cancelled. For an IPA or information utility too.
Disgorgement
Amount disgorged = unlawful gain made or loss averted
Section 220(4). The Board may direct this in addition to the penalty. Restitution to an identifiable victim is under Section 220(5).
Disciplinary committee composition
Whole-time members of the Board only
Proviso to Section 220(1).
IPA functions on conduct
Lay down standards, monitor, redress grievances, suspend or cancel membership
Section 204(b), (c), (e), (f).

How to solve Code of Conduct and Disciplinary Action questions

Use this method for any case-based question on an IP's conduct or the action that can follow.

  1. 1Identify the actor: the IP, the IPA, the Board, or the disciplinary committee. The powers differ for each.
  2. 2Identify the wrong: a breach of the code of conduct, the Code, rules or regulations. Quote the facts that show it.
  3. 3State the route to action: a complaint to the Board (Section 217), a grievance to the IPA, or the Board's own inspection or investigation (Section 196(1)(f)).
  4. 4State who decides: the IPA acts under its bye-laws (Section 204(e)). The Board's disciplinary committee acts on the investigating authority's report (Section 220).
  5. 5State the available consequences: penalty, suspension or cancellation of registration, and disgorgement and restitution.
  6. 6Compute the penalty if figures are given: three times the loss or three times the gain, whichever is higher. If not quantifiable, cap at ₹1 crore.
  7. 7Conclude clearly in one or two lines, and add a practical compliance point such as maintaining records and disclosures.

Quickest way: Actor, wrong, route, outcome

When to use it: Use when time is short and the question asks what action can be taken against an IP.

  1. Name the actor and the wrong in one line each.
  2. Write the route: complaint under Section 217, IPA grievance, or Board inspection.
  3. Write the decision-maker: IPA under bye-laws, or disciplinary committee under Section 220.
  4. List outcomes: penalty (higher of 3 × loss or 3 × gain), suspension or cancellation, disgorgement.
  5. Close with a one-line conclusion.

Common mistakes in Code of Conduct and Disciplinary Action

  • Saying the IPA can impose the statutory penalty of three times loss or gain.

    Students mix IPA powers with Board powers.

    Fix: The IPA suspends or cancels membership and handles grievances. The penalty under Section 220(3) is imposed by the Board's disciplinary committee.

  • Writing 'three times the loss or gain, whichever is lower'.

    Students recall the multiple but not the comparison.

    Fix: The penalty is the higher of the two amounts. Compute both, then pick the larger.

  • Applying the ₹1 crore cap to every case.

    The figure is easy to remember, so it gets used everywhere.

    Fix: The cap applies only where loss or unlawful gain is not quantifiable.

  • Saying the disciplinary committee includes any Board member or outside experts.

    Students assume committees are mixed.

    Fix: The proviso to Section 220(1) says its members are whole-time members of the Board only.

  • Treating disgorgement as the same as the penalty.

    Both involve money and arise from the same contravention.

    Fix: Section 220(4) operates notwithstanding the penalty. Disgorgement takes back the gain or averted loss, and can fund restitution to an identifiable victim.

  • Quoting clause numbers of the code of conduct from memory.

    Students try to sound precise.

    Fix: Describe the standard in plain words, such as integrity, independence, disclosure and diligence, unless you are sure of the clause.

Worked examples

Example 1

An aggrieved creditor believes that an insolvency professional, a member of an IPA, acted in breach of the Board's regulations. Advise the creditor on the remedy and the possible action.

Show the solution
  1. Provision: any person aggrieved by the functioning of an IP may file a complaint to the Board in the specified form, time and manner (Section 217).
  2. The IPA also has a role. It monitors its members and redresses grievances against them (Section 204(c) and (f)).
  3. Analysis: the creditor is an aggrieved person and can complain to the Board. The Board can inspect and investigate the IP and pass orders for compliance (Section 196(1)(f)).
  4. If the investigating authority reports and the disciplinary committee finds sufficient cause, it may impose a penalty or suspend or cancel the IP's registration (Section 220(2)).
  5. The IPA may separately suspend or cancel the IP's membership on grounds in its bye-laws (Section 204(e)).
  6. Practical point: the creditor should keep minutes, notices and correspondence as evidence.

Answer: The creditor can file a complaint with the Board under Section 217 and also approach the IPA. After investigation, the Board's disciplinary committee can impose a penalty or suspend or cancel registration, and the IPA can suspend or cancel membership under its bye-laws.

Example 2

An insolvency professional contravened the Board's regulations. The loss caused to creditors is quantified at ₹40 lakh and the IP's unlawful gain at ₹15 lakh. What is the maximum penalty under Section 220(3)?

Show the solution
  1. Provision: the penalty is three times the loss caused, or three times the unlawful gain, whichever is higher.
  2. Three times the loss = 3 × ₹40,00,000 = ₹1,20,00,000.
  3. Three times the gain = 3 × ₹15,00,000 = ₹45,00,000.
  4. Higher amount = ₹1,20,00,000.
  5. The ₹1 crore cap applies only where loss or gain is not quantifiable. Here both are quantified, so the cap does not apply.
  6. Additionally, the Board may direct disgorgement of the unlawful gain of ₹15,00,000 under Section 220(4).

Answer: The penalty is ₹1,20,00,000, being three times the loss, which is higher than three times the gain. The Board may also direct disgorgement of ₹15,00,000.

Exam tips

  • Start each answer with the provision, then facts, then conclusion. Examiners reward this order.
  • Always separate the three actors: IP, IPA and Board. Many marks are lost by mixing their powers.
  • For penalty numericals, show both computations and state which is higher.
  • Mention the ₹1 crore cap only when the facts say loss or gain cannot be quantified.
  • Add a practical line on complaint filing, record keeping or bye-law compliance to show drafting awareness.

Practice questions from Insolvency

Code of Conduct and Disciplinary Action in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Code of Conduct and Disciplinary Action: frequently asked questions

Who can file a complaint against an insolvency professional?

Any person aggrieved by the functioning of an IP, an IPA or an information utility can file a complaint to the Board. It must be in the form, within the time and in the manner specified (Section 217).

Can an IPA take action against its member IP?

Yes. An IPA monitors its members and redresses grievances against them. It can suspend or cancel membership on the grounds set out in its bye-laws (Section 204).

What penalty can the Board impose on an IP?

The disciplinary committee can impose a penalty of three times the loss caused or three times the unlawful gain, whichever is higher. If neither is quantifiable, the total penalty cannot exceed ₹1 crore (Section 220(3)).

Can the Board cancel an IP's registration?

Yes. If the disciplinary committee is satisfied that sufficient cause exists after examining the investigating authority's report, it may suspend or cancel the IP's registration (Section 220(2)).