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CS Professional · Insolvency and Bankruptcy - Law and Practice

Professional and Ethical Practices for Insolvency Practitioners

This chapter covers who may act as an insolvency professional under the IBC, how insolvency professional agencies (IPAs) are registered and run, the conduct expected, and how the Board disciplines defaulters. To solve questions, state the provision, apply it to the facts, then conclude with the consequence or penalty.

What this chapter covers

This chapter is about the people who run insolvency processes. Under the Insolvency and Bankruptcy Code, 2016, an insolvency professional must first become a member of an insolvency professional agency and then register with the Insolvency and Bankruptcy Board of India (the Board). The chapter explains this two-step route, what the Board and the IPAs do, and what happens when an insolvency professional or an agency breaks the rules.

You will study five linked areas: the status of insolvency professionals, the registration and working of IPAs, the code of conduct, disciplinary proceedings with penalties, and practical ethics including fees. The sections you need most are 196, 199, 200, 204, 205, 207 and 220. Section 244 gives the transitional position when the Board was not yet constituted.

This chapter connects to the rest of Paper 7.5. Every process in the paper, whether corporate insolvency resolution, liquidation or individual insolvency, is run by an insolvency professional. When you answer a case on any process, you will often need this chapter to judge whether the professional acted properly and what the Board can do if not.

This chapter is compact, rule-based and predictable, so it rewards careful reading. Questions are written and case-based, and many ask you to test an act of an insolvency professional or agency against the Code and reach a conclusion. If you know the exact functions, principles and penalty formula, you can write structured answers quickly. Because the elective is open book, you must also know where each provision sits so you can find it fast and quote it correctly.

Professional and Ethical Practices for Insolvency Practitioners: topics in the order to study them

  1. 1Insolvency Professionals under the IBCStart with who the insolvency professional is and the two-step route of agency membership then Board registration under section 207, since everything else builds on it.
  2. 2Insolvency Professional Agencies and Registration PrinciplesNext learn the Board's powers under section 196 and how IPAs are registered, guided by section 200, and run under sections 199, 204 and 205.
  3. 3Code of Conduct for Insolvency ProfessionalsOnce you know who regulates, learn the standards of conduct that the Board and IPAs lay down and enforce.
  4. 4Disciplinary Proceedings and PenaltiesPenalties make sense only after you know the duties; here you learn section 220, the disciplinary committee and the penalty formula.
  5. 5Professional Ethics, Fees and Practical ConductFinish with practical application, where you apply the rules to fee, conflict and conduct situations in case questions.

How to prepare Professional and Ethical Practices for Insolvency Practitioners

Treat this chapter as a map of regulators and consequences. Learn it in layers, and practise writing short, structured answers.

  1. Draw a simple chain: person, IPA membership, Board registration, then appointment to a process. Write the section next to each link.
  2. Read sections 196, 199, 200, 204, 205, 207, 220 and 244 in the Code itself. Mark them in your open-book copy with tabs.
  3. Make a two-column list of Board functions versus IPA functions. Section 196 is long, so group its clauses by theme: registration, standards, inspection, grievances, regulations.
  4. Memorise the five principles in section 200 as a keyword list: development, competence, ethics, protection of debtors and creditors, growth of IPAs.
  5. Learn the penalty rule in section 220(3) with its proviso, and practise a calculation of loss versus gain.
  6. Solve case questions in the format provision, facts, conclusion. Write a few lines on each and keep to the time.
  7. Revise the chapter in one sitting twice before the exam, using the quick revision points.

Common mistakes in Professional and Ethical Practices for Insolvency Practitioners

  • Saying an insolvency professional is registered only with the IPA, or only with the Board.

    Fix: Write both steps: membership of an IPA first, then registration with the Board under section 207(1).

  • Mixing up the functions of the Board and of an IPA.

    Fix: Remember that the Board registers and regulates IPAs and professionals, while the IPA grants membership, sets conduct standards and acts on its own members under its bye-laws.

  • Quoting the penalty as a flat amount.

    Fix: Give the formula first: three times loss or three times gain, whichever is higher. Mention one crore only as the limit when loss or gain cannot be quantified.

  • Forgetting that only whole-time members of the Board sit on the disciplinary committee.

    Fix: Learn section 220(1) with its proviso and state it when the question asks who decides.

  • Writing general ethics points without tying them to the Code.

    Fix: Anchor each point to a provision or the conduct standards, then apply it to the facts and conclude.

  • Ignoring disgorgement and restitution in penalty questions.

    Fix: Add that the Board may direct disgorgement of unlawful gain or averted loss and may arrange restitution to identifiable persons who suffered directly attributable loss.

Last-day revision: Professional and Ethical Practices for Insolvency Practitioners

  • 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)).

Professional and Ethical Practices for Insolvency Practitioners practice questions

Professional and Ethical Practices for Insolvency Practitioners in other exams

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

Professional and Ethical Practices for Insolvency Practitioners: frequently asked questions

Is this chapter important for Elective 7.5?

Yes. Every insolvency process in the paper is run by an insolvency professional, so the rules on registration, conduct and discipline support many case answers. The chapter is also short and rule-based, so it is easy to score in.

Do I need to memorise section numbers for an open-book exam?

You should know the key ones well enough to find and cite them quickly. Tab sections 196, 199, 200, 204, 205, 207 and 220 in your copy and learn what each covers.

How is the penalty on an insolvency professional calculated?

Under section 220(3), the disciplinary committee may impose a penalty of three times the loss caused or three times the unlawful gain, whichever is higher. If the loss or gain cannot be quantified, the total penalty cannot exceed one crore rupees.

What is the difference between the Board and an insolvency professional agency?

The Board is the regulator that registers and oversees agencies, professionals and information utilities. An IPA enrols professionals as members, sets conduct standards for them, monitors them and can suspend or cancel membership under its bye-laws.