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Insolvency and Bankruptcy - Law and Practice · Professional and Ethical Practices for Insolvency Practitioners

Disciplinary Proceedings and Penalties for Insolvency Professionals under IBC

Updated 11 October 2026 · Fact-checked

Disciplinary proceedings under the IBC let the Insolvency and Bankruptcy Board of India act against an insolvency professional, agency or information utility for contravention. The steps are complaint, investigation, show cause notice, and a disciplinary committee order imposing penalty, suspension or cancellation. In answers, follow that sequence and apply the facts.

Understand Disciplinary Proceedings and Penalties

An insolvency professional runs a process that affects creditors, debtors and employees. So the Code gives the Board (IBBI) power to police the professionals, their agencies and information utilities. Sections 217 to 220 set out the route.

It starts with a trigger. Under section 217, any person aggrieved by the functioning of an insolvency professional agency, an insolvency professional or an information utility can file a complaint with the Board, in the form, time and manner specified. Under section 218(1), the Board can also act on its own if it has reasonable grounds to believe there is a contravention of the Code, rules, regulations or Board directions.

Next comes investigation. The Board, by a written order, directs a person to act as the investigating authority. That authority can require other persons to furnish documents, records or information, but must first give detailed reasons. It can enter premises and seize documents or take copies, subject to section 100 of the Code of Criminal Procedure, 1973 so far as applicable. Seized material is kept only as long as needed, not beyond the conclusion of the investigation, and then returned. A detailed report goes to the Board.

After inspection or investigation, section 219 lets the Board issue a show cause notice to the agency, professional or information utility, giving time to reply as the regulations specify. Section 220 then requires a disciplinary committee made up only of whole-time members of the Board. It considers the investigation report. If it is satisfied that sufficient cause exists, it may impose a penalty, or suspend or cancel registration.

Separately, the Board may direct disgorgement of unlawful gain or averted loss and may arrange restitution to identifiable persons whose loss is directly attributable. Note also the knock-on effect: a professional against whom disciplinary proceedings are pending cannot be appointed as interim resolution professional on the proposed name (section 16), or as resolution professional in a pre-packaged process on the named basis (section 54E).

Key rules to remember

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.

How to solve Disciplinary Proceedings and Penalties questions

Use this method for any case-based question on disciplinary action against an insolvency professional, agency or information utility.

  1. 1Identify the person proceeded against: insolvency professional, insolvency professional agency or information utility.
  2. 2Identify the trigger: a complaint under section 217 or the Board's own reasonable grounds under section 218(1).
  3. 3State the investigation: written order, investigating authority, powers to seek documents and seize, and the report to the Board.
  4. 4Check procedure: show cause notice under section 219 and opportunity to reply.
  5. 5Name the decision-maker: the disciplinary committee of whole-time members under section 220, and test whether sufficient cause exists.
  6. 6Choose the sanction: penalty, suspension or cancellation. For penalty, compute three times loss or gain, take the higher, and apply the ₹1 crore cap if not quantifiable.
  7. 7Add disgorgement and restitution if the facts show unlawful gain and an identifiable victim.
  8. 8Conclude clearly and mention any effect on pending appointments.

Quickest way: Five-link chain

When to use it: When time is short and the question asks for the procedure or the penalty amount.

  1. Write the chain: Complaint → Investigation → Show cause → Disciplinary committee → Order.
  2. For money, write: 3 × loss, 3 × gain, take higher.
  3. Check whether loss or gain is quantifiable. If not, the cap is ₹1 crore.
  4. Add one line on disgorgement and restitution.
  5. Finish with the conclusion on the facts.

Common mistakes in Disciplinary Proceedings and Penalties

  • Saying only the aggrieved person can start proceedings.

    Students remember section 217 and forget section 218(1).

    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.

    The words 'three times' and 'whichever is higher' are skimmed.

    Fix: Compute three times each and pick the higher.

  • Applying the ₹1 crore cap when loss is quantifiable.

    Students treat the cap as a general ceiling.

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

  • Saying the investigating authority can seize documents without limits.

    Students ignore the conditions in section 218.

    Fix: Mention section 100 CrPC subject to applicability, the duty to give reasons to third parties, and return of records after investigation.

  • Treating the disciplinary committee as any Board committee.

    The proviso is overlooked.

    Fix: State that members are whole-time members of the Board only.

  • Confusing penalty with disgorgement.

    Both involve money linked to gain.

    Fix: Penalty is the punishment under section 220(3); disgorgement under 220(4) takes back the gain or averted loss and may fund restitution.

Worked examples

Example 1

CP, an insolvency professional, conducted a process and allegedly diverted funds. Creditor Mehta Traders wants action. Advise on the procedure the IBBI follows against CP.

Show the solution
  1. Mehta Traders, as a person aggrieved by CP's functioning, can file a complaint with the Board under section 217 in the specified form, time and manner.
  2. The Board can, by written order, appoint an investigating authority under section 218(1). It may also act on its own if it has reasonable grounds.
  3. The authority may require documents from others after giving detailed reasons, may enter premises and seize or copy records subject to section 100 CrPC, and submits a detailed report.
  4. After the investigation the Board may issue CP a show cause notice under section 219, allowing time to reply.
  5. The disciplinary committee, made of whole-time members, examines the report under section 220. If it finds sufficient cause, it may impose a penalty or suspend or cancel CP's registration.

Answer: Mehta Traders files a complaint, the Board orders an investigation, issues a show cause notice, and the disciplinary committee of whole-time members decides on penalty, suspension or cancellation.

Example 2

An insolvency professional's contravention caused a loss of ₹40,00,000 to creditors and gave him an unlawful gain of ₹15,00,000. What is the maximum penalty under section 220(3)?

Show the solution
  1. Both loss and gain are quantifiable, so the ₹1 crore cap does not apply.
  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. The penalty is whichever is higher, so ₹1,20,00,000.
  5. The Board may additionally direct disgorgement of ₹15,00,000 unlawful gain under section 220(4), and restitution to identifiable creditors whose loss is directly attributable.

Answer: The penalty is ₹1,20,00,000, and the Board may also direct disgorgement of the ₹15,00,000 gain.

Exam tips

  • Write the sequence with section numbers 217, 218, 219, 220; examiners reward the order.
  • In penalty problems show both multiplications, then state the higher figure.
  • Always mention that the disciplinary committee has only whole-time members.
  • Link to appointments: pending disciplinary proceedings affect who can be appointed as interim resolution professional or in a pre-pack.
  • For agency cases, add section 201(5) grounds and the hearing requirement.

Practice questions from Professional and Ethical Practices for Insolvency Practitioners

Disciplinary Proceedings and Penalties in other exams

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

Disciplinary Proceedings and Penalties: frequently asked questions

How do I file a complaint against an insolvency professional?

Under section 217, any aggrieved person files a complaint with the IBBI in the form, within the time and in the manner specified by the regulations. Check the current regulations for the exact format.

What is the maximum penalty on an insolvency professional?

The penalty is the higher of three times the loss caused or three times the unlawful gain. If neither can be quantified, the total penalty cannot exceed ₹1 crore.

Who decides the disciplinary case?

A disciplinary committee made up only of whole-time members of the Board. It considers the investigating authority's report and decides whether sufficient cause exists.

Can the IBBI cancel registration?

Yes. The disciplinary committee may suspend or cancel the registration of an insolvency professional, agency or information utility if satisfied that sufficient cause exists.