Introduction
The Resolution Professional (RP) occupies the structural heart of the Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code. The IBC’s design assigns to the RP a role that is simultaneously managerial, administrative, quasi-judicial, and fiduciary: the RP takes over the management of the corporate debtor, convenes and chairs the Committee of Creditors, processes claims, monitors assets, invites resolution plans, and presents the final plan to the CoC for approval. The RP is, in theory, an independent officer of the court operating under the supervision of the NCLT and subject to the oversight of the Insolvency and Bankruptcy Board of India.
In practice, however, the independence of the RP is structurally compromised by the CoC’s extensive powers over the RP’s continuation in office and the remuneration the RP receives. A CoC that is dissatisfied with the RP, for any reason including the RP’s unwillingness to accommodate the CoC’s commercial preferences, can remove the RP by a 66% majority vote and replace the RP with a person of the CoC’s choosing. This power, which is ostensibly a quality control mechanism, has in practice become a tool through which dominant CoC members assert commercial control over an insolvency process that is, formally, supposed to be independently managed.
This structural tension between the RP’s legal independence and the CoC’s commercial dominance raises fundamental questions about the integrity of the CIRP process, the quality of resolution outcomes, and the accountability mechanisms available when things go wrong. This article examines the design of the RP role, the practical challenges to RP independence, IBBI’s enforcement record against insolvency professionals, and the structural reforms needed to ensure that the RP functions as the genuinely independent officer the IBC contemplates.
Legal Framework
The RP’s powers and functions are defined primarily in Sections 20, 23, 25, and 28 of the IBC. Section 20 requires the RP to “make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.” Section 23 vests in the RP the management powers of the corporate debtor, replacing the board of directors for the period of CIRP. Section 25 sets out an extensive list of the RP’s duties, including conducting the process of verifying claims, constituting the CoC, preparing the information memorandum, inviting resolution plans, and conducting due diligence on resolution applicants.
Crucially, Section 22 establishes the mechanism for replacing the RP. At the first meeting of the CoC, the CoC may resolve to retain the Interim Resolution Professional (IRP) as the RP, or may replace the IRP with a different insolvency professional. Thereafter, under Section 27, the CoC may resolve to replace the RP at any time by a 66% vote. The new RP is appointed by the NCLT on the recommendation of the CoC.
The IBBI (Insolvency Professionals) Regulations, 2016 govern the qualifications, registration, professional conduct, and disciplinary proceedings applicable to insolvency professionals. An insolvency professional must be registered with IBBI, must hold an insolvency professional agency (IPA) membership, and must comply with the Code of Conduct prescribed under the regulations. The Code of Conduct requires, among other things, independence, objectivity, integrity, and confidentiality.
The insolvency professional agency system is a distinctive feature of the Indian framework. IPAs, which are bodies of professionals such as the ICAI’s IPA, the ICSI’s IPA, and the ICMAI’s IPA, are intermediate regulatory bodies between individual insolvency professionals and IBBI. They are responsible for enrolling members, conducting examinations, and carrying out first-level disciplinary proceedings. IBBI retains oversight authority and can take direct action against IPs and IPAs.
Judicial Developments
The question of RP independence and CoC authority has generated significant judicial attention, particularly in the context of RP replacement and the scope of the CoC’s commercial wisdom doctrine.
In the Supreme Court’s decision in Committee of Creditors of Essar Steel India Ltd v. Satish Kumar Gupta (2019), the Court articulated the “commercial wisdom” doctrine: the CoC’s collective judgment on commercial matters relating to the resolution plan, including the allocation of amounts among creditors, is not to be second-guessed by courts unless it is patently illegal or violates the fundamental rights of stakeholders. This doctrine has a legitimate basis in economic theory, since the CoC members, as sophisticated institutional creditors, are better placed than courts to assess the commercial viability of resolution plans.
However, the commercial wisdom doctrine has had the unintended consequence of shielding CoC decisions that affect the RP’s role and conduct from effective judicial scrutiny. Where a CoC replaces an RP, the NCLT has generally deferred to the CoC’s decision as an exercise of commercial wisdom, rarely examining whether the replacement was motivated by legitimate dissatisfaction with the RP’s performance or by the CoC’s desire to install a more pliant professional.
NCLT and NCLAT decisions have periodically highlighted instances of RP-CoC conflict. Cases have arisen where the RP has objected to CoC instructions that would, in the RP’s assessment, prejudice the interests of the corporate debtor’s employees, operational creditors, or other stakeholders, and where the CoC has responded by initiating the replacement process. The legal remedy available to the RP in such cases is limited: the RP has no statutory right to challenge their own replacement before the NCLT, and the NCLT’s review of replacement decisions is confined to ensuring procedural regularity rather than substantive fairness.
IBBI’s Annual Reports for 2022 to 2024 document an increasing number of disciplinary proceedings against insolvency professionals. These proceedings have covered a range of conduct, including inadequate asset preservation, failure to properly verify claims, conflicts of interest arising from undisclosed relationships with resolution applicants, and failure to exercise independent judgment in the face of CoC pressure. The number of enforcement actions, while growing, remains small relative to the total number of CIRP cases, raising questions about whether the enforcement net is adequately wide.
Contemporary Issues and Analysis
The structural accountability gap in the RP framework manifests in several ways. The most significant is the misalignment between the RP’s legal duties (to the corporate debtor, to all creditors, and to the integrity of the process) and the RP’s practical dependency on the CoC for continuation in office and for the approval of RP fees above the prescribed minimum. An RP who antagonises the dominant CoC members by taking positions that protect the interests of operational creditors or employees at the expense of financial creditor returns is exposed to summary removal without the need for any cause to be established.
This structural misalignment creates a selection effect: IPs who are known to be accommodating to lead financial creditors are more likely to be nominated as IRPs, to retain their positions as RPs, and to receive desirable future appointments. IPs who exercise genuine independence are less likely to be recommended for large, high-profile cases. Over time, this selection pressure threatens to hollow out the independence that the IBC’s design requires of the RP.
The IPA system adds another layer of complexity to the accountability question. Since IPAs are professional associations of chartered accountants, company secretaries, or cost accountants, they have an inherent conflict of interest in disciplining their own members. The incentive of a professional body is to protect its members’ reputations and to resolve disciplinary matters conservatively. IBBI’s own disciplinary authority provides a check on this tendency, but the two-tier system creates potential for regulatory gaps, particularly in cases of subtle misconduct that does not rise to the level of clear regulatory violation.
A specific problem that has attracted attention is the practice of “IRP capture”: where a lead financial creditor who is closely associated with the appointment of the IRP (because the IRP was proposed by that creditor in the Section 7 or Section 9 application) then uses the IRP’s position to gather information about the corporate debtor’s assets and business, ostensibly as part of the insolvency process but with a view to informing the creditor’s resolution bid or enforcement strategy. This practice, which is difficult to prove and even more difficult to regulate given the inherent information-sharing role of the RP, represents a genuine abuse risk.
Comparative and International Perspective
A comparison with the United Kingdom’s approach to insolvency practitioner regulation illuminates alternative structural models. In the UK, insolvency practitioners are licensed by a small number of recognised professional bodies (RPBs), of which the Insolvency Practitioners Association (IPA) is the largest. However, the IPA is not, like India’s IPAs, a professional body of accountants or lawyers that has added insolvency as a specialisation. It is a dedicated insolvency licensing body, and its primary function is to license and regulate insolvency practitioners as a distinct profession. The competent authority for oversight of RPBs in the UK is the Insolvency Service, a government agency with direct enforcement powers.
This structure creates a clearer separation between professional body advocacy and regulatory function than the Indian IPA model. The Insolvency Service can and does take direct enforcement action against both individual practitioners and RPBs when standards are not maintained, creating accountability at multiple levels.
Australia’s Australian Securities and Investments Commission (ASIC) serves as the primary regulator of insolvency practitioners (registered liquidators and trustees), again without the intermediate professional body layer that characterises the Indian framework. ASIC has broad enforcement powers and actively uses them in cases of practitioner misconduct.
The US bankruptcy trustee system, which relies on the US Trustee Program (a federal government agency) rather than private insolvency practitioners for most chapter 7 liquidations, represents a fundamentally different model: government-employed trustees rather than private professionals. Chapter 11 cases use debtor-in-possession management or a privately appointed trustee, with the US Trustee Program providing oversight.
Practical and Policy Implications
The practical implication of the structural weaknesses in RP independence is that the CIRP process is not always the neutral, creditor-value-maximising mechanism that the IBC promises. In cases where the lead financial creditor is also a prospective resolution applicant or has a closely affiliated applicant, the RP’s dual role creates profound conflicts that the current regulatory framework does not adequately address.
These conflicts affect the quality of the information memorandum (which shapes how the corporate debtor is presented to potential resolution applicants), the design and timing of the request for resolution plans (which can be structured to favour or disfavour particular bidders), and the evaluation of the resolution plans submitted (which requires the RP to assess competing bids with at least the appearance of objectivity).
IBBI has recognised some of these concerns and introduced several regulatory interventions between 2022 and 2024, including enhanced disclosure requirements for IPs regarding relationships with CoC members and resolution applicants, and strengthened conflict of interest prohibitions. Whether these interventions are sufficient to address the structural problems identified above remains to be seen.
Suggestions and Reforms
A comprehensive reform of the RP accountability framework should proceed on several fronts. First, the RP’s tenure security should be strengthened. The current provision allowing CoC replacement of the RP by a 66% vote with no cause requirement should be amended to require the CoC to demonstrate cause for replacement and to give the NCLT a substantive review role in contested replacement decisions. This reform would not prevent legitimate replacement but would deter tactical replacement designed to eliminate independent oversight.
Second, IBBI should be empowered to appoint a panel RP in cases where a creditor-proposed RP has an apparent conflict of interest. This panel RP appointment mechanism would provide an alternative to the current system where the lead financial creditor effectively controls the RP selection from the outset.
Third, the IPA system should be restructured. The current arrangement, in which professional associations of accountants and company secretaries function as IPAs, creates the conflict of interest identified above. IPAs should either be consolidated into a single independent body or their disciplinary functions should be transferred entirely to IBBI, which should establish a dedicated disciplinary division for insolvency professional regulation.
Fourth, RP performance metrics should be introduced and published by IBBI. Regular publication of RP-level data on CIRP timelines, asset preservation outcomes, resolution plan quality, and operational creditor treatment would create market accountability pressure that complements formal regulatory enforcement.
Conclusion
The Resolution Professional is the keystone of the IBC’s CIRP architecture. When the RP functions as an independent, professional officer managing the insolvency for the benefit of all creditors, the system works as Parliament intended. When the RP’s independence is compromised by CoC dominance, institutional capture, or structural misalignment of incentives, the integrity of the process suffers and the outcomes for non-dominant stakeholders deteriorate.
Strengthening RP independence does not require abandoning the CoC’s legitimate commercial authority. It requires creating structural protections that ensure the RP can exercise independent judgment without fear of arbitrary removal, establishing accountability mechanisms that are genuinely independent of the professional bodies whose members the regulation is designed to discipline, and developing market transparency that allows all stakeholders to assess whether RPs are performing their duties with integrity. These reforms are not peripheral to the IBC’s success; they are central to it.
