POWERS AND DUTIES OF INTERIM RESOLUTION PROFESSIONAL UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016

Corporate Insolvency Resolution Process follows creditor-in-possession model. With the initiation of Corporate Insolvency Resolution Process the managerial power of erstwhile management of Corporate Debtor shifts to Interim Resolution Professional appointed by the Adjudicating Authority. The Interim Resolution Professional enters into shoes of erstwhile management for all material purposes.

Although the Interim Resolution Professional is appointed for a brief period, the Interim Resolution Professional discharges critical functions. The Interim Resolution Professional causes public announcement to be made, collates claims, constitutes Committee of Creditors and runs the Corporate Debtor as going concern.

APPOINTMENT OF INTERIM RESOLUTION PROFESSIONAL

Interim Resolution Professional is appointed by the Adjudicating Authority on insolvency commencement date i.e., date of admission of application for initiation of Corporate Insolvency Resolution Process.

If application has been filed by Financial Creditor under Section 7 or Corporate Debtor under Section 10, Insolvency Professional proposed in such application is appointed as Interim Resolution Professional if no disciplinary proceeding is pending against such Insolvency Professional. If application has been filed by Operational Creditor under Section 10, Interim Resolution Professional is appointed on the recommendation of IBBI.

With appointment of Interim Resolution Professional, all managerial powers of erstwhile management of the Corporate Debtor shifts to Interim Resolution Professional.  As the word ‘interim’ suggests, Interim Resolution Professional is appointed for brief period of 30 days till Resolution Professional is appointed by Committee of Creditors. Where the appointment of Resolution Professional is delayed, the Interim Resolution Professional has to perform the functions of the Resolution Professional till Resolution Professional is appointed under Section 22.

The Committee of Creditors in its first meeting may confirm the Interim Resolution Professional as Resolution Professional or replace him with another Resolution Professional with 66% majority.

ELIGIBILITY FOR INTERIM RESOLUTION PROFESSIONAL

Only an Insolvency Professional registered with IBBI is eligible to be appointed as Interim Resolution Professional. An Insolvency Professional will be eligible to be appointed as an Interim Resolution Professional of a Corporate Debtor if he and all partners and directors of the Insolvency Professional entity of which he is a partner or director is independent of the Corporate Debtor.

A person is considered independent of the Corporate Debtor if such person is eligible to be appointed as an independent director on the board of the Corporate Debtor under Section 149 of the Companies Act, 2013. Such person should not be a Related Party to the Corporate Debtor. Such person should not be an employee or proprietor or a partner of a firm of auditors or secretarial auditors in practice or cost auditors of the Corporate Debtor for last three years. Such person should also not be an employee or proprietor or partner of a legal or a consulting firm that has or had any transaction with the Corporate Debtor amounting to five percent or more of the gross turnover of such firm in the last three financial years.

An Interim Resolution Professional has to make disclosures at the time of appointment and thereafter in accordance with the code of conduct.

An Interim Resolution Professional, who is a director or a partner of an Insolvency Professional Entity, cannot continue as Interim Resolution Professional in a Corporate Insolvency Resolution Process, if Insolvency Professional Entity or any other partner or director of such Insolvency Professional Entity represents any other stakeholder in that Corporate Insolvency Resolution Process.

SHFITING OF MANAGEMENT TO IRP

Section 17 of the Code deals with shifting of managerial powers to Interim Resolution Professional.

Since the date of appointment of the Interim Resolution Professional, the management of the Corporate Debtor shifts from board of directors in case of companies and partners in case of LLP to the Interim Resolution Professional.  Powers of the board of directors or the partners, as the case may be, are suspended.  The officers and managers of the Corporate Debtor have to report of the Interim Resolution Professional in place of erstwhile management. They have to give access to Interim Resolution Professional to all relevant documents and records. The financial institutions, who are maintaining the accounts of the Corporate Debtor, have to act on the instruction of Interim Resolution Professional and provide all the relevant information to the Interim Resolution Professional.

Since the date of appointment, the Interim Resolution Professional has to act and execute all deeds, receipts, and other documents in the name of the Corporate Debtor. The Interim Resolution Professional has also right to access electronic records of the Corporate Debtor with any information utility. The Interim Resolution Professional has also the authority to access books of accounts, records and other relevant documents with government auditors, accountants and such other persons.

DUTIES OF INTERIM RESOLUTION PROFESSIONAL

Section 18 of the Code deals with duties of the Interim Resolution Professional.

The Interim Resolution Professional has to perform various duties in course of managing the Corporate Debtor during the Corporate Insolvency Resolution Process.

The Interim Resolution Professional has to collect all information relating to assets, finances and operations of the Corporate Debtor for determining the financial position of the Corporate Debtor.

The Interim Resolution Professional has to collect information relating to business operations and financial and operational payments for the previous two years. The Interim Resolution Professional   has to prepare list of assets and liabilities on insolvency commencement date.

The Interim Resolution Professional has to receive and collate all the claims submitted by the creditors

The Interim Resolution Professional has to constitute the Committee of Creditors.

The Interim Resolution Professional   has to monitor the assets of the Corporate Debtor and manage the operations until a new Resolution Professional is appointed

The Interim Resolution Professional has to take control and custody of any asset over which the Corporate Debtor has ownership rights as recorded in the balance sheet of the Corporate Debtor or with information utility or depository of securities or any other registry.

The Interim Resolution Professional has to take control and custody of assets which may be located in a foreign country.

The Interim Resolution Professional has to take control and custody of assets which may not be possession of the Corporate Debtor but over which the Corporate Debtor has rights.

The Interim Resolution Professional has taken control and custody of tangible assets whether movable or immovable.

The Interim Resolution Professional has to take control and custody of intangible assets.

The Interim Resolution Professional   has to take control and custody of securities including shares held in any subsidiary of the Corporate Debtor, financial instruments, insurance policies.

The Interim Resolution Professional has to take into control and custody those assets also subject to the determination of ownership by a court or authority.

Custody of Assets of Third Party

The Interim Resolution Professional cannot take possession of assets of third party, which are in possession of the Corporate Debtor held under trust or under contractual arrangements including bailment. The Interim Resolution Professional also cannot take in possession any assets of Indian of foreign subsidiary of the Corporate Debtor.  Central Government has also been empowered to notify class of assets which cannot be taken in possession by the Corporate Debtor.

Interim Resolution Professional or the Resolution Professional, as the case may be, can take possession of such assets, over which the Corporate Debtor has ownership rights but are in possession of a third party.  

In Encore Asset Reconstruction Company Pvt. Ltd.¹ the physical possession of the property has been taken by the bank before the commencement of Moratorium under provisions of the Securitisation and Reconstruction of   Financial Assets and Enforcement of Security Act, 2002 but same has not been sold. NCLAT held that bank or the assignee is bound to hand over the possession of the assets to the Resolution Professional, if title of assets vests in the Corporate Debtor.

13. It is not the case of the Appellant that the title of the assets has already been transferred or they have sold the assets in terms of Section 13(4) of the ‘SARFAESI Act, 2002’. It is also not the case of the Appellant that the assets owned by a third party is in possession of the ‘Corporate Debtor’ in terms of Section 18, as it is the duty of the ‘Interim Resolution Professional’ to take control and custody of any asset over which the ‘Corporate Debtor’ has “ownership rights” as recorded in the balance sheet of the ‘Corporate Debtor’. Even if it is not in possession of the ‘Corporate Debtor’, a person who is in possession of the same, including the ‘Dena Bank’ or ‘Encore Asset Reconstruction Company Pvt. Ltd.’ is bound to hand over the same to the ‘Resolution Professional’, when title still vests with ‘Corporate Debtor’

In Ramswarup Industries Ltd.² machineries have been imported by the Corporate Debtor, but custom duty on the same had not been paid in total. The said machineries were in the process to be auctioned by the custom officials, when CIRP was initiated in respect of the Corporate Debtor. The NCLAT held that Resolution Professional has right to take control and custody of machineries as the Corporate Debtor was having ownership of machineries. The relevant para is as under

19. As we have seen that the ownership rights of the machineries, in question, is of the ‘Corporate Debtor’ and not of a third party, explanation below Section 18 (1) (f) & (g) is not applicable. Therefore, the ‘Resolution Professional’ has right to take control and custody of any asset, though the Customs Authority is in possession of the same for the present.

CO-OPERATION TO INTERIM RESOLUTION PROFESSIONAL

Section 19 provides for co-operation to Interim Resolution Professional in conduct of Corporate Insolvency Resolution Process.

The personnel of the Corporate Debtor, promotors or any other person associated with the management of Corporate Debtor has to extend cooperation to Interim Resolution Professional in managing the affairs of the Corporate Debtor.

If personnel of Corporate Debtor, promotors or any other person associated with the management of the Corporate Debtor does not cooperate with the Interim Resolution Professional, application can be moved before the Adjudicating Authority seeking appropriate directions.

MANAGEMENT OF CORPORATE DEBTOR AS GOING CONCERN

Section 20 deals with powers of the Interim Resolution Professional to manage the Corporate Debtor.

The Interim Resolution Professional has to make every endeavour to protect and preserve the value of the property of the Corporate Debtor. Further, the Interim Resolution Professional has to manage the operations of the Corporate Debtor as going concern.

For the aforesaid purpose, the Interim Resolution Professional has the authority to appoint accountants, legal or other professionals as deemed necessary.  The Interim Resolution Professional on behalf of the Corporate Debtor can enter into fresh contracts or modify the contract or transaction, which were entered into before the commencement of Corporate Insolvency Resolution Process.

The Interim Resolution Professional can also raise interim finance, but the Interim Resolution Professional cannot create security interest over any encumbered property of the Corporate Debtor without prior consent of the creditors whose debt is secured over such encumbered property. In case the value of encumbered property is twice the amount of debt, prior consent of such creditor is not necessary.

The Interim Resolution Professional can also issue appropriate instructions to the personnel of the Corporate Debtor to manage the Corporate Debtor as going concern.

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1.Encore Asset Reconstruction Company Pvt. Ltd. Vs. Mr. Charu Sandeep Desai & Ors.; Compnay Appeal (AT) (Insolvency) No. 719 of 218

2. Commissioner of Customs (Preventive) West Bengal Vs. Ram Swarup Industries Ltd. & Ors.; Company Appeal (AT) (Insolvency) No. 563 of 2018