Limit on the number of assignments for an Insolvency Professional

By INSOL INDIA EDITORIAL TEAM Posted On : August 30, 2020

The Insolvency & Bankruptcy Board of India (IBBI) has proposed to impose a limit on the number of assignments to be handled by an Insolvency Professional (IP) at a certain point of time in a discussion paper dated July 1, 2020, dealing with the issue on ‘Restricting the Number of Assignments to be Handled by the IP’.
The main argument of the discussion paper is that a Corporate Insolvency Resolution Process (CIRP) should be completed in a time-bound manner. If an IP undertakes too many assignments at a given point of time, then it will not be able to devote the same time and energy to every assignment. This will result in unwanted delays and disturbances to the CIRPs being simultaneously handled by the IP. Therefore, placing a limit on the number of assignments is necessary as it will increase the efficiency of an IP, and in turn, helps to achieve the objective of maximization of the value of assets of the Corporate Debtor (CD).
IBBI has used a criterion based on the annual turnover of the corporate debtor to prescribe limits on the number of assignments which can be taken up by an IP as under:
Turnover of the Corporate Debtor No. of Assignments Permitted
Less than 1,000 crores 5
More than 1,000 crores but less than 5,000 crores 4
More than 5,000 crores but less than 10,000 crores 3
More than 10,000 crores 2
More than 50,000 crores 1
The manner in which these limits are to be operated has not been clarified by the IBBI, which may create confusion amongst the relevant stakeholders. It is not clear whether an IP, managing the CIRP of a CD whose turnover is more than Rs.50,000 crores will be able to take up the responsibility for the CIRP of a CD with a turnover of less than Rs.1,000 crores. Further, in a case, where an IP has ongoing assignments from two or more categories, the threshold to decide regarding the breach of prescribed limits shall be difficult to ascertain. Therefore, a clarification in this regard will be required.
The National Company Law Tribunal (NCLT) considers the existing engagements of an IP before the approval of its appointment as an Insolvency Resolution Professional (IRP). In the case of IDBI Bank Ltd. v. Lanco Infratech Ltd., the adjudicating authority refused to approve the appointment of the IP proposed by the IDBI Bank, as it was already engaged in the CIRP for three large entities.