INTRODUCTION
The enactment of the Insolvency and Bankruptcy Code, 2016 (IBC) marked a significant moment in India’s insolvency framework. This replaced the traditional creditor-led hostile framework with a unified resolution method in a time-bound manner. The central pillar of this system of insolvency resolution was the emergence of a new class of professionals under the IBC,2016, as “Insolvency Professionals (IPs)”. The central function of IPs was to preserve the value of the debtor’s estate while managing the insolvency process and at the same time ensuring equitable treatment of creditors among other allotted functions, which ranged from a wide range of responsibilities such as formation of the Committee of Creditors and taking over the management of the corporate debtor.[1]
Over the years, the powers of IPs have expanded, which allows them to make decisions affecting the legal and financial status of stakeholders significantly. While these functions seem administrative, their consequences reveal a quasi-judicial character that surpasses the distinction between executive and adjudicatory roles.[2] This expansion of power raises a jurisprudential question that needs to be addressed: Do such quasi-judicial roles compromise the foundational principles of natural justice?
This blog critically examines the legal implications of this rapid evolution in the corporate world, where businesses rise and fall each day, arguing for the principle that “efficiency of insolvency proceedings must not come at the cost of procedural fairness and constitutional due process.[3]
LEGAL FRAMEWORK GOVERNING INSOLVENCY PROFESSIONALS
A stringent statutory framework governs the role of Insolvency professionals under the IBC, 2016. The Powers and duties of IP are enshrined under sections 16 to 29 and section 208 of the IBC during the CIRP process[4]. Once the appointment under section 16 as an Interim resolution professional takes place, the IRP is entrusted to take over the management of the CD under section 17; further, they have to maintain the business as a going concern under section 20.
IPs have significant administrative roles and responsibilities, such as convening the committee of creditors (COC) and facilitating approval of resolution plans as per sections 23 and 25. These powers further involve crucial procedural decisions such as verifying claims and disqualifying resolution applicants under section 29A. These powers administer the CIRP and alter the rights of stakeholders.
To ensure smooth functioning and maintenance of ethical standards, regulations are imposed on IPs by the IBBI under section 188 of the IBC. The Insolvency Professional Regulations 2016, along with the code of conduct in its first schedule, impose various regulatory roles on IPs such as maintaining objectivity, transparency, and independence in their functioning. Despite these regulations, the lack of procedural checks and uncontrolled growth of discretionary powers raises serious concerns about the execution of these regulations.
THE QUASI-JUDICIAL NATURE OF INSOLVENCY PROFESSIONALS’ POWERS
The evolving functional roles of Insolvency professionals under the code have raised concerns regarding the quasi-judicial nature of their administration of the CIRP. In a traditional sense, quasi-judicial functions are defined as actions taken by administrative authorities that apply legal standards and decide the rights and obligations of parties. The distinguishing factor of these functions is that they are fair, independent, and judicial rather than purely administrative, particularly in situations where they affect the substantive rights of parties.[5]
Inherently IPs are not adjudicatory bodies but in a formal sense they inhibit several determining features of quasi-judicial authorities under the IBC such as IPs verify or reject claims of creditors (Section 18(1)(b)) and classify them thereby having a strong influence in determining voting powers of each class in the resolution process, they also conduct due diligence to acclaim of disqualify resolution applicants (Section 29A). These functions cannot simply be termed as mechanical and statutorily bound, as they require applications and interpretation of these statutory provisions, which provide them with these roles akin to those of tribunals and judicial bodies.
The role of these professionals is not of adjudicatory authorities under the IBC but is administrative with legal consequences nonetheless this distinction has blurred out throughout the years of practice as their decisions have effects on important procedural and substantive aspects of the insolvency process, procedural safeguards such as right to quick appeals and be heard are important as when procedural practices are carried on in statutory vacuum the absence of these safeguards can raise concerns about the fairness and transparency in the process, hence demanding critical scrutiny under the purview of natural justice.
CLASH WITH PRINCIPLES OF NATURAL JUSTICE
Any fair adjudicatory process has the element of natural justice present in it, guided by two fundamental maxims: Nemo judex in causa sua (no one should be a judge in their case) and Audi alteram partem (the right to be heard).[6] The main aim of these principles is to ensure that the decisions given by adjudicatory bodies are impartial and that a fair opportunity for representation has been provided to all parties to present their case.
These principles become questionable when reviewed in the context of discretionary practices by IPs and Resolution professionals (RPs) who practice their powers in the absence of proper procedural safeguards, and hence may affect the substantive rights of the parties in the process. The tension can be observed from the case of judicial scrutiny in Phoenix ARC Ltd v Spade Financial Services Ltd, SC highlighted that although adjudicatory powers are absent on the RP, the manner of administrative decisions taken by them should still conform to principles of fairness and non-arbitrariness.[7] The court highlighted that “decisions having civil consequences must follow the audi alteram partem rule, even in cases where non-judicial actors are involved.
The growing use of quasi-adjudicatory functions in the absence of significant procedural checks and balances undermines the legitimacy of the insolvency process and should be avoided.
GLOBAL PRACTICES AND COMPARATIVE JURISPRUDENCE
A comparative overview of US and UK frameworks on insolvency shows that they have advanced in achieving a better approach by establishing a clear separation between adjudicatory and administrative functions. The UK has achieved this regulatory oversight with the help of the Insolvency Service and courts, with strict requirements of judicial approval for any decisions that affect substantive rights if the parties are under the Insolvency Act of 1986. At the same time, the US operates with the help of bankruptcy trustees under the US Bankruptcy Code and supervision of the Bankruptcy judges, who possess the authority to adjudicate disputes in legal isolation.[8]
These systems reflect a balance and separation of duties, which avoids the breach of natural justice by keeping adjudicatory powers firmly with the judiciary. Indian jurisprudence, in its rapidly evolving pace, may benefit from aligning closer to these legislations and strengthening the procedural aspects of its insolvency oversight mechanisms.
NEED FOR CHECKS & BALANCES
A robust framework of checks and balances is necessary for safeguarding the principle of natural justice, though the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) have the jurisdiction to oversee the conduct of IPs[9], the review process is often delayed as it is based on an ex-post facto basis. This raises the requirement for a time-bound process under the IBC to review and correct these grievances against IPs timely manner.
Statutory reforms to mandate notice and hearing before critical decision-making, by amending the code. The IBBI could establish an independent grievance redressal (ombudsman) body to hear and address the complaints promptly without solely relying on judicial discretion. Enhanced training, better focus on constitutional principles, and procedural fairness towards a rights-sensitive approach need to be fostered in the process of insolvency resolution to avoid any breach of justice.
CONCLUSION
Insolvency professionals are crucial to fulfilling a time-bound resolution and efficient completion of goals under the IBC. The growing scope of their powers exercised in a legal vacuum risks a breach of statutory norms and threatens the very fairness and impartiality of the insolvency framework. A balance must be created to prevent the loss of efficiency at the cost of fairness. A multi-layered reform strategy with independent redressal bodies and better training of IPs will preserve the legitimacy of insolvency proceedings so that the IBC functions as an efficient tool for facilitating economic regulation while upholding justice and the rule of law.
Author(s) Name: Rajat Patel & Salini Tiwari (Kiit School of Law & Kiit School of Law)
References:
[1] Insolvency and Bankruptcy Code 2016, ss 16-25
[2] Swiss Ribbons Pvt Ltd v Union of India (2019) 4 SCC 17
[3] IBBI, ‘Discussion Paper on Enhancing the Role of IPs’ (2020) https://ibbi.gov.in/DiscussionPaper_RestrictingthenumberofassignmentstobehandledbyIP_Final_new.pdf accessed 09 June 2025
[4] Insolvency and Bankruptcy Code 2016, ss 16-29, 208
[5] A K Kraipak v Union of India (1969) 2 SCC 262
[6] Maneka Gandhi v Union of India (1978) 1 SCC 248
[7] Phoenix ARC Pvt Ltd v Spade Financial Services Ltd (2021) 3 SCC 475 [61]-[65]
[8] Biswaksen Panda, ‘Insolvency Regime in India and USA: A Comparative Study’ (SCC Times, 19 September 2023) https://www.scconline.com/blog/post/2023/09/19/insolvency-regime-in-india-and-usa-a-comparative-study/ accessed 10 June 2025
[9] K Shashidhar v Indian Overseas Bank (2019) 12 SCC 150
