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News: Parliamentary Standing Committee of Finance in its report had argued for the need to have a professional code of conduct for the committee of creditors.
After this Insolvency and Bankruptcy Board of India (IBBI) had issued a discussion paper proposing a code of conduct (code) for the Committee of Creditors (CoC) to ensure transparency in its functioning.
Why there is need for a code of conduct for the CoC?
Since CoCs are not regulated, there exists a regulatory gap. Several proceedings have also witnessed a variety of contraventions of provisions of the insolvency law by market players.
IBBI has in the past tried options like directions to insolvency professionals to secure good conduct from players, filing of complaints in special court against the erring players, and filing of appeals. But these also had a limited impact.
Who should bring this code? IBBI or RBI
Since banks are regulated by the Reserve Bank of India (RBI).
Some argue that if the code is prescribed by the IBBI, this will subject banks to regulations of both the IBBI and RBI, creating regulatory overlap.
However, this is not true as any entity being governed by several regulators for its different activities per se is not regulatory overlap.
For example- An initial public offering (IPO) by a firm, whether in the business of insurance, banking, or telecom, is regulated by SEBI; not by the regulator of the business concerned.
What is the way forward?
Successful implementation of the insolvency law requires all stakeholders follow the rules and are subject to regulatory discipline.
Any contraventions should have quick consequences.
Regulatory jurisdiction must rest with one regulator, be it the IBBI, RBI or SEBI. Only one of them should specify a code of conduct, monitor compliance and adjudicate contraventions against all market players.
Also, it should be ensured that there is a uniform application of regulatory norms across the market and no sectoral differences exist.
Source– This post is based on the article “A code for the committee of creditors” published in Business Standard on 13th Jan 2022.