IBBI Proposes Deletion of Clause 6 from Insolvency Professionals’ Code of Conduct to Avoid Duplication and Promote Regulatory Harmony
- REEDLAW
- 17 hours ago
- 3 min read
REEDLAW Legal News Network reports: In a significant regulatory development, the Insolvency and Bankruptcy Board of India (IBBI) on 12 August 2025 released a Discussion Paper proposing the deletion of Clause 6 from the Code of Conduct for Insolvency Professionals. The move aimed at eliminating duplication and aligning the ethical framework with existing liquidation and bankruptcy regulations seeks to ensure regulatory harmony, ease of compliance, and greater transparency within the insolvency ecosystem.
The proposal underscored that Clause 6, which restricts insolvency professionals and their relatives from acquiring debtor assets, was already comprehensively covered under Regulation 33(1) of the Liquidation Process Regulations, 2016, and Regulation 27(3) of the Bankruptcy Process Regulations, 2019. The Court observed that retaining the provision in the Code of Conduct created unnecessary duplication. By relying exclusively on the liquidation and bankruptcy regulations, IBBI sought to simplify compliance for insolvency professionals while upholding the principles of independence, impartiality, and integrity central to the IBC framework.
Background
The Insolvency and Bankruptcy Code, 2016, has transformed India’s insolvency regime by establishing a comprehensive, time-bound framework for corporate and individual insolvency. At the heart of this ecosystem are Insolvency Professionals (IPs), who are entrusted with extensive powers to manage debtor affairs during resolution, liquidation, or bankruptcy.
To safeguard impartiality and prevent conflicts of interest, IPs are bound by a Code of Conduct that prescribes strict ethical standards. Clause 6 of this Code currently states that an IP, or their relatives, must not knowingly acquire assets of the debtor during liquidation or bankruptcy, unless objectivity and impartiality remain unimpaired and IBBI’s approval is obtained.
Overlap with Existing Regulations
The IBBI notes that the restrictions in Clause 6 are already comprehensively covered in:
Regulation 33(1) of the Liquidation Process Regulations, 2016, which expressly prohibits specified persons from purchasing assets of the corporate debtor.
Regulation 27(3) of the Bankruptcy Process Regulations, 2019 (for Personal Guarantors) – which imposes a similar prohibition on certain persons acquiring any interest in the property of the bankrupt.
Thus, Clause 6 is seen as a duplication of existing rules already embedded in procedural regulations.
Proposal
The Discussion Paper proposes:
Deletion of Clause 6 from the Code of Conduct for IPs.
Reliance on the Liquidation and Bankruptcy Regulations as the single, authoritative source for prohibitions on asset acquisition.
Assurance that deletion will not dilute ethical safeguards, since IPs will continue to remain bound by the specific regulations and overarching principles of independence, impartiality, and integrity enshrined in the IBC framework.
Rationale for the Proposal
Avoiding Duplication & Redundancy – The prohibition is already explicitly stated in regulations. Retaining it in the Code of Conduct serves no added purpose.
Clarity & Simplification – A leaner Code of Conduct, free from overlap, makes compliance easier for IPs.
Harmonisation of Regulatory Framework – Housing the prohibition solely in relevant regulations minimises the risk of conflicting interpretations.
Enhanced Transparency – Complementing these regulatory provisions, the newly launched BAANKNET platform (formerly eBKray) will centralise asset listing and auctions during liquidation, further strengthening transparency and bidder participation.
Public Consultation
The IBBI has invited public comments on the proposal in accordance with Regulation 4 of the IBBI (Mechanism for Issuing Regulations) Regulations, 2018.
Comments can be submitted electronically via the IBBI website until 1st September 2025.
Stakeholders—including corporate debtors, personal guarantors, creditors, IPs, IPAs, IPEs, investors, and academics—are encouraged to provide feedback either as general comments (on consistency or implementation challenges) or as specific comments on para 5 of the Discussion Paper.
Conclusion
The proposal reflects IBBI’s continuing effort to streamline regulatory instruments, remove redundancy, and strengthen the ease of compliance for insolvency professionals. Importantly, the core ethical safeguard remains intact, ensuring that IPs or their relatives cannot acquire debtor assets during liquidation or bankruptcy, while making the Code of Conduct leaner and better aligned with specific regulations.
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