The Insolvency and Bankruptcy Board of India, in the exercise of its powers under the Insolvency and Bankruptcy Code 2016, has notified the Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017.
The said Regulations has been made by the Board in exercise of the powers conferred by sections 196, 217, 218, 219,220 read with section 240 of the Insolvency and Bankruptcy code, 2016.
These regulations shall come into force on the date of their publication in the Official Gazette.
These regulations shall apply to inspection and investigation of service providers.
The regulations are as follows:-
- Under these regulations the board shall have the power to conduct inspections of records of such service providers as may be decided by it.
- In order to ensure that records are being maintained by the service provider and to ascertain that the services are not unfit or ineligible and fulfil all obligations under the regulations.
- The regulations also lay down the procedure of inspection, such as the requirement of a notice at least 10 days prior to the commencement of the inspection.
However, this requirement can be done away with in certain circumstances like when the notice would cause undue delay, or would lead to alteration, falsification, etc of records.
- The regulations also have provisions for the submission of an interim and a final report of inspection.
- Further, the regulations also provide for investigation of a service provider under Section 218 of the code. The board can direct the investigating authority to conduct investigation of the affairs of the service provider.
- Procedure for conducting the investigation, such as requirement of a notice 10 days prior to the commencement of the investigation, has been provided for in the Regulations. However, this too can be done away with in certain circumstances.
Provisions for the submission of an interim and final investigation report also find mention in the Regulations.
- The Regulations also provides for the issuance of a show-cause notice and the requirements for a valid show-cause notice.
The requirements for valid Show-cause notice are:-
(1) The show-cause notice shall be in writing and shall state-
(a) the provisions of the Code under which it has been issued;
(b) the details of the alleged facts;
(c) the details of the evidence in support of the alleged facts;
(d) the provisions of the Code, or the rules, regulations or guidelines made thereunder, allegedly violated;
(e) the actions or directions that the Board proposes to take or issue, if the allegations are established; and
(f) The time within which the noticee may make written submission.
(2) For the purposes of clause (e) of sub-regulation (1), the Board shall take into account, but not limited to, the following factors:-
(a) the nature and seriousness of the alleged contraventions, including whether it was deliberate, reckless or negligent on the part of the noticee;
(b) the consequences and impact of the alleged contravention, including-
(i) unfair advantage gained by the noticee as a result of the alleged contravention;
(ii) loss caused, or likely to be caused, to clients or any other person as a result of the alleged contravention; and
(iii) The conduct of the noticee after the occurrence of the alleged contravention, and prior to the alleged contraventions.
(3) The show-cause notice shall provide at least 21 days to the noticee to make a written submission.
(4) The show-cause notice shall state, if a noticee fails to respond under sub-regulation (3) within the given time, it shall be disposed of based on the material available on record.
(5) The show-cause notice shall enclose copies of relevant documents and extracts of relevant portions from the report of investigation or inspection, or other records.
(6) A show-cause notice issued shall be served on the noticee-
(a) by sending it to the noticee at its registered office, by registered post with acknowledgement due; and
(b) By an appropriate electronic form to the email address provided by the service provider to the Board.
(7) The Board shall refer the show-cause notice to the Disciplinary Committee along with all the relevant records including the written submissions, if any, made by the noticee in the matter.