Excerpts of the Address by Hon\'ble Shri Justice Dipak Misra, Former Chief Justice of India on \"Improving engagement across stakeholders\" on the occasion of 8th Foundation Day of Indian Institute of Insolvency Professionals of ICAI (IIIPI)

\"In a civilized and highly economically developing country, the legislative concern has always been that businesses initiated by individuals, in whatever form and frame they may be, should pave the path of progress. It is because the attempt of the law is to see a constructively affirmative business that grows progressively. To quote a statement from Benjamin Cardozo \"A business never stands still. It either grows or decays\". And, at present, after decades of economic liberalisation and globalization, regard being had to growth, the law was required to be changed and the legislature did change it with intent and purpose.\"

\"In the year 2014, the Bankruptcy Legislative Reforms Committee was constituted. In November 2015, the Committee submitted its report. It highlighted that: \"India is one of the youngest republics in the world, with a high concentration of the most dynamic entrepreneurs. Yet these game changers and growth drivers are crippled by an environment that takes some of the longest times and highest costs by world standards to resolve any problems that arise while repaying dues on debt. This problem leads to grave consequences: India has some of the lowest credit compared to the size of the economy...\"

\"The entire process of Corporate Insolvency Resolution, or Liquidation, involves multiple stakeholders who play critical roles in the process. The key stakeholders are:

(i) Corporate Debtor which includes its employees, management and shareholders. They provide all necessary information to the Resolution Professional (RP) and co-operate with the RP during the resolution process. (ii) Financial and Operational Creditors who play a critical role in identifying defaults and triggering the insolvency process by filing applications before the Adjudicating Authority. (iii) Then comes the significant stakeholder, namely, Resolution Professional - who takes custody of the corporate debtor\'s assets and records and facilitates the claims process by inviting and verifying the creditors\' claims, conducts meetings of the Committee of Creditors (CoC) and implements their decisions, and prepares an information memorandum and assists in drafting the resolution plan. (iv) Committee of Creditors (CoC) - which, primarily comprising of financial creditors, evaluates and approves resolution plans, ensuring that these plans maximize the value of the corporate debtor\'s assets and serves all stakeholders\' interests. (v) Resolution Applicants who submit plans to revive the Corporate Debtor, and ensure that their plans comply with the IBC guidelines, including fairness to all stakeholders and legal requirements. (vi) Adjudicating Authorities who ensure legal compliance and exercise legal supervision at every stage, from admitting applications to approving resolution or liquidation plans. (vii) The Regulatory Authority, that is, Insolvency and Bankruptcy Board of India (IBBI) - which ensures that all stakeholders comply with the regulations, monitors the process, and penalizes misconduct. It frames rules and guidelines for effective implementation of the Code.

While each of the aforesaid stakeholder plays an independent role under the Act, the cumulative role of stakeholders under the Code is to ensure a time-bound, transparent, and efficient resolution of insolvency. The success of the Code depends on the collective roles and coordinated actions of its stakeholders. Together, they enable a structured process for resolving insolvency while balancing the interests of creditors, debtors, and other affected parties, ensuring economic growth and stability. It is expected from them that they must focus on substantial essentiality and pragmatic philosophy of implementation of the Code.

Presently, I shall advert to the role of Chartered Accountants (CAs) who play a crucial role in the effective implementation of the Insolvency and Bankruptcy Code (IBC), given their expertise in financial analysis, auditing, taxation, and regulatory compliance. Their contributions are essential throughout various stages of the insolvency resolution process. Their role in various stages of the insolvency process can be succinctly summarised having regard to their special ability which is further cultivated by experience. (i) CAs conduct detailed audits of the corporate debtor\'s accounts. They verify financial claims submitted by creditors to the Resolution Professional and analyse mismanagement or fraudulent transactions that may have contributed to the default. (ii) CAs also play a key role in assisting RAs for the preparation of the Resolution plan by structuring financial proposals, ensuring compliance with applicable tax laws, and conducting feasibility and viability assessments. They advise on the tax implications of resolution plans, asset sales, and write-offs. (iii) In addition, CAs investigate transactions that may be fraudulent, undervalued, or preferential under Sections 43, 45, and 66 of the IBC.

Chartered Accountants bring a wealth of financial expertise to the IBC process. Whether acting as Insolvency Professionals, advisors, or auditors, their role is critical in ensuring compliance, transparency, and the successful resolution of insolvency cases. Their contribution helps balance the interests of all stakeholders and strengthens the credibility of the insolvency ecosystem. The engagement between Chartered Accountants (CAs) and Resolution Professionals (RPs) is essential for the effective and efficient implementation of the Insolvency and Bankruptcy Code (IBC). Given their complementary skill sets, collaboration between these two professionals can streamline the insolvency process and maximize value for all stakeholders.

The synergy between Chartered Accountants and Resolution Professionals strengthens the insolvency resolution process under the IBC. Their combined expertise ensures compliance with legal, financial, and procedural requirements, enhancing\' efficiency and transparency. This engagement is seminal for achieving the IBC\'s primary objectives: timely resolution, maximization of asset value, and balancing stakeholder interests.

Given the important roles played by Chartered Accountants in all stages of insolvency resolution, and the significance of quality engagement between them and Resolution Professionals, it is categorically imperative, for the continued success of IBC, to devise more strategies to further improve and foster collaboration between them.

The following methods may be used to achieve the said purpose:

(i) Regular joint training sessions on IBC provisions, financial restructuring, valuation, and forensic auditing can be conducted. This would promote interactions between CAs and RPs and enable them to utilize their skills jointly for a more efficient resolution under IBC.

(ii) There can be creation of forums where RPs and CAs can share best practices, challenges, and innovative approaches from previous insolvency cases.

(iii) CAs be encouraged to develop expertise in insolvency specific fields such as forensic accounting, business valuations and restructuring plans. Such specialization will further improve collaboration between CAs and RPs.

(iv) Institutes such as Institute of Chartered Accountants of India (ICAI), Indian Institute of Insolvency Professionals of ICAI (IIIPI), and Insolvency and Bankruptcy Board of India (IBBI), can issue joint guidelines to promote collaboration and offer incentives for successful resolution cases where RPs and CAs work in harmony to maximize value of assets or revive businesses.

By fostering transparency, inclusivity, and collaboration, these measures can significantly improve engagement among stakeholders in the IBC process, assuring smoother and more effective insolvency resolutions.

In conclusion, I must say with emphasis that IBC, as a piece of legislation, meets the vision of progress and development. But the words of law need to be activated. That should be the pledge of the day. I remember an old saying and I quote:

\"Iron rusts from disuse; stagnant water loses its purity and in cold weather becomes frozen; even so does inaction sap the vigour of the mind.\"

The suggestion today is to act with vibrance and vigour to achieve constructive economic stability with the purpose of saving and growing. \"

*Addressed on 26 Novmber 2024