Ensuring Transparency in Insolvency Proceedings: A Call for Equitable Information Access

The insolvency resolution process, governed by Chapter III of Part III of the Insolvency and Bankruptcy Code, 2016(Code) plays a pivotal role in addressing financial distress faced by debtors. Central to this process is the Resolution Professional (RP), tasked with thoroughly examining applications filed under section 94 or 95 of the Code and presenting a comprehensive report to the Adjudicating Authority. However, recent observations have unveiled a concerning issue: certain RPs have neglected to share this crucial report with both debtors and creditors, creating an information imbalance. In response, a circular has been issued under section 196 of the Code, urging RPs to share their reports with both parties involved. This article delves into the significance of this circular and the implications it holds for the insolvency resolution process.

The Insolvency Resolution Process: An Overview:

Before delving into the specifics of the circular, it is essential to understand the fundamental aspects of the insolvency resolution process. When a debtor faces financial distress, they can file an application under section 94 or 95 of the Code, initiating the insolvency resolution process. The RP, appointed to oversee this process, assumes a crucial role in evaluating the application and preparing a comprehensive report for the Adjudicating Authority.

Section 99 of the Code empowers the RP to submit a report to the Adjudicating Authority, containing recommendations for either approving or rejecting the application. Sub-section (10) of section 99 further stipulates the mandatory sharing of this report with the debtor or creditor, depending on the circumstances of the case. The circular in question addresses instances where this vital step is overlooked, emphasizing the need for equal information access for both parties involved.

The Information Imbalance Conundrum:

The heart of the matter lies in the observed instances where RPs have failed to share the evaluation report with both debtors and creditors. This oversight creates a significant information gap, depriving either party of crucial insights into the recommendations made by the RP. Such imbalances can lead to misunderstandings, legal disputes, and compromised decision-making processes, ultimately undermining the integrity of the insolvency resolution process.

Informed Decision-Making and Transparency:

The circular, issued under section 196 of the Code, serves as a corrective measure to address the identified shortcomings. By advising RPs to provide a copy of the report to both debtors and creditors in all cases, the regulatory authorities aim to promote transparency and informed decision-making. This proactive step seeks to ensure that all relevant stakeholders have access to the same information, fostering a more equitable and just resolution process.

Transparency is a cornerstone of any effective legal framework, especially in matters as critical as insolvency proceedings. In a system that values fair representation and the protection of the interests of all stakeholders, the circular's emphasis on sharing reports with both debtors and creditors is not merely a procedural formality but a safeguard against potential conflicts of interest and unfair practices.

Equitable Information Access: A Pillar of Justice:

The circular's directive for RPs to share their reports with both debtors and creditors is rooted in the principles of fairness and justice. In any legal proceeding, each party's ability to make informed decisions relies heavily on the information available to them. When one party is privy to critical details while the other is kept in the dark, the scales of justice tip precariously.

This call for equitable information access recognizes the inherent power dynamics in insolvency proceedings. Debtors and creditors, often on opposite sides of the financial spectrum, must be afforded equal opportunities to comprehend and respond to the RP's recommendations. By levelling the playing field, the circular seeks to prevent undue advantage or disadvantage to any party involved, fostering a more balanced and just resolution process.

The Role of Resolution Professionals: Navigating the Path to Equity:

Resolution Professionals play a pivotal role in the insolvency resolution process, acting as intermediaries between debtors and creditors. Their recommendations, encapsulated in the report submitted to the Adjudicating Authority, carry significant weight in determining the fate of the debtor and the resolution process as a whole. Recognizing this influence, the circular underscores the responsibility of RPs to ensure equal information dissemination.

While the primary duty of an RP is to evaluate the financial viability of the debtor and make recommendations based on the merits of the case, the circular adds an additional layer of responsibility. RPs must now navigate the delicate balance between their duty to the Adjudicating Authority and their obligation to provide fair and equal access to information for both debtors and creditors. This dual responsibility underscores the complex nature of insolvency proceedings and the need for a nuanced approach by resolution professionals.

Benefits of the Circular

Strengthening the Insolvency Framework:

The issuance of the circular serves not only as a corrective measure but also as a proactive step toward fortifying the insolvency resolution framework. By addressing the observed lapses in information sharing, regulatory authorities demonstrate their commitment to upholding the integrity of the insolvency process. The benefits of this circular are multifaceted:

Enhanced Transparency:

The circular ensures that the veil of secrecy is lifted from the RP's recommendations, allowing all stakeholders to gain insights into the evaluation process. This transparency is vital for fostering trust and confidence in the insolvency resolution system.

Informed Decision-Making: Debtors and creditors armed with the RP's report can make well-informed decisions about the path forward. This empowerment is crucial for parties navigating the complex landscape of insolvency, where the stakes are high.

Reduced Conflicts:

Equal access to information reduces the likelihood of disputes arising from perceived biases or unfair practices. By fostering a more balanced information environment, the circular aims to mitigate conflicts that could potentially hinder the resolution process.

Legal Safeguards:

The circular serves as a legal safeguard against potential deviations from procedural norms. RPs, as key players in the insolvency resolution process, are now explicitly reminded of their obligation to share reports, reinforcing the regulatory framework.

Conclusion:

The circular advocating for the sharing of reports prepared by Resolution Professionals with both debtors and creditors represents a significant stride towards strengthening the insolvency resolution process. By addressing the observed lapses in information dissemination, regulatory authorities aim to create a more transparent, equitable, and just framework. The principles of fairness and justice, underpinning this directive, underscore the importance of maintaining a delicate balance in the power dynamics inherent in insolvency proceedings. As stakeholders in the financial ecosystem adapt to this new norm, the circular stands as a testament to the ongoing efforts to refine and fortify the insolvency and bankruptcy landscape for the benefit of all parties involved.