An incongruity that may lead to inequality- Sec 149 of Companies Act & Reg 6 of IBBI(Vol: Liq) Reg.

Updated: Sep 12

Section 149 of the Companies Act, 2013 which deals with Independent Directors and Regulation 6 of the Insolvency and Bankruptcy Board Of India (Voluntary Liquidation Process) Regulations, 2017 deals with eligibility of liquidator. There is a conflict between these to provisions which had resulted in an anomaly for Company Secretaries, when compared to other fellow professionals.

The Regulation 6 of the Insolvency And Bankruptcy Board Of India (Voluntary Liquidation Process) Regulations, 2017 which deals with eligibility of Liquidator, which reads as follows:-


(1) An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director is independent of the corporate person:


Explanation: A person shall be considered independent of the corporate person, if he-


(a) is eligible to be appointed as an independent director on the board of the corporate person under section 149 of the Companies Act, 2013 (18 of 2013), where the corporate person is a company;

(b) is not a related party of the corporate person; or

(c) has not been an employee or proprietor or a partner-

(i) of a firm of auditors or [secretarial auditors] or cost auditors of the corporate person; or

(ii) of a legal or a consulting firm, that has or had any transaction with the corporate person contributing ten per cent or more of the gross turnover of such firm, at any time in the last three years.


(2) An insolvency professional shall not be eligible to be appointed as a liquidator if he, or the insolvency professional entity of which he is a partner or director is under a restraint order of the Board.


(3)A liquidator shall disclose the existence of any pecuniary or personal relationship with the concerned corporate person or any of its stakeholders as soon as he becomes aware of it, to the Board and the Registrar.


(4) An insolvency professional shall not continue as a liquidator if the insolvency professional entity of which he is a director or partner, or any other partner or director of such insolvency professional entity represents any other stakeholder in the same liquidation.


It may be noted that in the explanatory part of the Sub Regulation (1) of Regulation 6, words “Company Secretaries” has been substituted by Notification No. IBBI/2019-20/GN/REG039, dated 15th January, 2019 (w.e.f. 15-01- 2019) with the word “Secretarial Auditors”. The intention of the drafter while replacing the words, was to permit the “Firm of Companies Secretaries” other than “Secretarial Auditors” of the Corporate Person to act as Liquidator. Through the said amendment, an Insolvency Professional, who is a Company Secretary shall be considered as “ineligible” only if such person has not been an employee or proprietor or a partner of Firm of “Secretarial Auditors” of the Corporate Person.


Conflict with Section 149 of the Companies Act.

However as per Clause (a) Sub Regulation (1) of Regulation (6) of the Insolvency And Bankruptcy Board Of India (Voluntary Liquidation Process) Regulations, 2017 mentions that “in order to be considered as “Independent” of Corporate Person an Insolvency Professional should be “ eligible to be appointed as an independent director on the board of the corporate person under section 149 of the Companies Act, 2013 (18 of 2013), where the corporate person is a company.


As per Section 149(6)(e), a person shall be considered as Independent who, neither himself nor any of his relatives—

ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of-


(A) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or

(B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;


It may be noted that, as per the above, if an Insolvency Professional who is or has been an employee or proprietor or partner of a Firm of Company Secretaries in Practice of the company or its holding, subsidiary or associate company, shall be considered as “Non-Independent” for the purpose of Section 149. Whereas the Chartered Accounts or Cost Accountants shall be considered as “Non Independent” only if they are holding the office of “Auditorsthe company or its holding, subsidiary or associate company.


Observation.

As per the above, it is clear that the amendment made in the explanatory part of the Sub Regulation (1) of Regulation 6, by replacing the words “ Company Secretaries” with “Secretarial Auditors” has not made any change in situation or made any impact or effect, due to the retaining of the words “company secretaries in practice” in Section 149(6)(e)(ii).


Anomaly to the addressed.

In view of the above the Ministry of Corporate Affairs may explore the possibility to amend the Section 149(6)(e)(ii) by replacing the words” “company secretaries in practice” with “Secretarial Auditors”. This will bring parity with other fellow professions and also create a level playing field for “Company Secretaries in practice” under the Companies Act, 2013 as well as under Insolvency and Bankruptcy Code, 2016



BIJOY.P.PULIPRA FCS, IP,RV Company Secretary | F 7475 | CP 7144 | Insolvency Professional |IBBI-IPA 02/IP- N00607/11864|

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