Section 205 IBC: Insolvency Professional Agencies to Make Bye-Laws
Section 205 of the Insolvency and Bankruptcy Code, 2016 (IBC) requires every insolvency professional agency (IPA) to frame its own bye-laws with the prior approval of the Insolvency and Bankruptcy Board of India (IBBI). Those bye-laws must comply with the Code, applicable rules and regulations, and the model bye-laws specified by IBBI under Section 196(2).
Section 205: Statutory provision
205. Insolvency professional agencies to make bye-laws.Subject to the provisions of this Code and any rules or regulations made thereunder and after obtaining the approval of the Board, every insolvency professional agency shall make bye-laws consistent with the model bye-laws specified by the Board under sub-section (2) of section 196.
The provision establishes three connected obligations: the bye-laws must be subordinate to the Code and applicable subordinate legislation; they require IBBI approval; and they must be consistent with the model bye-laws framed by IBBI.
What are IPA bye-laws?
Bye-laws are the internal rules through which a registered insolvency professional agency governs its membership, professional standards, monitoring, discipline and grievance-handling mechanisms. They operate within the statutory regulatory framework and do not override the IBC or IBBI regulations.
Under Section 3(20), an insolvency professional agency is a person registered with the Board under Section 201. An IPA is distinct from an individual insolvency professional, whose registration and conduct are separately regulated.
Model bye-laws and the IBBI regulatory framework
Section 196(2) empowers IBBI to specify the model bye-laws to be adopted by insolvency professional agencies. The principal framework is the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016, as amended.
The model bye-laws address subjects such as the agency's membership structure, professional conduct, monitoring of members, disciplinary processes and grievance redressal. Exact obligations and procedures must be checked against the currently applicable regulations and the individual IPA's approved bye-laws.
| Requirement | Legal significance |
|---|---|
| Consistency with the Code | Bye-laws cannot conflict with the IBC or valid rules and regulations made under it. |
| IBBI approval | Section 205 expressly requires approval of the Board before an IPA makes its bye-laws. |
| Consistency with model bye-laws | Each IPA's bye-laws must conform to the regulatory model specified under Section 196(2). |
| Application to members | Approved bye-laws provide the internal framework for membership, oversight and disciplinary processes, subject to applicable law. |
How Section 205 operates in practice
- Draft or review bye-laws: The agency prepares bye-laws consistent with the current IBBI model and the Code.
- Seek Board approval: The agency obtains the required approval from IBBI in accordance with the applicable framework.
- Implement governance rules: The approved bye-laws guide membership, oversight, ethics, disciplinary proceedings and grievance handling.
- Keep them compliant: Where the statutory or regulatory framework changes, the IPA should review its bye-laws and follow applicable approval requirements for amendments.
Example: If an IPA proposes rules for admission of members or suspension of membership, it must follow the requirements of the Code, IBBI regulations and its approved bye-laws. It cannot impose an inconsistent procedure simply through an internal resolution.
Related provisions of the Insolvency and Bankruptcy Code
| Section | Subject and relevance |
|---|---|
| 196(2) | IBBI's authority to specify model bye-laws for insolvency professional agencies. |
| 199 | Prohibition on functioning as an IPA without a valid certificate of registration. |
| 200 | Principles governing the registration of IPAs. |
| 201 | Registration, renewal and possible suspension or cancellation of IPA registration. |
| 203 | Regulatory framework for the governing board of an IPA. |
| 204 | Functions of an IPA, including membership, professional conduct, monitoring and grievance redressal. |
| 206 and 208 | Registration and functions or obligations of individual insolvency professionals. |
Frequently asked questions
Is an insolvency professional agency required to have bye-laws?
Yes. Section 205 directs every IPA to make bye-laws, subject to the Code and applicable rules and regulations, after obtaining IBBI approval.
Can an IPA make bye-laws that differ from IBBI's model?
Its bye-laws must remain consistent with the model bye-laws and applicable law. Whether a particular variation is permissible depends on the current regulations and IBBI approval.
Who specifies the model bye-laws?
The Insolvency and Bankruptcy Board of India specifies model bye-laws under Section 196(2) of the IBC.
Do IPA bye-laws replace IBBI regulations?
No. The bye-laws operate beneath the Code and applicable rules and regulations, and cannot displace them.
Official legal references
- India Code - official central legislation repository (search for the Insolvency and Bankruptcy Code, 2016).
- Insolvency and Bankruptcy Board of India.
- IBBI legal framework - regulations, amendments and notifications (consult the Model Bye-Laws and Governing Board Regulations, 2016).
Read the complete Insolvency and Bankruptcy Code, 2016 section-wise guide.
This article explains the statutory framework for general information. Consult the current official text and any applicable amendments before relying on specific compliance requirements.