Section 220: Appointment of Disciplinary Committee, Penalties and Restitution
Section 220 sets out how the Insolvency and Bankruptcy Board of India (IBBI) constitutes its disciplinary committee, examines investigation reports, and may impose regulatory sanctions, monetary penalties, disgorgement and restitution for contraventions of the Insolvency and Bankruptcy Code, 2016.
Section 220: Statutory provision explained
Section 220(1): Constitution of disciplinary committee
The Board shall constitute a disciplinary committee to consider reports of the Investigating Authority submitted under Section 218(6). The proviso requires that the committee consist only of whole-time members of the Board.
Section 220(2): Orders following investigation
After examining the Investigating Authority's report, if the disciplinary committee is satisfied that sufficient cause exists, it may impose the penalty specified in subsection (3), or suspend or cancel the registration of an insolvency professional, insolvency professional agency or information utility, as applicable.
Section 220(3): Monetary penalty
Where an insolvency professional agency, insolvency professional or information utility contravenes the Code, rules or regulations, the disciplinary committee may impose a penalty equal to the higher of:
- Three times the loss caused, or likely to have been caused, to persons concerned by the contravention; or
- Three times the unlawful gain made from the contravention.
Where the loss or unlawful gain cannot be quantified, the proviso caps the total penalty at Rs. 1 crore.
Section 220(4): Disgorgement
Despite subsection (3), the Board may direct a person who has made an unlawful gain or averted loss through activity contravening the Code, rules or regulations to disgorge an amount equivalent to that unlawful gain or averted loss.
Section 220(5): Restitution
The Board may take action to provide restitution from the disgorged amount to a person who suffered loss due to the contravention, provided the person is identifiable and the loss is directly attributable to that person.
Section 220(6): Regulations on restitution
The Board may specify by regulations (a) the procedure for claiming restitution, (b) the period for making a claim, and (c) the manner of payment of the restitution amount.
Important legal terms and definitions
Board: The Insolvency and Bankruptcy Board of India established under Section 188 of the IBC. Insolvency professional: A person enrolled with an insolvency professional agency and registered with the Board under Section 206, read with Section 3(19). Insolvency professional agency: An agency registered with the Board under Section 201, read with Section 3(20). Information utility: A person registered with the Board under Section 210, read with Section 3(21).
Investigating Authority: A person or persons directed by the Board under Section 218 to conduct an inspection or investigation. Disgorgement: A direction to surrender an amount equivalent to an unlawful gain or loss averted, distinct from the monetary penalty prescribed under Section 220(3).
How the disciplinary process works
- Complaint or regulatory concern: A complaint may be filed under Section 217, or the Board may act on reasonable grounds to suspect a contravention.
- Inspection or investigation: Under Section 218, an Investigating Authority examines relevant conduct and submits its report.
- Show cause notice: Under Section 219, the Board may issue a notice and provide an opportunity to reply in accordance with applicable regulations.
- Disciplinary consideration: The committee evaluates the investigation report, response and relevant evidence in accordance with the governing regulatory procedure.
- Decision and consequences: Depending on the established contravention and applicable law, registration action, penalty or other appropriate directions may follow.
The precise timelines, hearing rights, form of orders and review or appeal mechanisms must be checked against the applicable IBBI regulations and current law. A show cause notice is not itself a final finding of misconduct.
How the Section 220(3) penalty is calculated
Suppose a contravention caused a quantifiable loss of Rs. 8 lakh and an unlawful gain of Rs. 5 lakh. Three times the loss is Rs. 24 lakh and three times the gain is Rs. 15 lakh. The statutory measure is the higher amount: Rs. 24 lakh. This is an illustration of the formula, not an automatic penalty in every case; the disciplinary committee must act within its statutory powers and applicable procedure.
If neither loss nor gain can be quantified, the statutory ceiling under the proviso is Rs. 1 crore. The disgorgement direction under subsection (4) is legally separate from the subsection (3) penalty.
Official legislation and regulatory resources
For authoritative and current versions of the Code, subordinate regulations, amendments and disciplinary orders, consult the India Code legislative database and the IBBI official website, including its legal framework and orders section. Applicable inspection, investigation, disciplinary and grievance-handling regulations should be read alongside Sections 217-220.
Read the Insolvency and Bankruptcy Code, 2016 - overview and provisions.
Frequently asked questions
Who appoints the disciplinary committee under Section 220?
The IBBI constitutes it, and its members must be whole-time members of the Board only.
Can registration be suspended or cancelled?
Yes. Under Section 220(2), the disciplinary committee may suspend or cancel the relevant registration when sufficient cause exists after examination of the investigation report, subject to applicable procedural requirements.
What is the maximum penalty if loss or gain is not quantifiable?
Under the proviso to Section 220(3), the total penalty cannot exceed Rs. 1 crore in that circumstance.
Is disgorgement the same as a penalty?
No. Section 220(4) concerns surrender of unlawful gains or averted losses; Section 220(3) prescribes the disciplinary monetary penalty.
Legal information notice: This article explains the statutory framework and does not replace the official consolidated legislation, applicable regulations or professional advice for a particular proceeding.