Blurring the Line between Guardians and Agents: The Fading Independence of Resolution Professionals in India’s Insolvency Framework

With the increasing reliance on the Insolvency and Bankruptcy Code (“Code”), concerns regarding its transparent and equitable functioning have become critical. Recently, cases report an emerging trend of collusion between Resolution Professionals (RPs), Financial Creditors (FCs), and Corporate Debtors (CDs), systematically undermining Operational Creditors’ (OCs) rights. FCs often misuse their commercial wisdom to push resolution plans that disproportionately benefit them, allegedly aided by IRP/RP. This includes facilitating suboptimal plans and making incomplete disclosures of OC claims in the Information Memorandum, with such claims extinguished once the FC gains control of the CD and invokes the Clean Slate Theory under Section 32A. These actions breach the RP’s statutory duty to act fairly and transparently, violating OCs’ rights under Sections 30(2) and 53 of the Code, and Articles 14, 19(1)(g), and 300A of the Constitution.

The authors critically analyse such collusion and its impact. Through empirical research with industry practitioners, the paper confirms growing concern around these practices. To address this, it proposes shifting from a reactive CIRP framework to proactive, rights-protective alternatives, such as structured pre-insolvency hybrid mediation, court-regulated arbitration, and rescue financing supported by super-priority debt classification. Amendments to Section 53 and RP disqualification norms are also recommended to ensure independence and fairness.