IBC Section 17: Management of affairs of corporate debtor by interim resolution professional

Section 17 of Insolvency and Bankruptcy Code, 2016: Management of affairs of corporate debtor by interim resolution professional

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

(1) From the date of appointment of the interim resolution professional,-

(a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional;

(b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional;

(c) the officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be required by the interim resolution professional;

(d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional.

(2) The interim resolution professional vested with the management of the corporate debtor shall-

(a) act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other documents, if any;

(b) take such actions, in the manner and subject to such restrictions, as may be specified by the Board;

(c) have the authority to access the electronic records of corporate debtor from information utility having financial information of the corporate debtor;

(d) have the authority to access the books of account, records and other relevant documents of corporate debtor available with government authorities, statutory auditors, accountants and such other persons as may be specified; and.

(e) be responsible for complying with the requirements under any law for the time being in force on behalf of the corporate debtor..

1. Subs. by Act 26 of 2018, s. 11, for "claims" (w.e.f. 6-6-2018).

2. Subs. by s. 12, ibid., for "shall not exceed thirty days from date of his appointment" (w.e.f. 6-6-2018).

Legal Commentary & Landmark Judgments: Section 17

Section 17 enacts the cornerstone statutory transfer of corporate control under the IBC, immediately suspending the board of directors and vesting the entire management and executive powers of the corporate debtor in the IRP.

Immediate Suspension of Board of Directors: From the date of appointment of the IRP, the management of the affairs of the corporate debtor vests in the IRP, and the powers of the board of directors or partners stand suspended.
Executive Authority Vested in IRP: Powers of the board are exercised exclusively by the IRP; officers and managers report to the IRP and provide access to documents and records.
Control of Financial & Bank Accounts: Financial institutions maintaining accounts of the corporate debtor must act on the instructions of the IRP and furnish all account information.
Statutory Officer of Court: IRP has authority to act on behalf of the corporate debtor in all contracts, deeds, and official proceedings.

Key Landmark Precedents:

ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta (2019) 2 SCC 1: The Supreme Court held that the suspension of the board of directors under Section 17 is absolute; erstwhile promoters have no right to represent the company or deal with its assets, and are reduced to mere participants without voting rights.
Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407: The Supreme Court held that once an IRP is appointed under Section 17, erstwhile directors have no locus standi to maintain an appeal on behalf of the corporate debtor; appeals can only be maintained in their personal capacity.

Courtroom Practice & Strategic Litigation Guidance:

Immediately upon the Section 17 vesting order, issue written circulars to all corporate branches, statutory auditors, and bank branch managers notifying them that all powers of the board are suspended. Promoters attempting to sign cheques or alienate inventory face criminal liability under Section 68.