The Disciplinary Committee (DC) of the Insolvency and Bankruptcy Board of India (Board), noted that the Code has carefully vested prominence to financial creditors in the Committee of Creditors (CoC) and declaring the CoC being in order with aid of operational creditors, despite the absence of sole financial creditor, is a serious contravention and can’t be overlooked.
the Disciplinary Committee, on Thursday, in the exercise of the powers conferred under Section 220 of the Code read with Regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016 and Regulation 13 of IBBI (Inspection and Investigation) Regulations, 2017 observed that meddling with the composition of the CoC is violative of the basic structure of the Code. No professional can afford to hide behind the argument that CoC without identified financial creditor has taken decisions which were of minor consequence as major decisions were put on hold, as convening such a meeting itself was void ab initio.
The Board, in the exercise of the powers conferred to it under section 218 of the Code read with the Inspection Regulations, appointed an Inspecting Authority to conduct the inspection of the Insolvency Professional vide order dated 11.06.2021. A draft inspection report, prepared by the Inspecting Authority, was shared with the Insolvency professional on 15.06.2022 and to which IP submitted a reply vide email dated 30.06.2022. The Inspecting Authority submitted the Inspection Report to Board on 27.07.2022.
In the exercise of its power under section 218 of the Code read with the IBBI (Inspection and Investigation) Regulations, 2017, the Board vide Order dated 1 st July 2022 appointed an Investigating Authority to conduct an investigation of the IP. The Investigating Authority submitted the Investigation Report to Board on 21.07.2022.
Based on the material available on record including the Inspection Report and the Investigation Report, the Board issued the Show Cause Notice (SCN) to the Insolvency Professional on 21.09.2022. The SCN alleged contravention of sections 18(1)(c), 21(2), 24(8), 35(1)(c), 35(1)(d), 208(2)(a) and 208(2)(e) of the Code, regulations 17(2), 22(1), 22(2), 24(3), 24(4) and 39A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations), regulations 5(2), 6(2), 15, 35(2), 45(3) and 46(1) of the IBBI (Liquidation Process) Regulations, 2016 (Liquidation Regulations), regulations 7(2)(a) and (h) of IP Regulations, clauses 1, 2, 3, 5, 9, 10, 12, 13,14, 15, 16 and 19 of Code of Conduct of IP Regulations. The IP had submitted its reply to SCN vide e-mail dated 06.10.2022.
The Board referred the SCN, written submissions of the Insolvency Professional, and other material available on record to the Disciplinary Committee (DC) for disposal of the SCN in accordance with the Code and Regulations made thereunder. The IP availed an opportunity of a personal hearing before DC on 27.10.2022 through virtual mode.
The Disciplinary Committee (DC) found that the followings were the alleged contraventions made on the part of the Insolvency Professional:
Conduct of meeting of the Committee of Creditors (CoC) without the sole Financial Creditor of the CoC
The issue regarding the appointment of valuers
Issue of fees and expenses incurred on or by the IP
Delays in the filing of Progress Reports with NCLT
The issue regarding the Maintenance of records
Filing of incomplete information for dissolution of CD-IV
The DC found that the Insolvency Professional was conducting CIRP and Liquidation proceeding in a very casual and careless manner which was not at all expected from an Insolvency Professional. The IP was not only casual in keeping the records of the proceeding and submitting the same to IA, but she was careless in filing reports also with AA.
The DC noted that the Code has carefully vested prominence to financial creditors in the CoC. Declaring the CoC being in order with aid of operational creditors, despite the absence of a sole financial creditor, is a serious contravention and can’t be overlooked. Meddling with the composition of the CoC is violative of the basic structure of the Code. No professional can afford to hide behind the argument that CoC without identified financial creditor has taken decisions which were of minor consequence as major decisions were put on hold, as convening such a meeting itself was void ab initio.
In view of the above, the Disciplinary Committee (DC), in the exercise of the powers conferred under Section 220 of the Code read with Regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016 and Regulation 13 of IBBI (Inspection and Investigation) Regulations, 2017, imposed penalty on the Insolvency Professional for Rs. 5,00,000/- (Rupees Five Lakhs only) and directed her to deposit the penalty amount directly to the Consolidated Fund of India (CFI) under the head of “penalty imposed by IBBI” on https://bharatkosh.gov.in within 45 days from the date of issue of this order and submit a copy of the transaction receipt to the Insolvency and Bankruptcy Board of India.
The DC further, directed that she will be working as a probationer for four months with another experienced IP so nominated by her IPA under which she was registered. Till completion of this probation, the Authorisation for assignment (AFA) of the Insolvency Professional will remain in suspended animation and she will not take any fresh assignment or service under the Code in the capacity of Insolvency Professional.
The Disciplinary Committee also reminded the Insolvency Professional to be more careful and cautious while dealing with assignments under the Code and Regulations made thereunder and should be extremely careful while submitting reports to AA and IBBI.
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