2018 (8) TMI 1616 - Board - Insolvency and Bankruptcy

Misconduct by Insolvency Professionals - whether an IRP/RP can authorise a firm/company (in which he/she is a partner/director) to raise invoices for his professional fee on his behalf? - Held that - Mr. Venkatasubramanian had authorised Ernst & Young LLP to raise invoices for his fees and other out of pocket expenses for work undertaken by him in connection with Corporate Insolvency Resolution Process (CIRP) in respect of JEKPL Private Limited. Hence, he violated section 5(13) of the Code read with regulation 33 and 34 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 along with the items 1 and 5 of the Code of Conduct specified in the First Schedule to the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016. Mr. Venkatasubramanian himself directed for the settlement of the bills so raised by Ernst and Young LLP as being the IRP/RP of JEKPL Private Limited thus contravened item 9 and 25 of the Code of Conduct for Insolvency Professionals. He allowed Ernst and Young LLP to raise invoices for his professional fee, thereby, treating the profession of Insolvency Professionals as employment under an entity. He contravened section 208 of the Code. Order - Mr. Venkatasubramanian has violated sections 5(13) and 208 of the Code read with regulations 33 and 34 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 along with the items 1, 5, 9 and 25 of the Code of Conduct for Insolvency Professionals specified in the First Schedule to the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016. Accordingly, the Disciplinary Committee, in exercise of powers conferred under section 220 (2) of the Code read with sub-regulation (7) and (8) of regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016, hereby, imposes a monetary penalty of one lakh rupees on Mr. Dinkar T. Venkatasubramanian, Insolvency Professional Registration number IBBI/IPA-001/IP-P00003/2016-17/10011 , IRP/RP in the matter of JEKPL Private Limited. Mr. Venkatasubramanian shall deposit the penalty amount by a crossed demand draft payable in favour of the Insolvency and Bankruptcy Board of India within 30 days of the issue of this order.

Issues Involved:
1. Authorization of Ernst & Young LLP to raise invoices for the professional fees of the Insolvency Professional, Mr. Venkatasubramanian.
2. Compliance with section 5(13) of the Insolvency and Bankruptcy Code, 2016 (Code) and regulations 33 and 34 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
3. Adherence to the Code of Conduct for Insolvency Professionals.
4. Interpretation and application of the LLP Act in relation to the Code.
5. Issuance of invoices and settlement of bills by Ernst & Young LLP on behalf of Mr. Venkatasubramanian.

Issue-wise Detailed Analysis:

Authorization of Ernst & Young LLP to Raise Invoices:
Mr. Venkatasubramanian authorized Ernst & Young LLP to raise invoices for his fees and other out-of-pocket expenses for work undertaken by him in connection with the Corporate Insolvency Resolution Process (CIRP) of JEKPL Private Limited. The Disciplinary Committee (DC) found this arrangement to be in violation of the Code and relevant regulations, as only an individual registered as an Insolvency Professional (IP) can act in such capacity and directly receive fees for services rendered.

Compliance with Section 5(13) of the Code and Regulations 33 and 34:
The DC noted that section 5(13) of the Code defines "insolvency resolution process costs" to include fees payable to any person acting as a resolution professional. Regulations 33 and 34 further clarify that such fees should be raised and received directly by the IRP/RP. By allowing Ernst & Young LLP to raise invoices and receive payments on his behalf, Mr. Venkatasubramanian contravened these provisions.

Adherence to the Code of Conduct for Insolvency Professionals:
The DC highlighted that the Code of Conduct requires insolvency professionals to maintain integrity, independence, and impartiality. Mr. Venkatasubramanian's actions, including directing the settlement of bills by Ernst & Young LLP, violated these principles as specified under items 1, 5, 9, and 25 of the Code of Conduct.

Interpretation and Application of the LLP Act:
Mr. Venkatasubramanian argued that his actions were in compliance with the LLP Act and the agreement governing Ernst & Young LLP, which does not permit partners to earn fees outside the LLP agreement. However, the DC clarified that the provisions of the Insolvency and Bankruptcy Code, 2016, take precedence over any conflicting provisions in the LLP Act, as per section 238 of the Code.

Issuance of Invoices and Settlement of Bills:
The DC found that the issuance of invoices and settlement of bills by Ernst & Young LLP for services rendered by Mr. Venkatasubramanian as IRP/RP was contrary to the Code and the regulations. The DC emphasized that the fees for such services should be raised and received directly by the individual IRP/RP to ensure transparency and compliance with the legislative intent.

Conclusion:
The DC concluded that Mr. Venkatasubramanian violated sections 5(13) and 208 of the Code, as well as regulations 33 and 34 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Despite acknowledging the lack of initial clarity and the subsequent issuance of a clarifying circular by the Board, the DC imposed a monetary penalty of one lakh rupees on Mr. Venkatasubramanian, considering the newness of the law and his compliance with the circular post-issuance.

Order:
Mr. Venkatasubramanian was ordered to deposit the penalty amount within 30 days. Copies of the order were forwarded to the Indian Institute of Insolvency Professionals of ICAI and the Registrar of the NCLT, Principal Bench, New Delhi, for information.

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