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2020 (6) TMI 555 - Board - Insolvency and Bankruptcy


Issues Involved:
1. Alleged failure to appoint valuers within the prescribed timeline.
2. Alleged failure to take effective control and custody of the assets of the Corporate Debtor (CD).
3. Alleged delay in appointing a forensic auditor and seeking approval from the Committee of Creditors (CoC).

Detailed Analysis:

1. Alleged Failure to Appoint Valuers Within the Prescribed Timeline:

Contravention:
The Show Cause Notice (SCN) alleged that the Insolvency Professional (IP) failed to appoint valuers within seven days as required by Regulation 27 of the CIRP Regulations. The IP was accused of violating Section 208(2)(a) and (e) of the Code, Regulation 7(2)(a) and 7(2)(h) of the IP Regulations, and Clause 13 of the Code of Conduct.

Submission:
The IP submitted evidence, including emails dated 28.08.2017, showing that valuers were appointed within five days of his appointment. The valuers began their work but requested fee confirmation from the CoC. The IP argued that he was not given a chance to reply to new allegations in the SCN, which is against the principles of natural justice.

Analysis:
The Disciplinary Committee (DC) noted that the IP had appointed valuers within the stipulated seven days. The valuers had started their work and only sought fee confirmation. The DC found that the IP had complied with Regulation 27 and was not liable for the alleged contravention.

Findings:
The IP was found not to have contravened Regulation 27 of the CIRP Regulations, Section 208(2)(a) and (e) of the Code, or Regulation 7(2)(a) and 7(2)(h) of the IP Regulations.

2. Alleged Failure to Take Effective Control and Custody of the Assets of the CD:

Contravention:
The SCN alleged that the IP failed to take effective control and custody of the CD's assets and allowed Mr. Sunil Jain to interfere with the process. The IP was accused of violating Sections 18(1)(f), 23(2), 25(2)(a), and 208(2)(a) & (e) of the Code, and Regulation 7(2)(a) and (h) of the IP Regulations, read with Clauses 3, 5, and 14 of the Code of Conduct.

Submission:
The IP argued that he took immediate steps to address Mr. Sunil Jain's interference and that the CD was a small private company managed by Mr. Jain. The IP believed that removing Mr. Jain immediately would cause chaos. The IP also stated that he did not face resistance before 14.12.2017 and took symbolic control of the assets.

Analysis:
The DC acknowledged that the IP should have taken complete control of the assets but noted that there was no specific time limit for taking control. The DC found that the IP had taken symbolic control and supplemented security when resistance was faced. The allegation that Mr. Jain was added as a signatory was found to be incorrect.

Findings:
The IP was not held liable for violating Sections 18(1)(f), 23(2), and 25(2)(a) of the Code. Consequently, there was no contravention of Section 208(2)(a) and (e) of the Code or Regulation 7(2)(a) and (h) of the IP Regulations.

3. Alleged Delay in Appointing a Forensic Auditor and Seeking Approval from the CoC:

Contravention:
The SCN alleged that the IP delayed appointing a forensic auditor and sought CoC approval, violating Section 25(2)(d) and 208(2)(a) and (e) of the Code, Regulation 7(2)(a) and 7(2)(h) of the IP Regulations, and Clause 14 of the Code of Conduct.

Submission:
The IP argued that he sought explanations from the directors before taking action and appointed the forensic auditor without CoC approval. The IP stated that the appointment process took time and that there is no specific provision for forensic auditors in the Code.

Analysis:
The DC noted that the IP should appoint professionals, including forensic auditors, without seeking CoC approval. The DC found that the IP compromised his independence by seeking CoC approval but acknowledged that there was no timeline for appointing forensic auditors.

Findings:
The IP was found to have contravened Section 25(2)(d) and 208(2)(a) and (e) of the Code, Regulation 7(2)(a) and 7(2)(h) of the IP Regulations, and Clause 14 of the Code of Conduct by seeking CoC approval for the forensic auditor's appointment.

Conclusion:

The DC observed that the IP displayed a casual approach during the CIRP and compromised his independence by seeking CoC approval for the forensic auditor's appointment. The IP was found to have contravened specific provisions of the Code and Regulations but was not barred from practicing the profession due to the absence of malafide intention and the successful resolution of the CIRP within the prescribed timelines.

Order:

The IP was warned to be extremely careful and diligent while performing duties under the Code and to strictly act in accordance with the law. The order was forwarded to the Indian Institute of Insolvency Professional of ICAI and the Registrar of the Principal Bench of the National Company Law Tribunal, New Delhi, for information. The show cause notice was disposed of accordingly.

 

 

 

 

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