2020 (9) TMI 743 - Board - Insolvency and Bankruptcy

Disciplinary proceedings against the Insolvency Professional (IP) who is member of ICSI - Assignment of Liquidator - alleged contraventions of sections 208(2)(a) and 208(2)(e) of the Insolvency and Bankruptcy Code, 2016 (Code), regulations 7(2)(a), 7(2)(h) and 7A of the IBBI (Insolvency Professionals) Regulations, 2016 (IP Regulations) read with clauses 1, 2, 11, 12 and 14 of the Code of Conduct contained in the First Schedule of the IP Regulations - inadvertent error or not - voluntary liquidation process - rejection of AFA. HELD THAT - From Regulation 7A of IP regulations, it is clear from the said Regulation that one of the essential conditions for undertaking any assignment by an IP is that he should have a valid AFA which is issued by the IPA with which he is enrolled. In other words, without AFA, an IP is not eligible to undertake assignments or conduct various processes thereof. Regulation 7A was inserted in the IP Regulations vide notification dated 23rd July 2019, much before 31st December, 2019. Adequate time was given to the professionals to obtain AFA from respective IPAs. The bye laws of ICSI Institute of Insolvency Professionals defines in para 4(1)(aa) the expression authorisation for assignment as an authorisation to undertake an assignment, issued by an insolvency professional agency to an insolvency professional, who is its professional member, in accordance with its bye-laws regulation. An application for grant of AFA can be made to the IPA under para 12A of said bye laws. In the present matter, Mr. Sharma accepted the assignment of voluntary liquidation in matter of Indian Transelectric Company Limited on 2nd March 2020 and A.B.S. Enterprises Private Limited on 5th June 2020 without holding valid AFA after 31.12.2019 which is in express contravention of regulation 7A of IP Regulations. This requirement also applies to IPs undertaking voluntary liquidation process under the Code. In consequence, he also contravened code of conduct under section 208(2)(a) and(e) of the Code and regulations 7(2)(a) and (h) of the IP Regulations read with clauses 1, 2, 11, 12 and 14 of the Code of Conduct contained in the First Schedule of the IP Regulations - The DC finds that an order has been passed against Mr. Sharma on 7.09.2020 by the Disciplinary Committee of IPA for accepting assignment as Voluntary Liquidator after 31.12.2019 without holding a valid AFA in the matter of Indian Transelectric Company Limited and A.B.S. Enterprises Private Limited, and imposed penalty of ₹ 10,000/- for contravention of regulation 7A of IP Regulations. In view of the fact that ICSI Institute of Insolvency Professionals has already taken disciplinary action against Mr. Ravi Sharma for accepting assignment as Voluntary Liquidator after 31.12.2019 without holding a valid AFA in the matter of Indian Transelectric Company Limited and A.B.S. Enterprises Private Limited, the DC, in exercise of the powers conferred under Regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016, disposes of the SCN without any direction against Mr. Ravi Sharma - A copy of this order shall be forwarded to the ICSI Institute of Insolvency Professionals where Mr. Ravi Sharma is enrolled as a member.

Summary

Issues:
Violation of sections 208(2)(a) and 208(2)(e) of the Insolvency and Bankruptcy Code, 2016, and regulations 7(2)(a), 7(2)(h), and 7A of the IBBI (Insolvency Professionals) Regulations, 2016 by Mr. Ravi Sharma.

Analysis:
The Show Cause Notice (SCN) was issued to Mr. Ravi Sharma for accepting assignments in the voluntary liquidation process without a valid Authorisation for Assignment (AFA) after 31st December 2019. Mr. Sharma admitted the mistake but argued that it was unintentional and due to oversight of new provisions. He believed AFA was only required for court-appointed assignments, not voluntary liquidation processes. The Disciplinary Committee (DC) considered the SCN, Mr. Sharma's response, and relevant provisions before making its findings.

The DC found that Regulation 7A of the IP Regulations mandates Insolvency Professionals (IPs) to hold a valid AFA before undertaking any assignment after 31st December 2019. This regulation was introduced well before the deadline, providing ample time for compliance. Section 208(2) of the Code also requires IPs to follow the code of conduct specified by their professional agency. Mr. Sharma's actions contravened these regulations and the Code, affecting the credibility of the insolvency process.

Mr. Sharma's acceptance of assignments without a valid AFA post-31st December 2019 directly violated Regulation 7A. The DC noted that he also breached sections 208(2)(a) and 208(2)(e) of the Code, along with regulations 7(2)(a) and 7(2)(h) of the IP Regulations. The DC acknowledged that the IPA had already penalized Mr. Sharma for these violations, leading to the disposal of the SCN without further action against him.

Order:
In light of the IPA's disciplinary action against Mr. Sharma, the DC disposed of the SCN without imposing additional penalties. A copy of the order was sent to the ICSI Institute of Insolvency Professionals and the Registrar of the National Company Law Tribunal for information. The show cause notice was officially resolved.