2021 (1) TMI 756 - Board - Insolvency and Bankruptcy

Undertaking of assignment by IP without holding a valid Authorisation for Assignment (AFA) - 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 - HELD THAT - It is clear from Regulation 7A of IP regulations 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 IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. An application for grant of AFA can be made to the IPA under para 12A of said bye-laws. The credibility of the processes under the Code depends upon the observance of the Code of conduct by the IRP/RP/Liquidator during the process. Section 208(2) of the Code provides that every IP shall take reasonable care and diligence while performing his duties and to perform his functions in such manner and subject to such conditions as may be specified. Further, the Code of Conduct specified in the First Schedule of the IP regulations enumerates a list of code of conduct for insolvency professionals including maintaining of integrity and professional competence for rendering professional service, representation of correct facts and correcting misapprehension, not to conceal material information and not to act with mala fide or with negligence. In the present matter it is observed that, Mr. Rajagopal had provided his consent to accept the assignment in Form-2 to Indian Overseas Bank on 1-3-2019 prior to the amendment made to IP regulation for CIRP of Coastal Energy Private Limited, before 31st December, 2019. However, it is observed that the date of commencement of the CIRP is 6-1-2020 and the Regulation 7A of IP regulations clearly and unambiguously states that an insolvency professional shall not accept or undertake an assignment after 31st December, 2019 unless he holds a valid AFA. In consequence, he has contravened code of conduct under section 208(2)(a) and(e) of the Code and regulations 7(2)(a) and (h), 7A 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 - DC finds that an SCN dated 24-7-2020 was issued by IPA also and order has been passed against Mr. Rajagopal on 7-9-2020 by the Disciplinary Committee of IPA for accepting assignment as IRP after 31st December, 2019 without holding a valid AFA in the matter of Coastal Energy Private Limited, and warned him to be extremely careful, diligent, strictly act as per law and similar action should not be repeated. In view of the fact that ICSI Institute of Insolvency Professionals has already taken disciplinary action against Mr. S Rajagopal, for accepting assignment as IRP after 31st December, 2019 without holding a valid AFA in the matter of Coastal Energy Private Limited and had issued a warning, 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. S Rajagopal - SCN disposed off.

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 an Insolvency Professional (IP).

Analysis:

1. Show Cause Notice:
The Insolvency and Bankruptcy Board of India (IBBI) issued a Show Cause Notice (SCN) to Mr. S Rajagopal for accepting the assignment as the Interim Resolution Professional (IRP) in the Corporate Insolvency Resolution Process (CIRP) of Coastal Energy Private Limited after 31st December 2019 without a valid Authorisation for Assignment (AFA).

2. Allegations and Submissions:
The SCN alleged contraventions of specific sections and regulations related to accepting assignments without a valid AFA. Mr. Rajagopal submitted a reply, citing ongoing legal matters, lack of clarity in regulations, and previous warnings issued by the Insolvency Professional Agency (IPA).

3. Analysis and Findings:
The Disciplinary Committee (DC) considered the Code, rules, and regulations, noting the clear requirement for IPs to hold a valid AFA before undertaking assignments. The Code and regulations mandate compliance with the Code of Conduct, bye-laws, and specific conditions for insolvency professionals.

4. Conclusion:
Mr. Rajagopal's acceptance of the assignment without a valid AFA post-December 2019 was deemed a violation of the Code and regulations, affecting the credibility of insolvency processes. The DC acknowledged the IPA's prior warning and disciplinary action against Mr. Rajagopal for the same issue.

5. Order:
Given the disciplinary action taken by the ICSI Institute of Insolvency Professionals against Mr. Rajagopal, the DC disposed of the SCN without imposing further directions. The order was forwarded to relevant authorities for information and compliance.

6. Compliance:
The order serves as a reminder of the importance of adhering to regulatory requirements and maintaining professional conduct in insolvency proceedings, emphasizing the need for IPs to strictly comply with all relevant provisions and guidelines.