2021 (1) TMI 808 - 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, the DC notes that, Mr. Somani had given his written consent to CoC in its meeting held on 22nd November 2019 to act as Liquidator in terms of Section 34(4) and accordingly the same was filed with NCLT on 28th November 2019 prior to the requirement of AFA for accepting or undertaking assignment under Regulation 7A of the IP Regulations which came into effect from 1st January 2020, i.e., after 31st December 2019. The Hon'ble NCLT, Principal Bench, had passed the Liquidation. Order dated 14-1-2020 due to failure of CIRP in this matter. Mr. Somani's appointment was confirmed as Liquidator based on his Written Consent to act as Liquidator and also on the recommendation of CoC.

Summary

Issues:
Violation of Insolvency and Bankruptcy Code regarding accepting an assignment without valid authorization, Challenge to age limit for obtaining authorization for assignment.

Analysis:
The judgment concerns a Show Cause Notice (SCN) issued to Mr. Kishan Gopal Somani, an Insolvency Professional (IP), for accepting a Liquidator assignment without a valid Authorization for Assignment (AFA) after 31st December 2019. The IBBI alleged contraventions of sections 208(2)(a) & (e) of the Insolvency and Bankruptcy Code, and regulations 7(2)(a) & (h) and 7A of the IBBI (Insolvency Professionals) Regulations, 2016. Mr. Somani defended himself by citing his written consent to act as Liquidator filed before the cut-off date, and the pending challenge to the age limit for obtaining AFA. He argued that the assignment was not new and that he could not apply for AFA due to the age bar.

The Disciplinary Committee (DC) analyzed the regulations, including Regulation 7A of IP regulations, which mandates having a valid AFA before undertaking any assignment after 31st December 2019. The DC noted that an IP above 70 years is ineligible to apply for AFA under the bye-laws. Section 208 of the Code obliges IPs to comply with the code of conduct and byelaws of their professional agency. The DC found that Mr. Somani's written consent before the AFA requirement and his age made him ineligible to apply for AFA, thus no lapse on his part was found.

Conclusion:
The DC, under Regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016, disposed of the SCN without any direction against Mr. Kishan Gopal Somani. The order was to be forwarded to the Indian Institute of Insolvency Professionals of ICAI and the Registrar of the National Company Law Tribunal, New Delhi, for information. The show cause notice was thereby resolved.