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2021 (2) TMI 873 - Board - Insolvency and BankruptcyProfessional Misconduct - Validity of accepting the assignment as the Liquidator in the Corporate Insolvency Resolution Process (CIRP) of M/s The Jeypore Sugar Company Limited (CD) after 31st December, 2019 without holding a valid Authorisation for Assignment (AFA) from his IPA - Regulation 7A of IP regulations - HELD THAT - It is clear from the said Regulation that one of the essential condition 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 any assignments or conduct various processes thereof. Regulation 7A was inserted in the IP Regulations vide notification dated 23rd July 2019 - The bye-laws of Indian Institute of Insolvency Professionals of ICAI 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 by the IPs to the IPA under para 12A of said bye-laws. An IP who is more than seventy years of age is ineligible to make an application for AFA under para 12A (2)(e) of the said bye-laws. In the present matter it is observed that, Mr. Sivakumar was appointed as Liquidator of the CD vide order of the AA dated 29th May, 2020. The date of Public Announcement of the Liquidation is 29th May, 2020. The notification published on 23rd July, 2019, inter alia, amended the IP Regulations and holding of AFA has been made one of the essentials for conducting various processes under the Code, to be effective from 1st January, 2020. Thus, adequate time was given to the Insolvency Professionals to obtain AFA. The DC notes that Mr. Sivakumar did not hold valid AFA even after more than four months from the date of enforcement of the provisions. The submission of Mr. Sivakumar that liquidation of the CD is not a new assignment is not tenable as the order for liquidation is separately passed under section 33 of the Code and liquidator is appointed subject to his consent as per section 34 of the Code. The CIRP and Liquidation process are entirely separate and require separate consent from the Insolvency Professionals - The DC finds that an order has been passed against Mr. Sivakumar on 1st December, 2020 by the Disciplinary Committee of IPA for accepting assignment as Liquidator after 31st December, 2019 without holding a valid AFA in the CIRP of the CD and it has been decided that Mr. Sivakumar is guilty of Professional Misconduct and a penalty of ₹ 10,000/- has been imposed. In view of the fact that the Disciplinary Committee of the Indian Institute of Insolvency Professional of ICAI has already passed order in this matter, 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 - SCN disposed off.
Issues:
- Alleged contraventions of sections 208(2)(a) & (e) of the Insolvency and Bankruptcy Code, 2016, and regulations 7(2)(a) & (h) and 7A of the IBBI (Insolvency Professionals) Regulations, 2016 by an Insolvency Professional (IP) for accepting an assignment without a valid Authorisation for Assignment (AFA). Analysis: Issue 1: Alleged Contraventions The Insolvency and Bankruptcy Board of India (IBBI) issued a Show Cause Notice (SCN) to an Insolvency Professional (IP) for accepting an assignment without a valid AFA, alleging contraventions of relevant sections of the Code and regulations. The IP, in response, argued that the AFA provisions did not apply as the assignment was a continuation of his previous role. However, the Disciplinary Committee (DC) found that Regulation 7A of the IP regulations mandates IPs to hold a valid AFA for assignments after 31st December 2019. The DC noted that the IP's failure to obtain AFA despite adequate time given constituted a violation. Issue 2: Regulatory Compliance The DC emphasized the importance of regulatory compliance, citing Section 208 of the Code which obligates IPs to follow the code of conduct and comply with byelaws. The DC highlighted that the IP's registration was subject to adherence to the Code, Regulations, and bye-laws of the Insolvency Professional Agency. The DC underlined that the IP's actions contravened the Code of Conduct specified in the IP Regulations. Issue 3: Disciplinary Action The DC found the IP guilty of Professional Misconduct for accepting the assignment as a Liquidator without a valid AFA. The IPA's Disciplinary Committee had already imposed a penalty on the IP for this misconduct. Consequently, the DC, under Regulation 11 of the IBBI Regulations, disposed of the SCN without issuing any specific direction. The order was forwarded to the IPA and the National Company Law Tribunal for information. In conclusion, the judgment underscores the significance of regulatory compliance for Insolvency Professionals and highlights the consequences of failing to adhere to the prescribed regulations, ultimately resulting in disciplinary action and penalties.
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