2024 (12) TMI 1202 - HC - IBC

Suspension of Petitioner s registration as an Insolvency Professional for a period of one year by Disciplinary Committee - Petitioner s engagement of M/s Ibay Capital, a firm owned by his brother, without proper disclosure of appointment to the Committee of Creditors - submission of a valuation report prepared by M/s iVAS Partners, whose appointment and fee had not been approved or ratified by the CoC - purported failure to take timely and appropriate action against Gravity Facility Management Solutions Pvt. Ltd. for non-payment of water charges. Non-disclosure of Related Party Transaction pertaining to M/s Ibay Capital - Petitioner s engagement of M/s Ibay Capital, a firm owned by his brother, without proper disclosure of appointment to the Committee of Creditors - HELD THAT - While Section 28 (1) (f) of the IBC Code, relied upon by the Petitioner, permits the Resolution Professional to undertake Related Party Transaction, the same must be done with the prior approval of the CoC. In the present case, while the CoC approved the appointment of M/s Ibay Capital in its 13th Meeting, the CoC was not made aware of the fact that M/s Ibay Capital was a related party of the Petitioner. Thus, prior approval required under Section 28 (1) (f) of the IBC Code has not been complied with. As regards, compliance with para 3 of the Circular dated 16th January, 2018, the Court has perused the nature of services for which M/s Ibay Capital was hired, as detailed in minutes of the 13th CoC meeting. These services fall within the definition of professional rather than mere clerical or logistical support. The Petitioner s interpretation that no disclosure was necessary is thus off the mark. Thus, in the opinion of the Court, the Petitioner has violated clauses 1,2,5,9,12,13, 14 and 23B of the Code of Conduct, Section 28 (1) (f) of the IBC Code and Circular dated 16th January, 2018. While the Petitioner has relied on the case of Mr. Anil Goel to claim parity it must be noted each case has to be decided on its own merit. Wile the Court acknowledges that the Impugned order does not indicate any concrete financial irregularity on the Petitioner s part, it nonetheless remains evident that the Petitioner failed to fully adhere to the requirements of disclosure provided under IBC, 2016 and the regulations framed thereunder. Considering the Petitioner s role as an Insolvency Professional, entrusted with fiduciary duties and the responsibility to act in the best interests of the stakeholders, strict compliance with these provisions is non-negotiable. Therefore, Petitioner s oversights in candidly informing the CoC of a related-party engagement justify regulatory intervention. The valuation report was submitted by M/s iVAS Partners whose appointment or fee was not approved/ ratified by the CoC - HELD THAT - On perusal of the minutes of 13th CoC meeting, it is clear that CBRE South Asia Pvt. Limited was appointed to determine the cost of completion of the projects. Further, in the minutes of 17th CoC meeting, it was recorded that the cost of completion report and final valuation report of iRing commercial complex were submitted by CBRE. However, there is no mention of any discussion with the CoC regarding the engagement of M/s iVAS Partners, nor was any fee related to them approved by the CoC. Even if the valuation of the iRing Complex was delegated to M/s iVAS, by CBRE, the Petitioner has not placed anything on record to show that the fee paid to M/s iVAS was approved by the CoC. Based on the available documents, it can be concluded that neither the appointment of M/s iVAS Partners nor the fees paid to them were approved by the CoC - RP is mandated to take approval of the CoC for the expenditure incurred to run the Corporate Debtor as a going concern. Therefore, the contention of the Petitioner that he, as an RP, is not required to take approval of the CoC for going concern expenses cannot sustain. Hence, the Court finds that the Petitioner violated Regulation 34 of the CIRP Regulations. The Petitioner failed to take appropriate action against the Gravity Facility Management Solutions Pvt. Ltd for non-payment of water charges - HELD THAT - The documents placed on record discloses that the Petitioner had infact initiated necessary action against Gravity Facility Management Solutions Pvt. Ltd. A civil suit for recovery of Rs. 64,20,813/- had been intiated by the Petitioner before the Civil Commercial Court, Guatam Budh Nagar, Uttar Pradesh. The Impugned order fails to take note of the same. In light of the aforenoted, it cannot be said that the Petitioner failed to take appropriate action against the Gravity Facility Management Solutions Pvt. Ltd. Accordingly, the contravention, arising from alleged inaction on the part of the Petitioner, is not made out. Conclusion - The one-year suspension, therefore, stands supported by at least two valid grounds, while the third ground is found lacking. Accordingly, the Petitioner s plea to set aside the suspension order, in its entirety, cannot be granted - application disposed off.

Summary

Issues Involved:
1. Non-disclosure of related party transaction with M/s Ibay Capital.
2. Submission of valuation report by M/s iVAS Partners without CoC approval.
3. Failure to take action against Gravity Facility Management Solutions Pvt. Ltd.

Issue-wise Detailed Analysis:

1. Non-disclosure of Related Party Transaction with M/s Ibay Capital:
The primary issue was the Petitioner's engagement of M/s Ibay Capital, a firm owned by his brother, without proper disclosure to the Committee of Creditors (CoC) or the Insolvency Professional Agency (IPA). The Respondent alleged this was in contravention of Section 23B of the Code of Conduct, which prohibits Insolvency Professionals from engaging relatives in their assignments. The Petitioner argued that M/s Ibay Capital provided only back-office support, not "professional services," and thus did not require disclosure. However, the Court found that the services provided fell within the definition of "professional," requiring disclosure. The Court concluded that the Petitioner violated clauses of the Code of Conduct, Section 28(1)(f) of the IBC, and the circular dated 16th January 2018. The Court did not find a violation of the circular dated 12th June 2018, as the Impugned Order did not specify unreasonable expenses related to M/s Ibay Capital.

2. Submission of Valuation Report by M/s iVAS Partners Without CoC Approval:
The Respondent contended that the Petitioner engaged M/s iVAS Partners as a valuer without CoC approval, violating Regulation 34 of the CIRP Regulations. The Petitioner argued that while the appointment of professionals is the Resolution Professional's prerogative, the CoC must ratify their fees, which was done in the 13th CoC meeting. However, the Court found no record of CoC approval for M/s iVAS Partners' fees. The Court concluded that the Petitioner violated Regulation 34 of the CIRP Regulations, as the CoC did not approve the expenses incurred for M/s iVAS Partners.

3. Failure to Take Action Against Gravity Facility Management Solutions Pvt. Ltd.:
The Respondent alleged that the Petitioner failed to act against Gravity Facility Management Solutions Pvt. Ltd. for diverting funds. The Petitioner countered that he had initiated a recovery suit, resulting in a settlement where the Corporate Debtor received Rs. 60 Lakhs. The Court found that the Petitioner had indeed taken appropriate action, and the Impugned Order did not account for this. Therefore, the Court concluded that this contravention was not made out.

Conclusion:
The Court upheld the suspension based on the first two issues, finding that the Petitioner failed to disclose the related-party engagement with M/s Ibay Capital and did not secure CoC ratification for M/s iVAS Partners' fees. However, the Court found the third ground regarding Gravity Facility Management Solutions Pvt. Ltd. to be unsubstantiated. Consequently, the Petitioner's plea to set aside the suspension order in its entirety was not granted. The case was disposed of along with pending applications.