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TMI Blog2020 (7) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... entire process as well as one which is of the pillar on which the CIRP exists. Corporate Debtor undergoing CIRP is a representation of interests of several stakeholders who pin their hopes on the outcome of CIRP. During CIRP, it is the utmost responsibility of an IP to run the company of Corporate Debtor as a going concern and conduct the entire CIRP in a transparent manner without creating additional insolvency resolution process costs - the DC, in exercise of the powers conferred under section 220 (2) of the Code read with sub-regulations (7) and (8) of Regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016, issues the following directions: (1) The DC hereby imposes on Mr. Koteswara Rao Karuchola, a monetary penalty of ₹ 1,00,000/- (Rs. One Lakh only) and directs him to deposit the penalty amount by a crossed demand draft payable in favour of the 'Insolvency and Bankruptcy Board of India'. The Board in turn shall deposit the penalty amount in the Consolidated Fund of India. (2) Mr. Koteswara Rao Karuchola shall not accept any new assignment as an IP till he deposits the monetary penalty of ₹ 1,00,000/- with the Board and produces evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IP submitted some additional documents vide email dated 4th March 2020 in support of his submissions made during the course of personal hearing. 2. Consideration of SCN The DC has considered the SCN, the reply to SCN, oral submissions of Mr. Koteswara Rao Karuchola during the course of personal hearing, additional documents, other material available on record and proceeds to dispose of the SCN. 3. Alleged Contraventions, Submissions, Analysis and Findings A summary of contraventions alleged in the SCN, Mr. Koteswara Rao Karuchola's written and oral submissions thereon and their analysis with findings of the DC are as under: 3.1 Contravention: Pursuant to regulation 13 (1) of the CIRP Regulations, it is the duty of the IP to verify every claim received by him. Further, the IBBI Circular dated 3rdJanuary 2018 directs that the IP shall not outsource any of his duties and responsibilities under the Code. It has been observed from the minutes of the 1stCommittee of Creditors (CoC) meeting that claims received from the creditors have been verified and certified by M/s EzResolve, IPE which shows that the RP has outsourced his responsibility to verify claims of the finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that an insolvency resolution professional shall not outsource any of his duties and responsibilities under the Code. The appointment letter of the IPE dated 30th March 2018 states that, You are required to verify claims as per regulations of Insolvency and Bankruptcy Board of India (Insolvency resolution Process for Corporate Persons) (Amendment) Regulations, 2018, as and when received the claims from creditors and verify with Books of the company; . In the present case, it has been observed that the minutes of the 1st meeting of the CoC held on 9th April 2018 provides: 4. Claims received from Creditors: ** ** ** The claims received have been verified and certified by an IPE from M/s. Ezresolve LLP, who were appointed for claims verification. ** ** ** 6. To Take note and approve the appointment of IPE: Chairman has briefed the CoC about the appointment of M/s. Ezresolve LLP for verification of claims received from Creditors and verify the claims as per regulations 7, 8, 9, 9A, 10, 12, 13, 14 and 15 of the Insolvency and Bankruptcy Board of India Regulations, 2018 and taking up overall responsibility for claims process. The time period for appointment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are required to verify claims as per regulations of Insolvency and Bankruptcy Board of India (Insolvency resolution Process for Corporate Persons) (Amendment) Regulations, 2018 as and when received the claims from creditors and verify with Books of the company; 2. You shall certify the admissibility or rejection of each claim with reasons after satisfying the regulations and requirements whether proper stamp duty was paid, affidavit enclosed, board resolutions enclosed, authorization letters enclosed etc., 3. Intimation letters/mail correspondence shall be prepared if any deficiencies found in the claims of creditors or reject the claims with reasons. EzResolve, LLP vide its email dated 3rd April 2018 while submitting the report on Financial Claims Submitted up to 3rd April 2018 has intimated the IP that the The claims have been verified under regulations of IBC . In the present case, it can be observed from the documents that the IPE has been appointed by the IRP to verify the claims received from creditors. The appointment letter of the IPE, the minutes of the CoC meeting as well as an email dated 1st March 2020 sent by IPE to RP proves the fact that the IPE was app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Regulation 33; (d) expenses incurred on or by the interim resolution professional fixed under Regulation 34; and (e) other costs directly relating to the corporate insolvency resolution process and approved by the committee. It is trite to mention that the IRPC is an added financial stress on a Corporate Debtor. Therefore, it becomes crucial to monitor the expenses incurred by the RP to ensure that a Corporate Debtor, who is already entangled in a web of unsustainable liabilities is not further over-burdened with exorbitantly high IRPC. The payment made to the IPE has been included in the IRPC by the RP, thereby creating an additional burden on the Corporate Debtor. In the present case, the RP failed to produce any document which substantiates that the IPE was engaged for re-verification of claims and thus, the same could not be established. On the other hand, the documents submitted by the RP i.e. the engagement letter issued to the IPE, minutes of 1st CoC meeting and email dated 1st March 2020 received from the IPE clearly provides that the IPE was engaged for the verification of claims. Findings: Since the RP has outsourced his duty of verification of claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (2) The information memorandum shall contain the following details of the corporate debtor ** ** ** (d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims; Section 3 (31) of the Code provides: security interest means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee; It has been observed that the IM, obtained by the Board during the course of inspection, does not contain details of security interest even though they were available with the RP. However, from the amended copy of IM shared by the RP, it has been observed that details of the security interest under the heading security have been listed. Further, the copy of the Claims Register maintained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a relevant time given a preference in such transactions and in such manner as laid down in sub-section (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in section 44. Paragraph 7 of IA no. 377 of 2018 filed by the RP is as follows: 7. It is submitted that from the report it may be seen that NIL transactions have been reported under sections 50 and 66 whereas under section 43 the Auditors made two points giving the details in Annexure-I and Annexure-II. In respect of loans/payable amounts they are set off against the ledger accounts of parties from whom the amounts are receivable. It is seen that against an receivable amount of ₹ 63, 20, 43, 151/- the same has been adjusted against the payable credit balances. This has resulted into initiation of no action for any recovery since the same has been adjusted against amounts payable. As submitted by the RP, paragraph 7 as above-mentioned of the IA no. 377 of 2018 filed before the AA fails to mention about the tripartite letters of confirmations/agreements for adjustment of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as well as one which is of the pillar on which the CIRP exists. 4.3 The Code also requires an IP to play a catalytic role in CIRP which requires a right combination of experts acting under the overall supervision of the IP. He is the backbone of the resolution process under the Code and success thereof hinges on the conduct and competence demonstrated by him. Also, a Corporate Debtor undergoing CIRP is a representation of interests of several stakeholders who pin their hopes on the outcome of CIRP. During CIRP, it is the utmost responsibility of an IP to run the company of Corporate Debtor as a going concern and conduct the entire CIRP in a transparent manner without creating additional insolvency resolution process costs. 4.4 In this matter, the DC observes that (a) The RP had outsourced his duty and engaged IPE for verification of claims. He further included the payment made for the same in the IRPC thereby burdening the ailing Corporate Debtor with additional costs. (b) The fee of ₹ 3,00,000/- plus GST has been paid to the IPE for verification of claims, which was the primary duty of the RP himself. 4.5 Thus, Mr. Koteswara Rao Karuchola, has displayed a ca ..... 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