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TMI Blog2021 (3) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... ot appear to be any contravention by Ms. Jain as the applicant refused to bear the cost and the CoC had ratified the fees of IRP and informed her to issue the bills in the name of the CD. Cost Disclosure by IRP - HELD THAT:- As valuers appointment was also the part of CIRP cost, it was expected from RP and CoC to communicate and the CoC vide e-mail dated 12-7-2019 had requested IRP to wait till such approval from CoC. Therefore, Ms. Jain filed the cost disclosure on 30-10-2019 with IPA on the information available, assuming that any subsequent revision will be dealt with later on. The submission of the IRP is found to be satisfactory and no contravention could be made out. Appointment of valuers by Resolutional Professional (RP) who are not Registered Valuers (RV) - violation of Section 208(2)(a) and (e) of the Code, regulation 27 of CIRP Regulations 2016 and Regulation 7(2)(a), (h) and (i) of the IP Regulations, read with clause(s) 10 and 14 of the Code of Conduct as given in the First Schedule of the IP Regulations and Circular No. IBBI/RV/019/2018 dated 17th October, 2018 - HELD THAT:- From a bare perusal of the provisions of the regulations and circular made thereunde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve claims were also received subsequently and mere rearrangement of link on the website does not amount to delay in publishing. Thus, the DC is of the view there is no contravention with regard to publication of public announcement. SCN disposed off. - No. IBBI/DC/60/2020 - - - Dated:- 17-12-2020 - Dr. Mukulita Vijayawargiya, Whole Time Member, IBBI ORDER In the matter of Ms. Sonu Jain, Insolvency Professional (IP) under section 220 of the Insolvency and Bankruptcy Code, 2016 (Code) read with Regulation 11 of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016 and Regulation 13 of the IBBI (Inspection and Investigation) Regulations, 2017. This Order disposes of the Show Cause Notice (SCN) No. IBBI/IP/INSP/2019/30 dated 24th June 2020, issued to Ms. Sonu Jain, Poddar Court Gate No. 2, 18 Rabindra Sarani, Suit No. 327, Kolkata, West Bengal- 700001 who is a Professional Member of the Indian Institute of Insolvency Professionals of ICAI and an Insolvency Professional (IP) registered with the Insolvency and Bankruptcy Board of India (IBBI) with Registration No. IBBI/IPA-001/IP-P00575/2017-18/11016. Background 1. Ms. Sonu Jain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Submissions 2. The contraventions alleged in the SCN and Ms. Sonu Jain's written and oral submissions thereof are summarized as therein as follows: I Contravention 2.1 According to IBBI Circular No. IP/004/2018 dated 16th January 2018, IP is under obligation to raise bills/invoices in her name towards fees incurred. It has been observed that Ms. Jain raised four bills dated 4-4-2019, 15-4-2019, 26-4-2019 and 29-7-2019 in respect of IRP fees in the name of her partnership firm Jain Sonu Associates. 2.1.1 It has been observed that Ms. Jain had raised the bill dated 29-7-2019 for an amount of ₹ 25 lakhs towards IRP fees, when the same was already fixed at amount aggregating ₹ 12.50 lac (₹ 9 Lakh per month along with ₹ 3.5 lakh for technical support) by the CoC in its first meeting dated 26th June 2020. 2.1.2 Regulation 33(3) of CIRP Regulations, 2016 specifies that the cost of the IRP is to be borne by the applicant of CIRP and same is to be reimbursed by the CoC to the extent it ratifies. It has been observed from the bills dated 4-4-2019, 15-4-2019, 26-4-2019 and 29-7-2019 that the same were wrongly billed in the name of CD. 2.1.3 Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rightly rejected to the fees proposed by her. In the next CoC meeting which was conducted by newly appointed RP, the fee was then finalized and the revised invoice reflected the same. This invoice was raised as it was required by the FC to quote tentative fees. The revised bill where the amount was raised with consistency was later provided. 2.3.2 Ms. Jain was not proposed by operational creditor, FLSmidth Private Limited (applicant) and was directly appointed by AA. With the appointment letter she had visited to FL Smidth Private Limited's office at Chennai but they had refused to bear any fees and expense of IRP, as they had not proposed her appointment. Ms. Jain had then enquired from the FC in whose name the invoices were to be raised and was informed to issue it in the name of CD and to make it a part of CIRP cost. Thus, she had her invoice raised in the name of CD. 2.3.3 The order dated 24-7-2019 passed by NCLT replacing the IRP by RP, Mr. Abhilash Lal stated that IRP fees shall be considered when it will be raised by RP. The disclosure requirement was not possible to be fulfilled as her fees were not decided till her removal. Subsequent to several reminders and fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. IBBI/RV/019/2018 dated 17th October, 2018. Submission 3.2 With regard to the aforesaid contravention Ms. Jain submitted that there is no contravention of provisions as the valuer appointment letters that IRP had sent were subsequently cancelled by CoC later on and the RP has presently appointed another set of Valuers. The date when the valuers were appointed Ms. Jain was no longer part of CIRP process. So, no non-compliance is in existence. 3.2.1 It is further submitted that as per Circular dated 13th August 2019 to issue the appointment letter in the name of RV or RVO only if they are registered and in the present case Ms. Jain had already issued appointment letter before the clarification was issued. Ms. Jain has vide e-mail dated 13-10-2020 submitted the e-mail reply of the valuers stating that appointment letter issued by Ms. Sonu Jain as IRP was not approved by CoC and a fresh appointment letter was issued by Mr. Abhilash Lal, the appointed RP. III Contravention 4.1 According to Circular No. IP/005/2018 dated 16th January 2018, an Insolvency Professional shall disclose his relationship, if any, with (i) the Corporate Debtor, (ii) other Professional(s) engage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een observed that the IRP had shared her profile and profile of her team members to the CoC members vide email dated 26th June 2019. However, IRP have failed to bring out the fact before the CoC that CA firm M/s Jain Sonu Associates and the employees of the firm are her related parties. The aforesaid conduct is in violation of Section 208(2)(a) and (e) of the Code, Regulation 7(2)(h) of the IP Regulations, read with clause 12, 14 and 16 of the Code of Conduct as given in the First Schedule of the IP Regulations. Submission 5.2 With regard to the aforesaid contravention Ms. Sonu Jain submitted that the appointment of the professionals was made directly by her and their payment is also directly made by her and not CoC. No firm personnel had been recruited for handling this assignment by CoC. The staff assisting IRP are not related or covered under any definition of related party. Moreover CA. Vinay Bansal, CA. Priya Jain, CA. Charupreeti Jain they are residents of Delhi, A.N. Mishra is resident of Patna, Bihar, and Aditya Ahirwar ,Om Prakash Mishra CA. Pratik Agarwal and CA. Ritu Shukla are residents of Jabalpur, Madhya Pradesh. It was first time for Ms. Jain to be working wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the regulations made thereunder finds as follows: Bills for fee of Interim Resolution Professional 7.1 Under the Code, the IRP plays a central role in resolution process of the CD, she is appointed by the Adjudicating Authority as an officer of the Court to conduct the resolution process and it is the duty of the IRP to conduct CIRP with integrity, transparency and accountability in the process ensuring that all the stakeholders are kept informed. Hence, an IRP is obliged under the Code to take reasonable care and diligence while performing her duties, including incurring expenses and disclosure of the same in a timely manner. She must, therefore, ensure that not only fee payable to her is reasonable, but also other expenses incurred by her are reasonable. Thereby ensuring an effective insolvency regime, this would in turn foster public confidence. Therefore, it becomes imperative for an IP to perform her duties with utmost care and diligence. Section 208(2) of the Code provides that every insolvency professional shall abide by the Code of conduct. It reads as follows: 208. Functions and obligations of insolvency professionals.- (2) Every insolvency professional shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk account but due to the erroneous bills submitted, the CoC mistakenly made payment in the bank account of Jain Sonu Associates. However, as Ms. Jain rectified the error by submitting revised bills on the same. Hence, a lenient view may be taken. 7.4 It is observed that in Ms. Jain has raised the bill no. 64/2019-20 dated 29-7-2019 for an amount of ₹ 25 Lakh towards IRP fees but in the 1st CoC Meeting dated 26-6-2019 in the Agenda no. 2 it had been mentioned in the minutes thereof that, CoC further negotiated with IRP to reduce her fees and keep IRP service fees: 9,00,000.00 P.M., Technical Support: 3,50,000.00 P.M. plus ₹ 200,000 one time Out of Pocket Expense. IPR further mentioned COC about her efforts towards the Corporate Debtor which deserves a monthly remuneration ₹ 25,00,000.00/-.(IRP service fees:9,00,000.00, Technical Support:11,00,000.00, Business Process advisor: ₹ 5,00,000.00). Further other expenses related to filing and miscellaneous expenses have amounted to ₹ 2,00,000/-. CoC being aware of the efforts have proposed IRP service fees: 9,00,000.00 P.M., Technical Support: 3,50,000.00 P.M. plus ₹ 200,000 one time Out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar the expenses which shall be reimbursed by the committee to the extent it ratifies. (4) The amount of expenses ratified by the committee shall be treated as insolvency resolution process costs. 7.8 DC finds from the material available on record that the bills raised by Ms. Jain dated 4-4-2019, 15-4-2019, 26-4-2019 and 29-7-2019 were addressed to the CD. Ms. Jain has submitted that the IRP appointment was not proposed by the operational creditor, FLSmidth Private Limited instead, it was the AA that appointed Ms. Jain as IRP. On perusal of the Order dated 27-3-2019 of the AA it is observed that the Applicant, FLSmidth Private Limited had not suggested any name for IRP and the AA directly appointed Ms. Jain as IRP, with the further direction to Applicant to pay sum of ₹ 50,000/- to IRP as advance fees. However, as per the submission of Ms. Jain when the IRP had approached FL Smidth Private Limited for payment of fees they had refused to bear any fees and expense as they had not proposed her appointment. Ms. Jain had then enquired CoC in whose name the invoice is to be raised and was informed to issue it in the name of CD and to make it a part of CIRP cost. Hence, DC fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with later on. The submission of the IRP is found to be satisfactory and no contravention could be made out. Appointment of Valuers by the Interim Resolution Professional 9. Under the Code valuation is conducted in a CIRP to estimate the fair value and liquidation value of the assets of the CD, which enables the CoC and the prospective resolution applicants to make an informed decision regarding the fate of CD. It is the endeavour of the Code to maximize the value of assets of the CD and the same may be ensured by adopting uniform valuation standards. Based on the information supplied in the valuation report, the CoC takes the crucial decision- whether to continue with the resolution process or resolve to liquidate. Further, it also facilitates the RP to invite prospective resolution plans. Therefore, to establish the credibility of the process and generate confidence among the stakeholders, the Code requires IRP to engage registered valuers for the purpose of the CIRP. The Regulation 27 of the CIRP Regulation provides that: 27. Appointment of registered valuers The resolution professional shall within seven days of his appointment, but not later than forty-seventh da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e RP, Mr. Abhilash Lal as per the regulations. Hence, DC is of the view that lenient view may be taken. Relationship Disclosure by IRP 10. CIRP under the Code is a non-adversarial resolution process where the defaulting CD cedes control to an IP, who is responsible for managing the affairs of the company as a going concern while preserving its value. In order to promote transparency, the cost and relationship disclosures are to be provided timely by the IPs which is to be displayed on the website of IPA so that all the stakeholders can be uniformly informed of the expenses incurred and professionals that are engaged. The Circular No. IP/005/2018 dated 16th January 2018 provides that an IP shall disclose her relationship, if any, with (i) the Corporate Debtor, (ii) other Professional(s) engaged by her, (iii) Financial Creditor(s), (iv) Interim Finance Provider(s), and (v) Prospective Resolution Applicant(s) to the IPA of which she is a member, within a period of three days. However, Ms. Jain, who was appointed on 27-3-2019 delayed in submitting relationship disclosure of her appointment for more than three months to 4-7-2019. Further, it is observed that Ms. Jain issued appoin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onable person to take a view on the appropriateness of his decisions and actions. 10.3 Further, in the present issue the DC notes that, Ms. Jain had shared her profile and profile of her team members to the CoC members vide email dated 26th June 2019. However, it has been alleged that Ms. Jain had failed to inform the CoC that CA firm M/s Jain Sonu Associates and the employees of the firm are her related parties. Ms. Sonu Jain has replied to the aforementioned allegation stating that the appointment of the professionals was made directly by her and their payment is also made by her and not CoC. Further, no firm personnel has been recruited for handling this assignment by CoC. Moreover CA. Vinay Bansal, CA. Priya Jain, CA. Charupreeti Jain they are residents of Delhi, A.N. Mishra is resident of Patna, Bihar, and Aditya Ahirwar ,Om Prakash Mishra CA. Prateek Agarwal and CA. Ritu Shukla are residents of Jabalpur, Madhya Pradesh and it was first time for Ms. Jain to be working with them. 10.4 The DC also noted that Ms. Jain has submitted that the IRP cannot handle the entire CIRP alone and requires a team to manage the day to day operations to continue as going concern. The st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup Company website, which looked unorganized. Therefore, Ms. Jain had requested through email dated 2-5-2019 to make separate tab and relocate the link of public announcement and it was mere re-arrangement of the hyperlink on the website. Further, Ms. Jain also submitted that she had already received 5 claims from Operational Creditors vide e-mails dated 9.04.019, 10-4-2019, 13-4-2019, 23-4-2019, 26-4-2019 based on the public announcement present on the website of the CD and the newspaper. Hence, it is observed that public announcement was made within stipulated time and five claims were also received subsequently and mere rearrangement of link on the website does not amount to delay in publishing. Thus, the DC is of the view there is no contravention with regard to publication of public announcement. ORDER 12. In view of the above, there is a delay in disclosure of relationship by Ms. Jain which is in contravention of regulation 7(2)(h) of the IP Regulations, read with clause 13 and 14 of the Code of Conduct as given in the First Schedule of the IP Regulations and Circular No. IP/005/2018 dated 16th January, 2018. 12.1 The DC, therefore, in exercise of the powers conferr ..... 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