Failure to Provide Assistance in Liquidation Process by Insolvency Professional: IBBI suspends Registration for 2 Years [Read Order]

The Insolvency And Bankruptcy Board of India(IBBI) found that the Insolvency Professional(IP) failed to assist in the liquidation process and suspended the registration for 2 Years. Show Cause Notice (SCN) was issued to an Insolvency Professional (IP) registered with the Insolvency and Bankruptcy Board of India (Board/IBBI) and a Professional Member of the Indian Institute of Insolvency Professionals of ICAI. The Show Cause Notice (SCN) includes contraventions of the provisions of the Insolvency and Bankruptcy Code, 2016 (Code) and regulations made thereunder in respect of running the insolvency processes of two corporate debtors (CDs), namely, (i) Lanco Infra Tech Limited and (ii) Shirpur Power Private Limited. There is a difference between the charging of fees of RP and the liquidator. The fee of RP is negotiated and there is no regulation governing the quantum of fees of RP. Only a minimum fee is specified after the amendment in CIRP Regulations in 2022. However, concerning the liquidator, there are two options. Either he can negotiate the fee with the CoC and get it fixed as per his terms and conditions. Otherwise, the same can be fixed as per regulation 4(3) of Liquidation Regulations. Once, it is fixed as per regulation 4(3), the fee will be charged for all the roles and functions of the liquidator which are performed by the liquidator, and which do not fall within the domain of another professional. The liquidator himself may perform these duties in a small case. Regulation 7(1) only intends that the liquidator should seek assistance from a professional who falls in the domain of another profession. The professional assistance intended above is in respect of a work which has to be carried out by a professional in his own right and not assistance for some work to be carried out by the liquidator and his team members to carry out the liquidator’s role and functions which do not fall in the realm of any other professional. Hence, the fees paid to Deloitte to the extent they have been paid for performing the role and functions of the liquidator cannot be said to be reasonable. The process of receiving information from the management of CD cannot be continued forever and some definitive action like filing section 19(2) application and finalising avoidance application mentioning the fact of non-compliance by the management of CD-2 needs to be taken. The delay of more than four months in not finalising the avoidance application from the sixth CoC till the order of liquidation is not acceptable or justifiable considering the time-bound process intended in the objective of the Code and therefore there is a violation of regulation 35A of CIRP Regulations read with clause 1, 2, 3 and 14 of the Code of Conduct. The DC comprising Sandip Garg and Jayanti Prasad in exercise of the powers conferred under section 220 of the Code read with regulation 13 of the IBBI (Inspection and Investigation) Regulations, 2017 suspended the registration for two years. As per Liquidation Regulations, professional assistance may be sought by the liquidator for work falling in a domain for which specialist professional expertise is required and not for the functions that are to be performed by a liquidator and for which no additional professional expertise is required. Further, once the fee of the liquidator is fixed as per regulation 4(3), the work relating to the duties and functions of the liquidator which do not require professional assistance needs to be performed by the liquidator and his team and not by DTTILLP. Considering the fact that more than half of the work assigned to DTTILLP for assisting the liquidator did not require the assistance of any professional, a penalty of half of the fees paid to DTTILLP is imposed and he is directed to deposit this amount directly to the Consolidated Fund of India (CFI) under the head of “penalty imposed by IBBI” on https://bharatkosh.gov.in within 45 days from the date this order becomes effective and submit a copy of the transaction receipt to the Insolvency and Bankruptcy Board of India. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates