IBBI bans an Insolvency Professional for one year for quoting exorbitant fee and collusion with corporate debtor. The IP was believed to be the wife of the CA of the corporate debtor.
ABCAUS Case Law Citation:
ABCAUS 2326 (2018) (05) IBBI
An operational creditor had filed an application under section 9 of the Insolvency and Bankruptcy Code, 2016 (Code) before the Hon’ble Adjudicating Authority for initiating corporate insolvency resolution process (CIRP) of a corporate debtor. The applicant proposed an Insolvency Professional (IP) who happened to be the wife of the chartered accountant of the operational creditor as Interim Resolution Professional (IRP) for CIRP and as the Interim Resolution Professional (IRP) for CIRP of the corporate debtor.
The proposed IP filed the ‘Term Sheet for Professional Assignment’ which envisaged her appointment as IRP and also as Resolution Professional (RP) for the CIRP. While the application was under consideration, the Hon’ble Adjudicating Authority issued an order observing that the fee quoted by the IRP was Rs. 5 Crores till the First Committee of Creditors Meeting. Further it was noticed that fee for the subsequent months as IRP/RP on a per month basis was R. 1.75 Crores. The Adjudicating Authority also noted that total outstanding debt amount from the Corporate Debtor was only Rs. 4.16 Crores (including interest and retention money). It was also observed that the fee proposed by IRP works out to Rs. 14. 00 Crores approx., apart from other incidental expenses.
From the Annual Report, the Adjudicating Authority also noted that MD & CEO of Corporate Debtor was appointed with monthly remuneration of Rs.5 lakhs inclusive of all allowances and perquisites for a period of three years. Accordingly, the remuneration of MD & CEO for the whole year was Rs. 60 lakhs. Further, it was also noted that for the other two Whole Time directors, the remuneration per annum was Rs. 50 lakhs. Accordingly, remuneration for MD & CEO and two Whole Time Directors worked out to Rs. 1.10 crores per annum, whereas the proposed IRP had quoted exorbitant amount as above.
In view of the above, the Adjudicating Authority opined that the remuneration quoted by the IRP was quite exorbitant and the same needed to be referred to IBBI. Though there are no prescribed set of Rules and Regulations/Guidelines at present with regard to the fee payable to the IRP/RP, the Adjudicating Authority was of the view that the fee quoted by the professionals should be reasonable, commensurate with work to be handled. Accordingly, it recommended the matter to IBBI for taking appropriate action/remedial measure against the proposed IRP including disciplinary action if any.
Accordingly the Disciplinary Committee of IBBI issued a Show Cause Notice (SCN) on the allegation of charging exorbitant professional fee. As per the SCN, the IP had signed the term sheet for the services as RP with the applicant operational creditor who had no role under the law in the appointment of RP or fixing of fees of the RP. Accordingly, the IP locked in her appointment as RP even before the commencement of the CIRP. An agreement with an operational creditor, who was not legally competent to appoint her as RP, was an attempt by IP to pre-empt the CoC of its legitimate rights to appoint an IP of its choice as RP and fix fees of the RP. This attempt indicated the possibility of collusion with operational creditor and compromises independence of IP. The IP was charged with contracting a fee which was not a reasonable reflection of her work and compromised her independence and thereby contravening the provisions of the relevant regulations.
After considering the submissions of the IP, the DC found that the conduct of IP was unacceptable and opined that:
(i) The IP had violated the provisions of clauses 10, 24, 25 and 27 of the Code of Conduct for Insolvency Professionals under the First Schedule of the Regulations and section 20 of the Code.
(ii) The IP demonstrated her inadequate understanding of the law which poorly reflected on her competence as IP and lack of understanding of the Code and the Rules and Regulations. The DC expressed doubt if she can be entrusted with a CIRP given her level of knowledge and understanding. DC found that the IP violated the provisions of clause 10 of the Code of Conduct for Insolvency Professionals under the First Schedule of the Regulations.
(iii) The IP attempted to mislead the stakeholders, the Board and the DC by a series of misrepresentation of facts.
(iv) The term sheet provides for professional fee of as RP. Thus it took away the rights of the CoC to appoint an IP of its choice as RP and fix his fees. By misguiding an operational creditor to sign a term sheet, she compromised her independence and attempted to jeopardise the interests of the CoC. Thus she violated the provisions of clauses 1, 2, 5, 10, 12, 24 of and 27 the Code of Conduct for Insolvency Professionals under the First Schedule of the Regulations.
The DC opined that the IP had engaged in acts that have brought disrepute to the noble profession of IP and severely compromised her status as a fit and proper person. The overall conduct of the IP was not unbecoming of an IP. It was concluded that the IP had contravened the provisions of clauses 1, 2, 5, 10, 12, 24, 25 and 27 of the Code of Conduct for Insolvency Professionals under the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 read with regulation 7(2)(b) of the said Regulations and section 20 of the Code.
The DC however noted that the said IP was new to the insolvency profession and she has stated that till date she has not undertaken any process under the Code. The DC suspended the registration of the accused Insolvency Professional for a period of one year.
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