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Negligent RP penalized for CIRP misconduct: disclosure failures, improper fees, and sharing violation. The Resolution Professional (RP) was found negligent in conducting the Corporate Insolvency Resolution Process (CIRP), including failure to make required ...
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Negligent RP penalized for CIRP misconduct: disclosure failures, improper fees, and sharing violation.
The Resolution Professional (RP) was found negligent in conducting the Corporate Insolvency Resolution Process (CIRP), including failure to make required disclosures, improper inclusion of lender's legal counsel fees in Insolvency Resolution Process Costs (IRPC), and sharing fees with BDO Restructuring Advisory India LLP. The RP contravened provisions of the Insolvency and Bankruptcy Code and relevant regulations. The Disciplinary Committee imposed a monetary penalty of Rs. 29,24,167/- on the RP and directed reimbursement of Rs. 12,09,90,185/- to the Corporate Debtor, along with a restriction on accepting new assignments until compliance.
Issues Involved: 1. Delay in filing application for avoidance of transactions. 2. Failure to make required disclosures. 3. Inclusion of lender’s legal counsel fees in Insolvency Resolution Process Costs (IRPC). 4. Conflict of interest in appointing PwC. 5. Sharing of fees with BDO Restructuring Advisory India LLP. 6. Acceptance of Expression of Interest (EOI) beyond the deadline.
Issue-wise Detailed Analysis:
1. Delay in Filing Application for Avoidance of Transactions:
Contravention: The RP failed to file an application for avoidance of transactions immediately with the NCLT, instead allowing the Committee of Creditors (CoC) to usurp his authority, resulting in a two-month delay.
Submission: The RP argued that he filed an application under Section 45 of the Code on 19th March 2018 and that the delay was due to the complexity and size of the Corporate Debtor (CD). He also contended that there were no prescribed timelines for such filings at that time.
Analysis: Section 25(2) of the Code mandates the RP to file applications for avoidance of transactions. The RP took 236 days from the commencement of CIRP to file the application, which was seen as a casual approach and misunderstanding of the law.
Findings: The DC noted that prior to the Third Amendment to the IBBI Regulations, there was no explicit timeline for filing such applications. However, the RP's delay and casual approach were criticized, though he was not held liable due to the absence of explicit provisions in the law at that time.
2. Failure to Make Required Disclosures:
Contravention: The RP failed to make timely disclosures regarding the appointment of BDO Restructuring Advisory India LLP and other professionals, as required by the Circular dated 16th January 2018.
Submission: The RP claimed that the appointments did not fall under the definition of 'relationship' requiring disclosure and that any omissions were inadvertent and unintentional.
Analysis: The RP failed to make disclosures within the stipulated time and provided contradictory statements regarding the appointment of BDO Restructuring Advisory India LLP.
Findings: The RP's non-disclosure was found to be in violation of Section 208(2)(a) of the Code and Regulation 7(2)(a) and 7(2)(h) of the IBBI Regulations, 2016.
3. Inclusion of Lender’s Legal Counsel Fees in IRPC:
Contravention: The RP included fees paid to the lender’s legal counsel in the IRPC, which is not permissible under the Code.
Submission: The RP argued that the inclusion was based on CoC's decision and that there was no clarity on this aspect at the time. He also mentioned that the CoC had agreed to reimburse the fees if the Board objected.
Analysis: The inclusion of lender’s legal counsel fees in IRPC was seen as a violation of the Code. The RP's agreement with the CoC to include these fees indicated a deliberate disregard for the law.
Findings: The RP was found to have contravened Section 208(2)(a) of the Code and relevant regulations by including lender’s legal counsel fees in IRPC.
4. Conflict of Interest in Appointing PwC:
Contravention: The RP appointed PwC as a valuer and later joined PwC as a partner, raising concerns about a conflict of interest.
Submission: The RP argued that PwC and the entity he joined (PPS) were distinct entities and that the appointments were made through a competitive bidding process.
Analysis: The RP joined PPS after appointing PwC, and there was no direct conflict of interest on the relevant dates.
Findings: The DC found no direct relationship between the RP and PwC on the relevant dates, and thus no conflict of interest.
5. Sharing of Fees with BDO Restructuring Advisory India LLP:
Contravention: The RP shared his fees with BDO Restructuring Advisory India LLP, which is against the provisions of the Code.
Submission: The RP argued that the fee-sharing arrangement was approved by the Bombay High Court and that the fees were paid in accordance with the consent terms.
Analysis: The RP was appointed in his individual capacity, and sharing fees with BDO Restructuring Advisory India LLP was against the provisions of the Code.
Findings: The RP's fee-sharing arrangement was found to be in violation of Section 5(13) and Section 208(2)(a) of the Code and relevant regulations.
6. Acceptance of Expression of Interest (EOI) Beyond the Deadline:
Contravention: The RP accepted EOIs from Liberty House and Arcelor Mittal after the last date of submission, without officially extending the deadline.
Submission: The RP argued that the acceptance was based on CoC's decision and in accordance with the provisions of Regulation 39(1) of the IBBI Regulations, 2016.
Analysis: The DC noted that the specific provision on 'Invitation of Resolution Plans' was inserted later, and the RP acted in accordance with CoC's directions.
Findings: The DC did not hold the RP liable for accepting EOIs after the last date, as there was no specific provision in the regulations at that time.
Conclusion:
The RP displayed negligence in conducting CIRP, including failure to make required disclosures, improper inclusion of lender’s legal counsel fees in IRPC, and sharing fees with BDO Restructuring Advisory India LLP. The RP was found to have contravened several provisions of the Code and Regulations. The DC imposed a monetary penalty of Rs. 29,24,167/- on the RP and directed him to reimburse Rs. 12,09,90,185/- to the CD. The RP was also barred from accepting new assignments until compliance with these directions.
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