Insolvency Professional breaches regulations, warned to adhere strictly.

The court found that the Insolvency Professional (IP) violated regulations by including personal guarantor property valuation costs in the Insolvency Resolution Process Costs (IRPC) and by not getting the auditor's fees approved by the Committee of Creditors (CoC) in a meeting. Despite the Bank of India's involvement and approval, the IP's lack of independence and procedural lapses were noted. Given the early stage of the insolvency regime, a lenient view was taken, and the IP was warned to adhere strictly to the law in the future. The case was disposed of with these directions.

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Issues Involved:
1. Valuation of properties of personal guarantors and inclusion of costs in Insolvency Resolution Process Costs (IRPC).
2. Approval of auditor's fees by the Committee of Creditors (CoC).

Issue-wise Detailed Analysis:

1. Valuation of Properties of Personal Guarantors and Inclusion of Costs in IRPC:

Contravention: The Insolvency Professional (IP) directed valuers to conduct valuation of properties of personal guarantors along with the Corporate Debtor's properties, and included the costs in the IRPC, which is against regulation 27 of the CIRP Regulations.

Submission: The IP argued that the Bank of India, the sole member of the CoC, instructed the valuation of all properties, including those of guarantors, as they were provided as security for a term loan. The costs were included in the IRPC as approved by the CoC.

Analysis: Regulation 27 mandates the appointment of registered valuers to determine the fair and liquidation value of the Corporate Debtor's assets only. The IP's actions breached clause 5 of the Code of Conduct, which requires maintaining independence in professional relationships. Payments for valuation were routed through the IP's personal account, compromising her independence and violating section 208 (2) (a) of the Code and Regulation 7 (2) (a), (h), and (i) of IP Regulations.

Findings: The IP's inclusion of personal guarantor property valuation costs in the IRPC and the method of payment through her personal account violated the Code and Regulations. Although the Bank of India bore the expenses, the IP's lack of independence and procedural lapses were noted.

2. Approval of Auditor's Fees by the CoC:

Contravention: The IP appointed M/s Kaliannan & Associates for auditing without getting their fees approved by the CoC as required by regulation 34 of the CIRP Regulations.

Submission: The IP claimed that the CoC had delegated the responsibility to appoint an auditor to her and that the sole CoC member, Bank of India, approved the appointment and fees via email.

Analysis: Regulation 34 requires the CoC to fix the expenses for professionals appointed by the IP. Although the CoC approved the fees via email, the minutes of the CoC meetings did not record this approval.

Findings: The IP did not get the auditor's fees fixed in a CoC meeting, but since the sole CoC member approved the expenses via email, there was no malicious intent. Given the nascent stage of the insolvency regime, a lenient view was taken.

Conclusion:

4.1 Role of IP: The IP is crucial for the efficient operation of the insolvency process, requiring competence and independence. The IP must manage the Corporate Debtor as a going concern and conduct the CIRP transparently.

4.3 Observations:
- The IP acted on CoC directions to value personal guarantor properties and included these costs in the IRPC.
- The IP compromised her independence by receiving and making payments through her personal account.
- The fees for valuers, including those for personal guarantor properties, were included in the IRPC.

Order:

5.1 Considerations: The insolvency regime and profession are new in India, warranting leniency for non-malicious errors.

5.2 Directions: The IP is warned to act diligently and strictly according to the law, avoiding similar actions in the future.

5.3-5.5 Notifications: Copies of the order are to be sent to the ICSI Institute of Insolvency Professionals and the Registrar of the Chennai Bench of the National Company Law Tribunal.

The show cause notice is disposed of with these directions.

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