Voluntary liquidation compliance: delayed public notice and engagement of the former auditor both breach mandatory independence rules.

A liquidator's failure to publish the public announcement in newspapers within the prescribed time under the voluntary liquidation regulations was treated as a contravention because the rule requires timely publication to notify stakeholders and invite claims, and belated publication does not cure the breach. Engaging the erstwhile statutory auditor for audit work during liquidation was also held contrary to the independence requirements, since the regulations bar appointment of a person who served as auditor during the preceding five years and member approval cannot override that prohibition. The disciplinary authority found negligence and multiple regulatory breaches and imposed a monetary penalty with a bar on fresh assignments until compliance.

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Issues: (i) Whether the liquidator's failure to publish the public announcement in newspapers within the prescribed time under the voluntary liquidation regulations constituted a contravention; (ii) Whether engaging the erstwhile statutory auditor for audit work during voluntary liquidation violated the requirement of independence and the prohibition on engaging a prior auditor.

Issue (i): Whether the liquidator's failure to publish the public announcement in newspapers within the prescribed time under the voluntary liquidation regulations constituted a contravention.

Analysis: Regulation 14 of the IBBI (Voluntary Liquidation Process) Regulations, 2017 requires the liquidator to make a public announcement in Form A within five days of appointment and to publish it in one English and one regional language newspaper, on the corporate person's website, if any, and on the Board-designated website. The liquidator admitted that the newspaper publication was not made within time in both liquidation matters. The purpose of the publication is to notify stakeholders and invite claims, and the absence of known creditors does not dispense with the regulatory requirement. Belated publication does not amount to compliance, and the liquidator's own admission established the breach.

Conclusion: The delay in newspaper publication amounted to contravention of Section 208(2)(a) of the Insolvency and Bankruptcy Code, 2016 and Regulations 14(1) and 14(3)(a) of the IBBI (Voluntary Liquidation Process) Regulations, 2017, read with the applicable code of conduct provisions.

Issue (ii): Whether engaging the erstwhile statutory auditor for audit work during voluntary liquidation violated the requirement of independence and the prohibition on engaging a prior auditor.

Analysis: Regulation 11(2) of the IBBI (Voluntary Liquidation Process) Regulations, 2017 prohibits engagement of a professional who has served as an auditor of the corporate person at any time during the five years preceding the liquidation commencement date. The liquidator continued the services of the existing auditor for audit of financial information during liquidation, notwithstanding that the firm had served as statutory auditor before commencement. The regulations place the responsibility on the liquidator to act independently and ensure compliance, and member approval cannot override the statutory bar. The record showed that the liquidator himself requested the auditor's engagement, which confirmed the breach of the independence requirement.

Conclusion: The engagement of the erstwhile auditor was contrary to Regulation 11(2) of the IBBI (Voluntary Liquidation Process) Regulations, 2017 and amounted to a further contravention of Section 208(2)(a) of the Insolvency and Bankruptcy Code, 2016 and the applicable code of conduct provisions.

Final Conclusion: The disciplinary authority found negligence and multiple regulatory breaches in the conduct of voluntary liquidation and imposed a monetary penalty with a bar on fresh assignments until compliance with the penalty direction.

Ratio Decidendi: An insolvency professional must strictly comply with mandatory timelines and independence restrictions under the insolvency regime, and belated action or member approval cannot cure a statutory breach.

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