Insolvency Practitioner's Negligence and Contraventions in Asset Disclosure

The IP was found negligent but not strictly liable for a typographical error in the Information Memorandum (IM) as it was corrected in a subsequent report. The IP adequately disclosed all assets in the IM despite claims of omission. However, the IP's appointment of a third valuer without significant valuation differences was deemed a contravention, resulting in unnecessary costs. Drawing liquidator's fees improperly and failing to act on an insurance claim settlement were also highlighted. The IP was directed to deposit a specified amount in the Liquidation Estate and advised to exercise due diligence in future assignments. The handling of the insurance claim settlement was to be re-examined by the Board.

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Issues Involved:

1. Preparation and accuracy of Information Memorandum (IM).
2. Inclusion of all assets in the IM.
3. Appointment of third valuer.
4. Drawing of liquidator's fee.
5. Handling of insurance claim settlement.
6. Provision of agenda along with notice for CoC meetings.

Detailed Analysis:

1. Preparation and Accuracy of Information Memorandum (IM):

Contravention: The IP was alleged to have shown negligence by recording varying amounts for the same claim in the IM and the progress report submitted to NCLT.

Submission: The IP admitted a typographical error in the IM and stated the correct amount was reflected in the 5th Progress Report.

Analysis: The IP is required to prepare an accurate IM as per Section 25(2)(g) and Section 29(1) of the Code. Despite the error, the correct amount was later submitted in the progress report.

Findings: The IP was found negligent but not strictly liable for the typographical error as it was corrected in the subsequent report.

2. Inclusion of All Assets in the IM:

Contravention: The IP failed to capture two assets of the CD in the IM despite having information from a financial creditor.

Submission: The IP claimed the assets were included under different descriptions and were also mentioned in the valuation reports.

Analysis: As per Regulation 36(2)(a) and (d), the IM must contain accurate asset details. The IP provided documents showing the assets were indeed included under different descriptions.

Findings: The DC concluded that the IP had adequately disclosed the assets in the IM and was not liable for the alleged contravention.

3. Appointment of Third Valuer:

Contravention: The IP appointed a third valuer based on CoC's desire without a significant difference in the two initial valuations.

Submission: The IP admitted there was no significant difference between the two valuations and the third valuation was done for CoC's satisfaction.

Analysis: Regulation 35(1)(b) allows the appointment of a third valuer only if the initial valuations are significantly different. The IP's action resulted in unnecessary costs for the CD.

Findings: The IP abdicated his authority to the CoC, contravening Section 208(2)(a) and (e) of the Code, Regulation 35(1)(b) of CIRP Regulations, and Regulation 7(2)(a) and 7(2)(h) of IP Regulations.

4. Drawing of Liquidator's Fee:

Contravention: The IP continued to draw the same fee as a liquidator which he was drawing as an RP, contrary to Regulation 4(3) of IBBI (Liquidation Process) Regulations, 2016.

Submission: The IP argued that the fee was charged only while the units were operational and he was entitled to additional fees as per the liquidation estate.

Analysis: Regulation 4(3) provides a structured fee for liquidators. The IP's actions were found to disregard the regulation, displaying a lack of understanding of the law.

Findings: The IP contravened Regulation 4(3) and Section 208(2)(a) and (e) of the Code by unilaterally drawing fees without proper authorization.

5. Handling of Insurance Claim Settlement:

Contravention: The IP failed to act on behalf of the CD in an arbitration proceeding, resulting in an ex-director handling the settlement.

Submission: The IP claimed ignorance of the settlement and stated that the ex-director acted without his knowledge.

Analysis: The IP should have been aware of the proceedings and the settlement amount deposited in the CD’s account. The IP's ignorance of the large transaction was deemed untenable.

Findings: The matter requires further investigation with additional documents to ascertain the IP's role and actions.

6. Provision of Agenda Along with Notice for CoC Meetings:

Contravention: The IP allegedly failed to provide the agenda along with notices for CoC meetings.

Submission: The IP provided evidence that the agenda was sent along with notices in hard copies and emails.

Analysis: Regulation 21(3) mandates the inclusion of the agenda with the notice. The IP submitted documents proving compliance.

Findings: The DC found the IP had complied with the requirements and was not liable for this contravention.

Conclusion:

The IP displayed negligence and misunderstanding of the Code and Regulations, specifically in the appointment of a third valuer and the drawing of liquidator's fees. The IP was directed to deposit Rs. 31,09,000 in the Liquidation Estate of CD and was warned to exercise due diligence in future assignments. The Board was also directed to re-examine the handling of the insurance claim settlement.

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