2021 (3) TMI 453 - Board - Insolvency and Bankruptcy

Insolvency Professional Penalized for Misconduct in Resolution Professional Role

The Disciplinary Committee found an Insolvency Professional guilty of professional misconduct for accepting a Resolution Professional role without a valid ... Validity of accepting the assignment as the Resolution Professional (RP) in the Corporate Insolvency Resolution Process (CIRP) of Housing Development and Infrastructure Limited (CD) without holding a valid Authorisation for Assignment (AFA) from his IPA - contraventions of sections 208(2)(a) & (e) of the Insolvency and Bankruptcy Code, 2016 (Code), regulations 7(2)(a) & (h) and 7A of the IBBI (Insolvency Professionals) Regulations, 2016 (IP Regulations) read with clauses 1, 2, 11, 12 and 14 of the Code of Conduct contained in the First Schedule of the IP Regulations - HELD THAT:- It is clear from Regulation 7A of IP regulations that one of the essential condition for undertaking any assignment by an IP is that he should have a valid AFA which is issued by the IPA with which he is enrolled. In other words, without AFA, an IP is not eligible to undertake any assignments or conduct various processes thereof. Regulation 7A was inserted in the IP Regulations vide notification dated 23rd July 2019 - The bye-laws of Indian Institute of Insolvency Professionals of ICAI defines in para 4(1)(aa) the expression 'authorisation for assignment' as an authorisation to undertake an assignment, issued by an insolvency professional agency to an insolvency professional, who is its professional member, in accordance with its bye-laws regulation. An application for grant of AFA can be made by the IPs to the IPA under para 12A of said bye-laws. An IP who is more than 70 years of age is ineligible to make an application for AFA under para 12A (2)(e) of the said bye-laws. In the present matter it is observed that, Mr. Manudhane had provided his consent to accept the assignment as IRP in Form-2 on 10th December, 2018 in the CIRP of the CD and the date of commencement of the CIRP is 20th August, 2019. However, it is also observed that Mr. Manudhane was ratified as RP in the CIRP of the CD in the 1st meeting of the CoC held on 8th January, 2020, i.e., after the threshold date of 31st December, 2019 without having a valid AFA - The DC finds that an order has been passed against Mr. Manudhane on 1st December, 2020 by the Disciplinary Committee of IPA for accepting assignment as Resolution Professional after 31st December, 2019 without holding a valid AFA in the CIRP of the CD and it has been decided that Mr. Manudhane is guilty of Professional Misconduct and a penalty of ₹ 10,000/- has been imposed. The Disciplinary Committee of the Indian Institute of Insolvency Professional of ICAI has already passed order in this matter, the DC, in exercise of the powers conferred under Regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016, disposes of the SCN without any direction. Issues:1. Violation of regulations by an Insolvency Professional regarding Authorisation for Assignment (AFA).Detailed Analysis:1. The Insolvency and Bankruptcy Board of India (IBBI) issued a Show Cause Notice (SCN) to an Insolvency Professional (IP) for accepting an assignment after 31st December, 2019 without a valid Authorisation for Assignment (AFA) from the Insolvency Professional Agency (IPA).2. The SCN alleged contraventions of sections 208(2)(a) & (e) of the Insolvency and Bankruptcy Code, 2016, along with specific regulations and clauses of the IBBI (Insolvency Professionals) Regulations, 2016.3. The IP submitted responses stating that he acted as the Interim Resolution Professional (IRP) in a Corporate Insolvency Resolution Process (CIRP) before being ratified as the Resolution Professional (RP) in January 2020 without realizing the necessity of AFA due to its recent implementation.4. The Disciplinary Committee (DC) considered the regulations, Code provisions, and IP submissions. Regulation 7A mandates IPs to have a valid AFA post-2019, and non-compliance constitutes professional misconduct.5. Despite the IP's explanation, the DC found him guilty of professional misconduct for accepting the RP role without a valid AFA, imposing a penalty of Rs. 10,000 by the IPA's Disciplinary Committee.6. The DC, under Regulation 11 of the IBBI (Insolvency Professionals) Regulations, disposed of the SCN without further action, acknowledging the IPA's disciplinary decision and forwarding the order to relevant authorities for information.7. The judgment highlights the importance of regulatory compliance, emphasizing the necessity for IPs to adhere to AFA requirements and uphold professional conduct to maintain integrity and competence in insolvency proceedings.