The credibility of the processes under the IBC hinges upon the conduct and competence of the IP

The credibility of the processes under the IBC hinges upon the conduct and competence of the IP

In the matter of Mr. Pritpal Singh Dua, Insolvency Professional (IP) under Regulation 11 of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016, the Disciplinary Committee(DC) of the IBBI has disposed of the SCN (Show Cause Notice) without any direction against the IP since the ICSI Institute of Insolvency Professionals (IPA) has already taken disciplinary action against the IP, for accepting assignment as Voluntary Liquidator after 31.12.2019 without holding a valid AFA in the matter of I V Share and Stock Brokers Ltd.

Herein, the IBBI had issued the SCN to Mr. Pritpal Singh Dua on 28th August, 2020 for accepting the assignment of the voluntary liquidation in Liquidation process of I V Share and Stock Brokers Ltd after 31st December 2019 without holding a valid Authorisation for Assignment (AFA) from his IPA.

The SCN issued by IBBI alleged 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 for accepting the assignment of the liquidator in voluntary liquidation process of I V Share and Stock Brokers Ltd after 31st December 2019 for which public announcement was made on 20th February 2020 without holding a valid AFA from the IPA.

The IP in his reply admitted that undertaking of assignment of voluntary liquidation without holding AFA was an occurrence of mistake or unintentional compliance.

The IP through his written submissions stated that there was a bona-fide error of judgment amounting to lapse in procedure, which had not prejudiced either the Company or any other stakeholders. He also put forth that he was under bona-fide belief that AFA is required in cases of appointment of IRP/RP which are made by order of the AA in CIRP or liquidation under section 33 of the Code and not in voluntary liquidation process. Further, the voluntary liquidation was of a company which had no liabilities and no running business.

According to the IP, there was no clarity whether an IP, who has been appointed by the AA as an IRP/RP in a case can undertake a process, if a disciplinary proceeding has been initiated against him by the IPA.

The DC noted that it was clear from the aforementioned Regulation that one of the fundamental 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, much before 31st December, 2019. There was sufficient time for the IPs to obtain AFA from respective IPAs.

The DC further noted that the certificate of registration granted to an IP is subject to the condition that he should follow at all times the provisions of the Code and Regulations and the bye-laws of Insolvency Professional Agency of which the IP is a member and also follow the Code of Conduct specified in the First Schedule to the IP Regulations.

The DC opined that the IP had mentioned the acceptance of assignment of voluntary liquidation in matter of I V Share and Stock Brokers Ltd before 31.12.2020 however, the documents were not signed until February by one of the key directors.

The IP had given his written consent to act as a voluntary liquidator on 13.02.2020 as reflected in Form IP-I as submitted by Mr. Dua. His appointment was approved by special resolution in the extraordinary general meeting of CD. The IP had given his written consent without holding valid AFA, i.e., after 31.12.2019 which was in express contravention of regulation 7A of IP Regulations.

According to the DC, the requirement of holding a valid AFA also applies to IPs undertaking voluntary liquidation process under the Code. In consequence, he had contravened code of conduct under section 208(2)(a) and(e) of the Code and regulations 7(2)(a) and (h) and 7A of the 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

The DC also found that since an order already had been passed against the IP by the Disciplinary Committee of IPA for accepting assignment as voluntary liquidator after 31.12.2019 without holding a valid AFA in the matter of I V Share and Stock Brokers Ltd, and penalty of Rs. 10,000/- was imposed, so no further directions were issued in this matter.