IBBI (Insolvency Professionals) Regulations, 2016 require an IRP to have valid AFA before undertaking any assignment

IBBI (Insolvency Professionals) Regulations, 2016 require an IRP to have valid AFA before undertaking any assignment

The Disciplinary Committee (DC) of the Insolvency and Bankruptcy Board of India (IBBI) has disposed of the SCN (Show Cause Notice) issued to Mr. U. Balakrishna Bhat for accepting the assignment as Resolution Professional (RP) in Corporate Insolvency Resolution Process (CIRP) of Torus India Limited (CD) after 31st December, 2019 without holding a valid Authorisation for Assignment (AFA), without any direction as the Indian Institute of Insolvency Professional of ICAI had already passed order in this matter.

In this matter, the SCN issued by IBBI alleged contravention of sections 208(2)(a) and 208(2)(e) of the Insolvency and Bankruptcy Code, 2016 (Code), regulations 7(2)(a), 7(2)(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 for Insolvency Professionals contained in the First Schedule of the IP Regulations.

Mr. Bhat submitted that the acceptance to act as the IRP in the present assignment was given by him on 5th June, 2018 by signing consent in Form 2, i.e., before 31st December, 2019, the date on which the said Regulation 7A of the IP Regulations came into force.

He further submitted that he was under bonafide belief that provision of Regulation 7A of the said IP Regulations 2016 was not applicable at the time when consent was given for appointment as IRP for the CD.

He also stated that he did not have any malafide intention for not obtaining the AFA and that the said lapse was not intentional and he earnestly apologized for the same. He stated that he had applied for an AFA from his IPA, i.e., IIPICAI (Indian Institute of Insolvency Professional of ICAI) and the same was pending with the IPA.

The DC noted that the provisions of the Code and regulations are spelt out in a plain and unambiguous language. Regulation 7A of IP regulations requires for any IP to have AFA before undertaking any assignment after 31st December, 2019.

One of the essential conditions 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 as a professional member without AFA, an IP is not eligible to undertake 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. Adequate time was given to the professionals to obtain AFA from respective IPAs.

According to the DC, in the present matter, Mr. Bhat had given consent to accept the assignment as IRP in Form2 on 5th June, 2018 in the CIRP of the CD and the date of commencement of the CIRP was 20th December, 2019.

However, it was also observed that Mr. Bhat was ratified as RP in the CIRP of the CD in the 1st meeting of the CoC held on 17th January, 2020, i.e., after the threshold date of 31st December, 2019 without having a valid AFA. Mr. Bhat had submitted that since the provision relating to AFA was newly inserted and made effective on 1stJanuary, 2020, he was under the impression that it was not applicable for the ratification to act as RP.

The DC found that though acceptance of assignment was given prior to cut off date, i.e., 31st December, 2019, however, notification for the same was notified on 23rd July, 2019. Mr. Bhat should have applied for AFA especially in view of acceptance given for the assignment and at least after coming into force of the provision of regulation 7A of the IP Regulations.

He applied for AFA on 4th August, 2020, approximately after 8 months of the admission of the application on 20th December, 2019. The DC noted that an order had been passed against Mr. Bhat on 1st December, 2020 by the Disciplinary Committee of IPA for accepting assignment as RP after 31st December, 2019 without holding a valid AFA in the CIRP of the CD and it had been decided that Mr. Bhat was guilty of Professional Misconduct and a penalty of Rs 10,000/- had been imposed.

In view of the fact that the Disciplinary Committee of the Indian Institute of Insolvency Professional of ICAI had already passed order in this matter, the DC, in exercise of the powers conferred under Regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016, disposed of the SCN without any direction