IBC-IP to seek approval of the CoC before undertaking any related party transaction

IBC-IP to seek approval of the CoC before undertaking any related party transaction

A lenient view was taken due to paucity of time to publish another EOI and with no chance of receiving resolution plans

In the matter of Anil Goel, Insolvency Professional (IP) under section 220 of the Insolvency and Bankruptcy Code, 2016 r/w regulation 11 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 and regulation 13 of IBBI (Inspection and Investigation) Regulations, 2017, the Disciplinary Committee (DC) on 1 January 2021 disposed of the SCN without any directions to Mr Goel. However, it has been advised that he should take reasonable care and due diligence while performing the functions as Insolvency Resolution Professional or Resolution Professional under IBC.

Herein, the IBBI appointed an Inspecting Authority (IA) to conduct an inspection of Mr Goel, Insolvency Professional (IP), on having reasonable grounds to believe that he had contravened provisions of the Code, or the rules or regulations made, or directions issued thereunder.

The SCN alleged contraventions of sections 28(1)(f), 208 (2) (a) & (e) of the Code, regulation 35(2) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations), regulation 7(2) (a) & (h) of the IBBI (Insolvency Professionals) Regulations, 2016 (IP Regulations) and Clauses 2, 3, 5 & 14 of the Code of Conduct under Schedule 1 of the IP Regulations.

The DC noted that the explanation to regulation 33 and 34 of the CIRP Regulations clarifies that the "expenses" incurred on or by the interim resolution professional/resolution professional shall constitute the IRPC and shall include the fee paid to the interim resolution professional/resolution professional, the fee to be paid to IPE, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the interim resolution professional/resolution professional. Thus, it is clear that the fee to be paid to the IPE for provision of support services shall be part of the "expenses" within IRPC.

The IBBI Circular no. IBBI/IP/004/2018 dated 16 January 2018 directed all IPs to raise invoices in their respective names and thereby the amendment to the CIRP Regulations, which provided for payment to IP and IPE to be shown separately, was only effective from 1 April 2018. The invoices which were raised by AAA (AAA Insolvency Professional LLP) on behalf of Mr Goel were raised before 1 April 2018, and, therefore, the said circular was not applicable to him.

The DC also mentioned that as per regulation 35(2) of the CIRP Regulations, the fair value and liquidation value can be disclosed to the members of the CoC after receipt of resolution plans and on receiving an undertaking from the members to the effect that such member shall maintain the confidentiality of the information and not use the same for undue gain/loss to itself or any other person.

It was also clarified by the DC that the invoices raised by AAA for the work conducted by Mr Goel were issued before the circular of IBBI clarifying separate invoices to be raised by the IP and the IPE. Since the IP was also a partner in AAA, such invoices were raised in order to avoid double incidence of taxes.

The services were availed by the IP from AAACS (AAA Capital Services) in the CIRPs of LML, Gujarat Oleo, Loha, Rasoya, Charbhuja, Amar Remedies and VISA with the approval of the respective CoCs under section 28(1)(h) of the Code and had been reimbursed by him with regard to expenses made by AAACS in assisting Mr Goel for physically taking over the custody and control of the assets of these Corporate Debtors and also assisting him in the inspection of security personnel.

Regarding the disclosure of the relationship of the IP with AAACS, the DC opined that it does not fall within the purview of Para 3 of IBBI circular dated 16 January 2018.

The detailed report of the Fair and Liquidation Value in the CIRP of VISA had not been shared with the members of the CoC before obtaining confidentiality undertaking. However, he discussed in brief about the Fair and Liquidation Value as there was no time to publish another EOI and no chance of receiving resolution plans. Hence, a lenient view was taken in this regard.