The IBBI’s Disciplinary Committee (DC) has been busy streamlining the code of conduct and the ethical standards of insolvency professionals over the past year.
Coming down strongly on an insolvency professional (IP) who stepped into the shoes of the committee of creditors (CoC) and deprived it (CoC) of its rights to decide on the fate of the corporate debtor, the DC recently imposed a penalty and directed the IP, Sandeep Kumar Gupta, to undergo the pre-registration course specified under IBBI before taking up any further assignments.
Stewarts & Lloyds
In this particular case, where the corporate debtor – Stewarts & Lloyds of India – had itself initiated the insolvency process and the CoC comprised only of operational creditors, it was found that the IP had failed to have a single meeting of the CoC and did not share the most critical information (whether any resolution plan has been received or not) with the CoC.
The DC ruled that it was not the job of an IP to take a decision for, or on behalf of the CoC, or substitute itself for the CoC.
“Gupta stepped into the shoes of the CoC and unilaterally decided that no resolution was possible, and he needed to preserve the value to ensure better realisation from liquidation.
“Therefore, Gupta failed to act in the best interests of the corporate debtor and creditors …. deprived the CoC of its right to decide on the fate of the corporate debtor and, thereby, pushed the corporate debtor into liquidation,” stated the DC in its October 15 order.
While in the above case, the DC has been more lenient, in other cases, it has been more stringent and even suspended registration of IPs.
A well-known case is that of Bhavna Sanjay Ruia who acted as an interim resolution professional in the Madhucon Projects case.
She had proposed an exorbitant fee of ₹14 crore (₹5 crore till the First Committee of Creditors Meeting and monthly fee of ₹1.75 crore thereafter).
This was against a total outstanding debt of the corporate debtor at ₹4.16 crore.
The DC, stating that Ruia had repeatedly misled the stakeholders, moved to suspend her registration.
Similarly, in the case of another IP – Kapil Goel – the DC had suspended his registration for three months, for misleading stakeholders by incorporating a LLP by name, IBBI Insolvency Practitioners LLP.
This gave the impression that the LLP has been incorporated by the IBBI, or was in some way related to the board.