IBBI slaps penalty on IRP for outsourcing his primary duty in engaging a professional for verification of claims

Case Details: Jaswant Singh, In re - [2022] 134 taxmann.com 118 (IBBI)

Judiciary and Counsel Details

• • Dr. Mukulita Vijayawargiya, Whole Time Member, IBBI

Facts of the Case

In the instant case, Hon’ble NCLT issued Show Cause Notice (SCN) to Mr. Jaswant Singh, who was a Professional Member of the ICSI and an Insolvency Professional (IP) registered with the IBBI.

He was appointed as an Interim Resolution Professional (IRP) in the corporate insolvency resolution process (CIRP) of Fourth Dimension Solutions Limited (Corporate Debtor). He was replaced by Ms. Pooja Bahry as Resolution Professional (RP).

The IBBI issued the SCN to Mr. Jaswant Singh as he had outsourced his primary duty in engaging an independent professional, Kumar Mukesh & Associates, Company Secretaries for verification of claims and also included costs incurred in verification of claims separately in CIRP cost which was in contravention of provisions of section 18(1)(g) and section 208(2)(a) and (e) of the Code, read with regulation 13(1) of CIRP Regulations.

Mr. Singh in his submission said that Corporate Debtor was listed entity having turnover in Crores. It was a big size running organisation having large numbers of stakeholders. Therefore, Mr. Singh felt that there might be huge quantum of claims and respective documents submitted by the stakeholders during the CIRP. Therefore, to discharge the duties of IRP and to complete the process of CIRP promptly with the best interest of stakeholders, he sought assistance from an independent professional.

Mr. Singh also submitted that his intention was not to delegate his duties to others but only to take assistance in aforesaid activities and the independent professional had no other role in the verification process. He also submitted the mail prrofs that he was personally involved in the verification of claims.

Therefore, Mr. Singh submitted that there was no contravention of section 18(1)(b) of the Code, regulation 13 (1) of the CIRP Regulations.

The Disciplinary Committee (DC) found that Mr. Singh had outsourced his primary duty in engaging an independent professional for verification of claims which is clear from the terms of engagement letter defining the scope of work, despite the clarification provided by IBBI Circular no. IP/003/2018 dated 3rd January, 2018 relating to “Insolvency professional not to outsource his responsibilities” clarifies that:

“3. It is hereby directed that an insolvency resolution professional shall not outsource any of his duties and responsibilities under the Code.”

Further, he included the expense of Rs. 85,000/- incurred in the verification of claims separately in the CIRP cost which is in contravention of provisions of section 18(1)(g) of the Code read with regulation 13(1) of the CIRP Regulations and section 208(2)(a) and (e) of the Code.

IBBI Held

The IBBI held that an Interim Resolution Professional (IRP)/RP is appointed by Adjudicating Authority and is duty-bound to conduct CIRP with fairness and diligence and must maintain absolute independence in discharge of his statutory duties without any external influences .

Further, it is duty of IP to receive and collate all claims and, code in explicit terms casts duty of verification of claims on IRP/RP.

Where applicant, appointed as an IRP in corporate insolvency resolution process (CIRP) of corporate debtor ‘F’ had outsourced his primary duty in engaging an independent professional for verification of claims and also included costs incurred in verification of claims separately in CIRP cost which was in contravention of provisions of section 18(1)(g) and section 208(2)(a) and (e) read with regulation 13(1) of CIRP Regulations, penalty equal to fee paid to independent professional was to be imposed on applicant IRP.