Appointment of IPE, Professionals & their Fees during CIRP.

Recently Disciplinary Committee constituted by the Board passed a disciplinary order in the matter of Mr. Vijay Kumar Garg, which has wide ramifications, on the appointment of IPE by IRP/RP during CIRP & their fees. Following are the excerpts of the order. 

A. In the matter of Mr. Vijay Kumar Garg (IBBI/DC/26/2020 8th June 2020)

Facts of the Case

At the time of filing the application under section 7 of the Code, ICICI Bank (applicant & one of the financial creditors) conducted a combined bidding process for nomination & appointment of IRP. There were rounds of negotiations between ICICI Bank, IP (Mr. Vijay Kumar Garg) and D&P (IPE - Duff & Phelps India Private Limited) and accordingly Mr. Vijay Kumar Garg was nominated as IRP in application under section 7 & was appointed by AA to conduct CIRP.

As the appointments of the IRP and D&P were envisaged collectively and appointment of D&P was duly approved by the CoC(s) of all the Gitanjali Group Companies on the collective strength and credentials of the IP and D&P.

Contraventions & Findings of DC

# 3.1 Contravention: RP appointed Duff & Phelps India Private Limited (D&P) to provide support services during the CIRP of GGL, NWL and NBL. Section 20 (2) (a) of the Code states that the interim resolution professional shall have the authority to appoint accountants, legal or other professionals as may be necessary. However, appointment of D&P by the RP was finalized in violation of the provisions since D&P cannot be considered a professional.

Submission of Mr. Garg: …...Since the Code provides for appointment of IPE which can only be a company, partnership firm or LLP, it clearly provides support to the approach adopted by the RP in the present matter.

Further, at the time of filing the application under section 7 of the Code, ICICI Bank (one of the financial creditors) conducted a combined bidding process for appointment of RP. 

There were rounds of negotiations between ICICI Bank, RP and D&P and accordingly RP was appointed to conduct CIRP. As submitted, the appointment of the RP and D&P was also envisaged collectively and was duly approved by the CoC(s) of all the Gitanjali Group Companies on the collective strength and credentials of the RP and D&P.

Analysis of DC:

One of the duties of the RP under the Code is to act with objectivity in his professional dealings by ensuring that his decisions are made without the presence of any bias and also to ensure that all costs incurred during CIRP are reasonable.

The allegation in para 3(i) of SCN against the IP involves examination of two issues which shall be dealt with separately. The first issue to be examined is whether D&P is a professional or not while the second issue is whether the fee paid to D&P was reasonable or not.

The Code bestows upon an IP the authority to appoint accountants, legal or other professionals as may be necessary and provides that the expenses incurred for engaging such professionals by the IP shall be included in the Insolvency Resolution Process Costs (IRPC) in accordance with the Explanation to Regulation 33 and 34 as above mentioned. However, the term “professional‟ has not been defined under the Code.

The term „Profession‟ as defined by the Black‟s Law Dictionary, 4th Edition is as under:

“Profession - A vocation, calling, occupation or employment involving labor, skill, education, special knowledge and compensation or profit, but the labor and skill involved is predominantly mental or intellectual, rather than physical or manual.”

The term “professional‟ as defined by Merriam-Webster Dictionary is “of, relating to, or characteristic of a profession”.

An IPE is recognised by the Board in accordance with Regulation 12 (1) of the IP Regulations, if its sole objective is to provide support services to IPs, who are its partners or directors, as the case may be. Thus, there was nothing to prevent Mr. Garg from joining an IPE and consequently avail their services. Moreover, as per explanation to Regulation 33 & 34 of the CIRP Regulations, the term - expenses, expressly includes the fee to be paid to IPE.

With regard to the submission made by RP, that the appointment of RP and D&P was envisaged collectively and was duly approved by the CoC(s) of all Gitanjali Group Companies on the collective strength and credentials of RP and D&P is untenable. The Code provides for appointment of an IP based upon his own capabilities and strength to handle CIRPs. If the RP does not possess requisite strength to manage the CIRP and needs additional support to perform his primary functions, it is advisable that the RP shall build up his own capacity before taking up any assignments under the Code.

The contention of the IP cannot be accepted also because he was not appointed collectively with D&P but was appointed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench) (“AA”) in his individual professional capacity.

Therefore, the fact of the matter is that D&P was engaged in all three CIRPs (GGL, NWL, NBL) for providing infrastructure, personnel, and back office support at a fee of Rs. 23,75,000/- per month for GGL and Rs. 6,87,500/- per month each for its two subsidiaries i.e, NWL and NBL. Their scope of work as defined in the letters of engagement dated 8th October 2018 (for GGL) and 5th February 2019 (for NWL and NBL) includes assisting the RP in carrying out his obligations under the Code (i.e. receiving claims, collating claims, constituting the CoC, conducting CoC meetings, monitor/manage assets of the Corporate Debtor, preparing Information Memorandum, reviewing accounts/operations of the Corporate Debtor, assist RP in preparation of progress reports and attending all other back office requirements of the Corporate Debtor).

As is evident from the scope of work envisaged in the minutes of the CoC meetings as well as the engagement letters, D&P was only engaged to provide infrastructure, personnel and back office support services which cannot be classified as “professional services‟ involving skill or even a “profession‟ falling within the definition given in Black’s Law Dictionary (as above mentioned). Further, D&P cannot be regarded as an IPE since it has not been recognized by the Board under Regulation 12 of the IP Regulations. Thus, D&P does not fall within the definition of the term “professional‟.

Having examined the first issue, the DC now proceeds to examine the second issue regarding reasonableness of the expenses incurred by the IP with respect to payment of fees to D&P.

It has been observed from the minutes of 1st CoC meeting (in the matter of GGL, NWL and NBL) that D&P was engaged for providing infrastructure, personnel and back office support at a fee of Rs. 23,75,000/- per month (excluding taxes and out of pocket expenses) for GGL and Rs. 6,87,500/- per month (excluding taxes and out of pocket expenses) each for NWL and NBL. The total fee payable to RP was Rs. 1, 25,000/- per month in the CIRP of GGL. It is observed that the payment agreed to be paid to D&P in GGL is 19 times of the fee payable to RP. It is inconceivable that the cost of providing infrastructure, personnel and back office support services in GGL is 19 times of the fee payable to the RP.

The services provided by D&P have been detailed by the RP in paragraphs 17 to 36 of the Affidavit in Rejoinder dated 12th September 2019 filed by the RP before the AA in MA No. 1520 of 2019 & MA No. 254 of 2018. A summary of the work carried out by D&P is represented below:

• a. Liasioning with senior officials of the Enforcement Directorate, Mumbai (ED), Central Bureau of Investigation (CBI) and Serious Fraud Investigation Office (SFIO);

• b. Filing of Intervention Applications, written synopsis, appeals before the National Company Law Appellate Tribunal (NCLAT), Prevention of Money Laundering Authority (PMLA);

• c. Emails/Correspondences and meetings with erstwhile employees of the Corporate Debtor/Company Secretary/Chartered Accountants;

• d. Back office, technology and infrastructural support;

• e. Preparation and execution of action plans in respect of subsidiaries;

• f. Liasioning for protection and preservation of International Assets;

• g. Recovery efforts to recover dues from Domestic Debtors;

• h. Claim verification, conduct of CoC meetings and initiation/follow-up of legal action.

Some of the services, as stated above, should have been provided by other professionals and some of the services like liasioning are those which should have been undertaken by the RP himself or his employees as a part of his professional services.

The AA vide its order dated 14th May, 2019, in the matter of ICICI Bank Ltd. vs. Gitanjali Gems Ltd. [MA 1520/2019 in MA 254/2019 in C.P. (IB) 3585(MB)/2018] referred the matter relating to fixation of CIRP cost to the Board. Pursuant to the directions of AA, the Board constituted an Expert Committee to examine and submit a report on the reasonableness of the IRPC involved in the CIRP of GGL and a report was submitted by the Committee to the Board in August 2019. The Report of the Committee provides as under:

• “The Committee notes that D& P was engaged by the RP for providing back office support services to RP (as per engagement agreement dated 08.10.2018). The scope of the back-office support work is indicated in items 1 to 7 at page 2 of the agreement. In the present case, except collection and verification of claims around 37 in number, no other item of work was undertaken. The RP has admitted that he was unable to take custody and control of the assets of the CD.

• The Committee notes that evaluation of efforts of D&P and amounts payable as fee to D&P was initially estimated to support the entire range of services to be rendered by RP during CIRP (as stated in the role of D & P vis-à-vis time line under IBC, mentioned at paragraph 7 above). However, it is a fact that it was actually confined to supporting the services which the RP was able to render. Therefore, the Committee notes that fee for D & P quoted for supporting those services of RP during CIRP which were not undertaken, did not accrue.

• Accordingly, assessment of fee for services rendered by D&P in CIRP is confined to and restricted to the extent of services which in the opinion of the Committee would have supported the services rendered by RP.

• Further, the time sheets of D & P furnished by RP are very generic. It indicates activities of verification of claims in October, 2018 (during IRP period) and verification of few claims/revised claims in November-December 2018. Other than the above, most of the other activities mentioned in the time sheets are of the nature of discussions, meetings, follow up, etc. The need for any role of D & P in these activities is beyond the reasoning of the Committee, as lawyers are separately engaged (for which separate bills have been raised by the lawyers) and RP is expected to directly discuss the matters with them.

• Also, several activities mentioned therein are those which RP is expected to perform as part of his duties. For instance, meeting investigating authorities, discussions with lenders, lawyers, ex-employees, gaining understanding of PMLA cases and documentation, drafting and reviewing petitions with lawyers, negotiations for transaction audit etc.

• As per the model times for CIRP specified under Regulation 40A of the CIRP Regulations, various actions including appointment of valuers, determination of irregular transactions, invitation and submission of EoI should have been completed within 90 days from Insolvency commencement date (ICD) (i.e., by 8th January, 2019). None of these activities have been undertaken in the present case.

• Considering the fact that CD was not going concern and all assets and books of accounts of the CD were seized by different investigation agencies, there do not seem to be any valid reason for the RP to have continued the services of D&P and such continuance at the originally agreed rates may not be in the best interest of the CD.

In the above circumstance, the Committee is of the view that fees of D & P claimed as part of IRPC is neither reasonable nor can be regarded as necessary for the CIRP.”

Findings of DC: D&P is not a professional, having authorisation of a regulator of any profession to render any professional service, and its conduct and performance is not subject to oversight of any regulator of any profession, therefore, appointment of D&P is in contravention of section 20(2) of the Code. Fee of Rs. 23, 75,000/-(excluding taxes) per month to D&P in the matter of GGL which is 19 times of the fee payable to the RP cannot be said to be reasonable. Fee of Rs. 6,87,500 /-(excluding taxes and out of pocket expenses) per month each in case of NBL and NWL to D&P also cannot be said to be reasonable.

3.2 Contravention: In the matter of GGL, RP received approval from the CoC members to get insurance for himself during the course of CIRP. However, the RP purchased two insurance policies from ICICI Lombard General Insurance Company Limited and made D&P a beneficiary in the same.

Findings of DC: Initially the RP charged the premium paid in full towards the insurance policies to the IRPC, however, subsequently (i.e. after being pointed out by the IA) made an attempt to rectify this irregularity by obtaining a copy of the letter dated 20th December, 2019 from D&P clarifying the understanding between RP and D&P regarding bearing the pro-rata cost. Thus, the RP created an additional burden on the ailing Corporate Debtor by unnecessarily extending benefits to a third party i.e. D&P. Therefore, the RP failed to act in a forthright manner.

4. Conclusion

4.1 A corporate insolvency resolution process rests on the shoulders of an IP. He is duty bound to preserve and protect the assets of the corporate debtor as well as run the CD as a going concern. The list of duties and responsibilities of an IP in a CIRP have been detailed in the Code and Regulations made thereunder. As compared to the role envisaged in the Code for an IP in CIRP, the conduct of the RP in this matter is disturbing. The DC finds as under:

a) Appointment of a professional is based on the need. Only when professional expertise is not available inside the CD, the IRP may appoint a professional from outside. It is an independent responsibility of the IRP based on his professional assessment. He must make such appointments on merits, not under the influence of a creditor or any other person. In this case, the IRP appointed D&P under section 20(2) of the Code, as per pre-agreed plan prior to his appointment as IRP, under the influence of a creditor, who has no locus either in running the business of the CD or conduct of the CIRP.

b) The fee payable to Mr. Vijay Kumar Garg is a handsome amount. He is expected to serve as IRP / RP and use his employees, if required, to assist him. The law enables him to use the services of an IPE of which he is a partner or director. It is not permissible for an IP to tie-up with a third party and bid for a work jointly, whereby the IP and the third party are collectively appointed on their collective strength. This amounts to converting a noble profession to a business and manipulating the market for insolvency professional services through anti-competitive, tie-in arrangement. An IP, who wishes to compete on his own merit and does not indulge in nefarious tie-in arrangements, would never get any assignment.

c) Mr. Garg has claimed that he engaged D&P as a professional under section 20(2) read with section 25(2) of the Code. However, as per the scope of work (as indicated in the joint proposal dated 06 September, 2018 submitted by Mr. Vijay Kumar Garg, an IP assisted by D&P to ICICI Bank), its mandate was: 

• (i) initial analysis and strategy, 

• (ii) taking control of business, 

• (iii) monitoring business and cash, 

• (iv) assisting in development of business resolution plan, 

• (v) finalising the resolution plan, and 

• (vi) approval of resolution plan. 

None of these services is a service of a professional. The first three are responsibilities of the RP himself and for this, he may need support services, for which he has the option either to use his employees or take assistance of an IPE, if he is a member of that IPE. Services at (iv) and (v) are the responsibilities of a resolution applicant. The service at (vi) is the responsibility of CoC and the RP. None of these services fall within the ambit of services of a professional. Procurement of services, other than services of a professional, is not permissible under section 20(2).

d) Mr. Garg claims that he appointed D&P for professional services. Since D&P is not a professional, having authorisation of a regulator of any profession to render any professional service, and its conduct and performance is not subject to oversight of any regulator of any profession, appointment of D&P is in contravention of section 20(2) of the Code. Further, by not appointing a professional and by appointing a person who is not professional, Mr. Garg deprived the CD of professional services.

e) Section 20(1) of the Code provides that the interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. Section 23(2) reasserts this responsibility. Instead of preserving and protecting the value of the CD, Mr. Garg frittered away the resources of the ailing CD for unlawful purposes.

f) As claimed by Mr. Garg, the appointment of the IRP (Mr. Garg) and D&P was always envisaged collectively, and they were appointed on their collective strength and credentials of the RP and D&P. It makes it clear that he has been appointed not on his own strength or merit, but on the strength of D&P. This makes him beholden to D&P and explains his undue favour to D&P. This makes clear that Mr. Garg alone is not capable of discharging the responsibilities as an IP.

g) The law envisages appointment of an IRP by the Adjudicating Authority, which appointed Mr. Garg as IRP. It does not envisage a collective appointment, either by the Adjudicating Authority or the CoC; it empowers the IP to appoint a professional. If a particular creditor wanted the services of D&P, that creditor may engage him and bear the fee of D&P. That cannot be a part of the insolvency resolution process cost. In order to get the assignment, Mr. Garg mortgaged the interests of the CD to the creditor, by committing to engage D&P and transfer crore of rupees to D&P in the guides of fee.

h) Policy in the nature of „Professional Indemnity for IP during the CIRPs‟ was available from SBI General Insurance on the date of purchase of policy (i.e. 8th February 2019). Mr. Garg had no business to buy policy in the name of D&P and unnecessarily extending benefits to a third party i.e. D&P. This establishes the meeting of mind of RP and D&P.

i) Mr. Garg conducted two meetings of the CoC even after filing the application for liquidation of the CD before AA and transacted business beyond the order of AA and beyond the provisions of the Code.

j) Mr. Garg and D&P never had a professional-client relationship. The relationship between them is mysterious. It is observed that D&P has funded about Rs.1.62 crore to meet the various expenses of Mr. Garg/ CD. No professional-client relationship enables money lending, that too, of this order, to a client. The RP buys an insurance policy to cover himself and employees of D&P.

The terms of appointment of D&P in GGL indicate that it would be paid Rs 23.75 lakh per month. The fee of Rs.1.6 crore for the CIRP period was prima facie considered exorbitant by the AA and the Expert Committee constituted by the IBBI. Engagement of D&P is only a façade to siphon off funds of the ailing CD. Findings at (a) to (g) relates to all three CIRPS i.e. GGL, NWL and NBL and (h) and (i) relates to CIRP of GGL only.

The genesis of the above disciplinary proceedings lies in the following order of AA. 

NCLT Mumbai (14.05.2019) [MA 1520/2019 in MA 254/2019 in C.P. (IB)3585(MB)/2018]

# 5. Reverting to this application, the RP has made a prayer as under:-

• “12. In view of the facts aforesaid, the Applicant prays:

(a) the Hon’ble Tribunal to allow withdrawal of Rs. 3,57,47,494/- (Rupees Three Crores Fifty Seven Lakhs Forty Seven Thousand Four Hundred and Ninety Four Only) by the Applicant (RP) for payment of the Expenses mentioned in the table above;”

# 6. In this Application it is informed that in the First Meeting of CoC held on 01.11.2018, it was agreed to create a corpus for the expenses to be reimbursed, claimed to be towards Corporate Insolvency Resolution Process (CIRP) cost. In the said first meeting it was resolved to create an initial corpus of ₹10 crores. It was also informed in this Application that a “Corpus Fund Account” in ICICI Bank, Bandra-Kurla Complex Branch was intended to be opened by RP. As per the Applicant the present position is that under the directions of Interim Order dated 05.03.2019 (supra) an ‘escrow account’ was opened to be operated under the supervision of the NCLT. Now through this application seeking permission to withdraw the expenses totalling ₹3,54,08,983/-, which were stated to be ratified vide CoC meeting held on 02.04.2019 with a majority vote of 81.14%; along with this application annexed the voting result. On perusal of minutes of Sixth CoC meeting held on 05.04.2019 it was found that representatives of several banks viz. Allahabad Bank, Andhra Bank, Axis Bank, Bank of Baroda, Canara Bank, Central Bank, ICICI Bank, Punjab National Bank, etc. totalling 40 representatives were physically present and approved the claim. As a consequence, this Application is moved to obtain permission for withdrawal of the amount claimed.

# 7. In my Prima facie opinion, it appears that the claimed amount as Corporate Insolvency Resolution Process cost of ₹3,57,47,494/- is an exorbitant claim considering the totality of the circumstances. This view is in conformity with two orders passed by IBBI, New Delhi bearing Ref. No.: IBBI/DC/15/2019 and IBBI/DC/16/2019 dated 21.02.2019 and 17.04.2019 respectively, wherein on the ground of unrealistic and exorbitant fees / expenses demanded by the RP their licenses were suspended to act as RP. Since a regulatory authority is keeping an eye and watching the conduct of Resolution Professionals, therefore, it is expected that before making such type of submission due care and professional ethics ought to be observed. This Bench has not been informed whether any Information Memorandum is prepared by the Ld. RP and whether advertisement has been made inviting Expression of Interest (EoI). It is also not on record whether any Valuation Report is procured by RP. Rather as of now, as informed, the ‘Insolvency Process’ is heading towards ‘Liquidation’ of the company.

# 8. On verification of description of the expenses, it is noticed that “D&P fees” claimed at ₹1,59,74,250/- and likewise, rest of the fees such as Lawyer fees, meeting fees, the RP insurance appeared to be towards the higher side. In the absence of explanation of each item, had to be supported by corroborative evidence, it is not possible on the part of this Bench to allow entire expenditure. If we carefully examine Insolvency Resolution Regulation 2016, it is provided in Regulation 31 r/w Regulation 33, 34 and 34A that the RP shall disclose item-wise resolution cost and on approval to be placed before the Adjudicating Authority who shall fix the expenses after considering the circumstances of the case. Even if approved by CoC, these Regulations have prescribed that the Adjudicating Authority has jurisdiction whether to treat or not certain expenses incurred wholly and exclusively for the purpose of completion of Insolvency Process.

9. As a consequence, this Bench is of the opinion that a guideline can be obtained from IBBI, New Delhi that whether any Regulation or any Notification about the fixation of remuneration of RP has been issued as a guiding factor. I, therefore, refer this problem i.e. fixation of CIRP cost, etc. to IBBI, New Delhi. If deem fit, the said Regulatory Authority can examine the reasoning and the basis on which the members of the CoC have approved the claim of expenditure…….

Author’s Comments; I do not agree with the following  observations of AA; 

• “ If we carefully examine Insolvency Resolution Regulation 2016, it is provided in Regulation 31 r/w Regulation 33, 34 and 34A that the RP shall disclose item-wise resolution cost and on approval to be placed before the Adjudicating Authority who shall fix the expenses after considering the circumstances of the case”

Concerned Regulation 33, reads as under;

# Regulation 33. Costs of the interim resolution professional.

(1) The applicant shall fix the expenses to be incurred on or by the interim resolution professional.

(2) The Adjudicating Authority shall fix expenses where the applicant has not fixed expenses under sub-regulation (1).

(3) The applicant shall bear the expenses which shall be reimbursed by the committee to the extent it ratifies.

(4) The amount of expenses ratified by the committee shall be treated as insolvency resolution process costs.

Explanation. - For the purposes of this regulation, “expenses” include the fee to be paid to the interim resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the interim resolution professional.

In the present case, IRP fee & expenses were fixed by the applicant & ratified by the CoC. There was no reason for the AA to refer the matter to the Board to look into the reasonableness of the fee payable to IPE, duly approved & ratified by (commercial wisdom) the CoC. 

As IRP was not the director / partner of the IPE, the appointment of IPE was in contravention of IPR (Insolvency Professional Regulations),  AA could have altogether disallowed the fee & expenses of IPE. 

In the matter, following judgements of Hon’ble SCI are of quite significance.

i). SCI (10.09.1957) Kanai Lal Sur Vs.Paramnidhi Sadhukhan (Civil Appeal No. 291 of 1955.)

“ If the words used are capable of one construction only then it would not be open to the courts to adopt any other hypothetical construction on the ground that such hypothetical construction is more consistent with the alleged object and policy of the Act .”

ii). SCI (04.09.1991) Union Of India v. Deoki Nandan Aggarwal (Civil Appeal No. 3674 of 1988)

“It is not the duty of the Court either to enlarge the scope of the legislation or the intention of the legislature when the language of the provision is plain and unambiguous. The Court cannot rewrite, recast or reframe the legislation for the very good reason that it has no power to legislate. The power to legislate has not been conferred on the courts. The Court cannot add words to a statute or read words into it which are not there. Assuming there is a defect or an omission in the words used by the legislature the Court could not go to its aid to correct or make up the deficiency. Courts shall decide what the law is. and not what it should be . The Court of course adopts a construction which will carry out the obvious intention of the legislature but could not legislate itself. But to invoke judicial activism to set at naught legislative judgment is subversive of the constitutional harmony and comity of instrumentalities.”

iii). SCI (13.11.1981) R.K. Garg And Ors. vs Union Of India (Uoi) And Ors.[(1981) 4 SCC 675]

# 10. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. … The court should feel more inclined to give judicial deference to legislature judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Dond 354 US 457 where Frankfurter, J. said in his inimitable style:

“In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial difference to legislative judgment. The legislature after all has the affirmative responsibility.”

The Doctrine of “Per Incuriam” .

iv). Hon’ble SCI in Government of A.P. and Another v. B. Satyanarayana Rao (dead) by LRs.and Others [(2000) 4 SCC 262], observed as under:

- "The rule of per incuriam can be applied where a court omits to consider a binding precedent of the same court or the superior court rendered on the same issue or where a court omits to consider any statute while deciding that issue."

In totality of the things, Mr. Garg committed three major mistakes.

1.  ICICI Bank (applicant & one of the financial creditors) conducted a combined bidding process for nomination & appointment of IRP. Mr. Garg alongwith D&P (IPE - Duff & Phelps India Private Limited) entered into negotiations with ICICI, on the collective strength and credentials of both, of his and D&P, and accordingly Mr. Vijay Kumar Garg was nominated as IRP in application under section 7 & appointed to conduct CIRP. This fact of his nomination as IRP  by ICICI, on the basis of collective strength & credentials with D&P, was emphasised by Mr. Garg during defence in disciplinary proceedings.  

2. Mr. Garg appointed the IPE (D&P), for support services, while he was neither director nor partner of the said IPE, thus violating the provisions of Regulation 12 of IPR (Insolvency Professional Regulations). Before appointing D&P for support services, he should have got himself elected as director in the BOD of D&P.

3. There was no need to approach NCLT for no lien account for corpus of IRPC funding by CoC members. Instead the corpus could have been kept in the account of CoC. This mistake allowed NCLT to look into the entire gamut of fees & charges in CIRP.

Major takeaways of the above case are;

1. IRP / RP may employ / engage an entity (IPE)

a). which he is a director/partner.

b). As the IP Regulations does not define support services, avoid detailing the support services in the engagement / appointment letter issued to IPE.

c). Fee of IPE  for support services may be fixed on a per man hour basis with a minimum retainership per month so that it can withstand scrutiny of the Board on reasonableness. Board has inherent powers to issue directions under section 196(g).

Gone are the days of abnormal fees & success fees for IPE's.

2. Present practice of FC (applicant) to call  bids from IPE's for selection of IP, needs to be discontinued, as this reflects poorly on the capability & competency of IP to work independently as envisaged in the Code.

3. IRP / RP has to execute two entirely different assignments, i.e. CIRP & management of CD as a going concern. Accordingly these functions must be performed at arms length. Professionals being employed by IRP/RP must be segregated, i.e. 

a). For CIRP

b). For management of CD as a going concern. Approval of fee of Professionals & others for management of CD is not required from CoC.

This will keep the IRPC at a reasonable level.

4. Appointment of a professional is based on the need. Only when professional expertise is not available inside the CD, the IRP may appoint a professional from outside. It is an independent responsibility of the IRP based on his professional assessment.

5. Procurement of services, other than services of a professional, is not permissible under section 20(2).

B. Approval of Fee of the Professional. 

In a separate case CoC did not approve the fees of the valuer appointed by RP, resulting in non submission of valuation report by the valuer & subsequent disciplinary action by the Board. Following are the excerpts from the orders of the Disciplinary Committee. 

In the matter of Mr. Mukesh Mohan (IBBI/DC/07/2018 23rd August, 2018)

2.3.2 Contravention: Mr. Mohan failed to include liquidation value in the information memorandum and failed to submit complete information memorandum in time.

Submission of Mr. Mohan: Since the valuers appointed by Mr. Mohan were not approved by the CoC, liquidation value could not be arrived at. It was, therefore, beyond his control.

Finding: An IP is an empowered professional. He cannot plead helplessness that the valuers appointed by him were not approved by the CoC. Regulation 27 of the CIRPR at the relevant time required the IRP to appoint two valuers within seven days of his appointment. The law does not envisage any role of the CoC in the appointment of the valuers. Further, the CoC even did not exist at the time the IRP was required to appoint valuers. This is yet another instance of procrastination and abdication of responsibility in favour of the CoC in contravention provisions of section 208(2)(a) and (e) of the Code, regulation 27 and 36 of the CIRPR, regulation 7(2)(h) of the IPR and clauses 2, 10, 12, 13, 14 and 24 of the Code of Conduct.

Author’s comments; The author does not agree with the findings of the DC. Though the Code provides independence to the IRP/RP in appointments of the professionals under section 25(2)(d), but the hands of the IRP / RP have been tied up by specifying under the regulation 33 & 34 of CIRP Regulations, that only the expenses approved by CoC, incurred towards the fees of professionals appointed by the IRP /RP,  shall be treated as insolvency resolution process costs.  Thus regulations providing for approval of the fees of the professionals appointed by the IRP / RP from CoC, compromises the independence of IRP /RP in appointment of professionals. Thus the provisions of the Code & regulations on this aspect are antithesis in essence. 

Regulation 33 & 34 of CIRP Regulations reads as under-

# 33. Costs of the interim resolution professional.

(4) The amount of expenses ratified by the committee shall be treated as insolvency resolution process costs.

Explanation. - For the purposes of this regulation, “expenses” include the fee to be paid to the interim resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the interim resolution professional.]

# 34. Resolution professional costs.

The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs.

Explanation. - For the purposes of this regulation, “expenses” include the fee to be paid to the resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the resolution professional.

Appointment of professionals by IRP/RP & approval of their fees by the CoC are antithesis. Approval of fee of the professional by CoC is hindrance to the independent working of the IRP/RP, as envisaged in the Code. Board should fix optimum fees & standards of OPE (out of pocket expenses) for professionals & accountants, which may be appointed by the IRP/RP, so that IRP/RP can truly work independently. However if IRP/RP wants to appoint a professional /accountant for a fee more than the optimal fee fixed by the Board, approval of CoC will be required.

References;

1.  Disciplinary Committee order no IBBI/DC/26/2020 Dated 8th June 2020, In the matter of Mr. Vijay Kumar Garg. 

2.  Disciplinary Committee order no IBBI/DC/07/2018 Dated 23rd August, 2018, In the matter of Mr. Mukesh Mohan

3.  e-book  "Offences & Penalties in IBC"  by Arvind Mangla, a publication of Amazon Kindle Store.

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.