Insolvency and Bankruptcy Board of India (IBBI) has imposed a penalty on Vijay Kumar Garg, Insolvency Professional for Gitanjali Gems Limited, Nakshatra World Limited and Nakshatra Brands Limited (Corporate Debtors), for acting in violation of the Insolvency and Bankruptcy Code, 2016 and its Regulations.
Penalty imposition on Insolvency Professional
IBBI found that Mr. Vijay Kumar Garg converted the noble insolvency profession to a business, converted professional client relationship to that of money lending and borrowing, manipulated the market for insolvency professional services, attempted to siphon off crores of rupees from the ailing CD to its partner in crime, acted under the influence of one creditor, and contravened every provision of the Code, Regulations and the Code of Conduct for ulterior purposes.
In exercise of its power under Section 218 IBC read with IBBI (Inspection and Investigation) Regulations, 2017, IBBI appointed an Inspecting Authority to conduct an inspection on Vijay Kumar Garg in September 2019.
IBBI issued a show-cause notice to Vijay Kumar Garg, based on findings of the inspection of his role as an interim resolution professional and/or resolution professional (RP) in the corporate insolvency resolution process of the Corporate Debtors in December 2019.
IBBI Circular dated June 12, 2018 was issued for the alleged contraventions of several provisions of Insolvency and Bankruptcy Code, 2016, Code of Conduct under IBBI (Insolvency Professionals) Regulations, 2016, IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016.
It was concluded after following the constitution of a Disciplinary Committee and consideration of Vijay Kumar Garg’s reply to the show-cause notice, his written and oral submissions, additional documents, other material available on record that:
1. The appointment of Phelps India Private Limited (D&P) to provide support services to Garg in the corporate insolvency resolution process of the corporate debtors was in contravention of IBC as D&P did not qualify as a professional with having authorization of a regulator of any profession to render any professional service.
It was found that the fee payable to D&P was unreasonable and Garg acted in contravention of Sections 20 (2) (a), 25 (2) (d), 208 (2) (a) & (e) IBC, Regulation 7 (2) (a), (h) & (i) of the IP Regulations read with clause 27 of the Code of Conduct of the IP Regulations and IBBI Circular dated June 12, 2018;
IBBI said, 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.
2. Vijay Kumar Garg created an additional burden on Corporate Debtor Gitanjali Gems by unnecessarily extending benefits to a third party i.e. D&P. It was found that Garg purchased two insurance policies as part of the corporate insolvency resolution process with D&P a beneficiary. Garg thus acted in contravention of Sections 5(13), 208 (2) (a) & (e) IBC, Regulation 7 (2) (a), (h) & (i) of the IP Regulations read with clause(s) 1 & 2 of the Code of Conduct, Regulation 31 of the CIRP Regulations and IBBI Circular dated June 12, 2018.
3. IBBI found that Garg conducted two meetings of the CoC for Corporate Debtor Gitanjali Gems, beyond the CIRP period and discussed agendas other than as directed by Adjudicating Authority. This was beyond the provisions of IBC and violated Sections 5(13), 5 (14), 12, 208 (2) (a) & (e) IBC and Regulation 7 (2) (a), (h) & (i) of IP Regulations read with clause(s) 14 & 27 of the Code of Conduct and Regulation 31 of the CIRP Regulations.
IBBI observed that the corporate insolvency resolution process rested on the shoulders of the Insolvency Professional and he/she is duty-bound to preserve and protect the assets of the corporate debtor as well as run the corporate debtor as a going concern in its order.
IBBI concluded that instead of preserving and protecting the value of the corporate debtor, Garg frittered away the resources of the ailing corporate debtor for unlawful purposes.
Vijay Kumar Garg had to pay a penalty equal to 25% of fee payable to him, IBBI ordered.
The Order stated that the Board shall deposit the penalty amount in the Consolidated Fund of India.
Garg told to ensure that no amount beyond the reasonable fee, as determined by the Expert Committee, is paid to D&P, ordered IBBI.
It was clarified that Garg shall make it good to the Corporate Debtor, if any amount beyond this has been paid.
Direction to undergo a pre-registration educational course from the IPA and pass the Limited Insolvency Examination again to build his capacity to take up assignments on his own, has been given to Vijay Kumar Garg.
Vijay Kumar Garg as per the Order, might take any new assignment/ process under the Code, only after compliance with the above conditions, he may continue to conduct and complete the assignments/processes he has in hand, first.