Delhi HC issues notice in challenge to IBBI Order imposing penalty on Bhushan Steel RP for violation of IBC

The Delhi High Court has issued notice in a petition by the Resolution Professional for Bhushan Power and Steel, Mahender Khandelwal, challenging an order by the Insolvency and Bankruptcy Board of India (IBBI) which imposed a penalty of over Rs 29 lakh on him on account of several violations of IBC..Notice was issued to IBBI and Committee of Creditors (CoC) for Bhushan Power and Steel by a Single Judge Bench of Justice Rajiv Shakdher..In a first of its kind order passed by IBBI, apart from imposing a penalty, the Disciplinary Committee of the IBBI directed Khandelwal to also ensure reimbursement of over Rs. 12 crores to the Corporate Debtor, Bhushan Power and Steel from its Committee of Creditors. Till Khandelwal complies with the two directions, as per the IBBI order, he is barred from accepting any new assignment. This order was passed on November 14..Khandelwal was appointed as the Resolution Professional for Bhushan Steel in September 2017. In June 2018, an Inspecting Authority was constituted by the IBBI to inspect the records of Khandelwal with respect to the Corporate Insolvency Resolution Process (CIRP) of Bhushan Power and Steel and a draft report was submitted..Subsequently, in October 2019, a Show Cause Notice was issued to Khandelwal by IBBI for the alleged violations of provisions of IBC. After a detailed reply to the Notice was furnished, an oral hearing was conducted by the IBBI Disciplinary Committee in relation to the Notice..Ultimately, the IBBI Committee concluded that Khandelwal’s conduct during the CIRP of the Corporate Debtor displayed “utter misunderstanding” of the IBC as he acted in contravention of the following provisions:.Sections 5(13) and 208(2)(a) IBC;Regulation 33 and 34 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016; andRegulation 7(2)(a) and 7(2)(h) of the IBBI (Insolvency Professionals) Regulations, 2016 read with clauses 3, 5, 12, 13 and 14 of the Code of Conduct under the said Regulations..One of the major findings against Khandelwal was with respect to the inclusion of the legal costs borne by the CoC in the Insolvency Resolution Process Cost which was in contravention of IBBI (Insolvency Resolution for Corporate Persons) Regulations, 2016..The Disciplinary Committee found that Khandelwal included the fee of Rs 12,09,90,185 payable to CoC’s legal counsel, Cyril Amarchand Mangaldas (CAM) in the Insolvency Resolution Process Cost (IRPC). It was also noted that part of this payment even pertained to the services rendered by CAM for a period prior to the insolvency commencement..It was recorded that as per the minutes of the meeting of the 19th CoC held on October 10, 2018, it was clear that Khandelwal and the members of the CoC were well aware that the expenses incurred by financial creditors on legal assistance are not part of IRPC..The Committee ultimately observed that Khandelwal deliberately “permitted something unlawful” because he was indemnified by “parties who were interested in that unlawful action”..The Committee also concluded that Khandelwal failed to take prudent steps to expeditiously notify the NCLT about the avoidance of certain undervalued transactions entered into by the Corporate Debtor in terms of Section 25(2)(j) IBC. The Committee observed that the application for the same was filed after a delay of 236 days..Thirdly, it was found that Khandelwal failed to make disclosures to the Insolvency Professional Agencies with respect to his relationship with the professionals engaged by him in the CIRP within the stipulated timeline in terms of the Circular on ‘Disclosure by Insolvency Professionals and other Professionals appointed by Insolvency Professionals conducting Resolution Processes’. It was specifically noted that Khandelwal failed to notify that he was taking services from BDO Restructuring Advisory India LLP, of which he was a partner..Further, the Committee concluded that Khandelwal failed to justify his Fee Sharing Agreement with BDO Restructuring Advisory India LLP for a period starting July 26, 2017 i.e. commencement of the CIRP till December 31, 2017..In view of the above, the IBBI Disciplinary Committee opined that Khandelwal adopted a “negligent approach” during Bhushan Steel’s CIRP and passed the aforementioned directions in exercise of the powers conferred under Section 220 (2) IBC read with Regulation 11(7) & (8) of the IBBI (Insolvency Professionals) Regulations, 2016. .In his petition filed through Ortis Law Offices, Khandelwal has submitted before the High Court that the order is wholly arbitrary, iniquitous, unsustainable and was passed without the application of a judicious mind..Khandelwal has asserted that the directions of the Committee barring him from accepting any new appointment as a resolution professional and securing reimbursement of the sum paid to the lawyers from the CoC have no basis. Assailing the finding with respect to a “conspiracy” between the CoC and him, Khandelwal has argued that the mere fact that the professional fee payable to lawyers was wrongly included in the IRPC, does not ipso facto lead to the conclusion that there was any conspiracy between the CoC and Khandelwal to cause wrongful loss to the Corporate Debtor..It is added that since the order has come into effect immediately, it falls foul of Regulation 13(4) of I&I Regulations and Regulation 11(9) of the Insolvency Professional Regulations which states that an order disposing of a show-cause notice does not become effective until 30 days have lapsed from the date of the order..Khandelwal has also claimed that the IBBI Committee did not appreciate the submissions and material put forth by him to counter the findings and thus seeks a direction to quash the order..For the moment, without prejudice to his rights and contentions, Khandelwal has agreed to deposit the penalty amount ie. Rs.29,24,167 with the Court’s Registry..The matter would be next heard by the High Court on November 25..Khandelwal was represented through Senior Advocate Sandeep Sethi with Advocates Dhruv Dewan, Aditya Nayyar, Harshita Choubey and Tarang Agarwal. .IBBI was represented by Advocates Puneet Jain and Harsh Jain..CoC was represented by Cyril Amarchand Mangaldas Advocates Biswajit Dubey, Shatranjit and Surbhi Khattar..Read the High Court Order:.Read the IBBI Order: