HC Upholds Liquidator’s Suspension for Conflict of Interest and Inflated Billing Practices

Case Details: Sundaresh Bhat v. Insolvency And Bankruptcy Board Of India - [2024] 164 taxmann.com 147 (HC-Delhi)

Judiciary and Counsel Details

• Subramonium Prasad, J.
• Ramji Srinivasan, Milanka Chaudhary, Ms Ashly Cherian & Ms Swet Shikha, Advs. for the Petitioner.
• Vikas Mehta, Rashi Rampal, Apoorv Khaton & Ankit Vashisht, Advs. for the Respondent.

Facts of the Case

In the instant case, the petitioner was appointed as an Interim Resolution Professional (IRP) for the corporate debtor. Later, the NCLT directed the corporate debtor to undergo liquidation under section 33(2) of the IBC, with the petitioner acting as Liquidator to perform duties under section 35 of the IBC.

Meanwhile, the petitioner received a notice of inspection regarding liquidation assignment and, thereafter, a Show Cause Notice (SCN) was issued by the respondent-IBBI, alleging the petitioner paid an excess fee to a support service, i.e., BRAL, in which the petitioner was a partner.

The IBBI found the petitioner guilty of charges and suspended the petitioner’s registration for two years. The petitioner filed an instant writ petition to set aside the order of suspension of registration.

It was noted that the petitioner had appointed BRAL to provide support services in the liquidation process of the corporate debtor, in which the petitioner was a partner. Thus, it was a calculated attempt on the part of the petitioner to get more fees.

High Court Held

The High Court noted that where the liquidator appointed BRAL, a firm in which he was a partner, to provide support services and allowed the said firm to raise bills higher than the fee of the liquidator himself, an act of the liquidator was contrary to the intent of liquidation process.

The High Court held that the factual motive of the petitioner behind appointing BRAL was to increase his fee by circumventing Regulation 4 of the Liquidation Regulations.

Further, since the petitioner’s guilt of paying an excess fee to a support service, in which the petitioner himself was a partner, did not warrant any interference, the instant Court was not inclined to set aside the order suspending the petitioner’s registration.

List of Cases Reviewed

• Sundaresh Bhat, In re [2024] 164 taxmann.com 146 (IBBI)(para 17) affirmed See Annex