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Is the fees of independent auditors appointed for reporting to CoC charged as CIRP cost?

Last updated: 01 December 2021

Court :

Brief :
This Order disposes of the Show Cause Notice (SCN) No. IBBI/IP/INSP/2020/45 dated 01.04.2021 issued to Mr. Pawan Kumar Garg, R/o – 25-A, J-Pocket, Sheikh Sarai-II, New Delhi-110017 who is a Professional Member of Indian Institute of Insolvency Professionals of ICAI

Citation :
No. IBBI/DC/78/2021

(Disciplinary Committee)
No. IBBI/DC/78/2021 November 25th, 2021
In the matter of Mr. Pawan Kumar Garg, Insolvency Professional (IP) under section 220 of the Insolvency and Bankruptcy Code, 2016 read with regulation 13 of the Insolvency and Bankruptcy Board of India (Investigation and Investigation) Regulations, 2017 and regulation 11 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016.

1. The Hon’ble NCLT, Principal Bench, New Delhi (AA) vide order dated 17.10.2018 admitted the application under section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) for initiating Corporate Insolvency Resolution Process (CIRP) of M/s. Puma Realtors Private Limited (CD). The AA appointed Mr. Pawan Kumar Garg as an Insolvency Resolution Professional (IRP) and who was later confirmed as the Resolution professional (RP).

2. CIRP of Puma Realtors Pvt. Ltd. commenced on 17.10.2018. In the 1st CoC meeting held on 25.02.2019, homebuyers decided to appoint a Chartered Accountant, M/s Jindal Anil and Associates as continuous independent auditor for carrying out independent audit and reporting to CoC at a monthly remuneration of Rs. 35,000/- plus applicable taxes. IA observed that Mr. Garg charged the fees of the independent auditors appointed for reporting to CoC as CIRP cost.

3. Mr. Garg submitted that as per the explanation to Regulation 34 of the CIRP Regulations, expenses incurred by Resolution Professional include the fee paid to professionals. He submitted that on a conjoint reading of the provisions of Regulation 31 read with Regulation 34, it was clear that fee payable to any professional appointed during the course of CIRP shall form part of the insolvency resolution process cost.

4. In respect of the issue of filing of relationship disclosure and irregularity in the payments made to the valuers, Mr. Aashish Makhija Counsel for Mr. Garg, submitted that Mr. Garg had not violated any of the provisions of the Code and Rules and Regulations framed thereunder and that he had filed the relationship disclosure of Dharmesh Lalit Kumar Trivedi. The counsel for Mr. Garg further stated that at the relevant time, there was no clarity over whether a valuation firm can be appointed if their partner/associates are registered valuer of all three types of assets class. Mr. Garg accordingly filed the relationship disclosure of individual registered valuers and also reports were signed by the registered valuers. That this shows the bonafide attempt of Mr. Garg to comply with the circular dated 17.10.2018.

5. In view of the above, the DC, in exercise of the powers conferred under section 220 (2) of the Code read with sub-regulations (7) and (8) of Regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016 and Regulation 13 of the IBBI (Inspection and Investigation) Regulations, 2017, disposes of the SCN without any direction against Mr. Pawan Kumar Garg. A copy of this order shall be forwarded to the Indian Institute of Insolvency Professional of ICAI where Mr. Pawan Kumar Garg is enrolled as a member .A copy of this order shall also be forwarded to the Registrar of the Principal Bench of the National Company Law Tribunal, New Delhi, for information.

Accordingly, the show cause notice is disposed of.

Please find attached the enclosed file for the full judgement.

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Poojitha Raam
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