IBBI slaps Rs 1-lakh penalty on erring insolvency professional

Insolvency regulator IBBI has imposed a monetary penalty of ₹1 lakh on Koteswara Rao Karuchola, a Hyderabad-based insolvency professional, for outsourcing his duty and engaging an Insolvency Professional Entity (IPE) for verification of creditor claims of a corporate debtor (Viceroy Hotels).

Karuchola is a member of the Insolvency Professional Agency of the Institute of Cost Accountants of India.

The regulator had, in January 2018, come up with a circular which stipulated that insolvency professionals should not outsource any of his duties and responsibilities under the Insolvency and Bankruptcy Code (IBC).

It may be recalled that IBBI had in October 2019 issued a showcause notice to Karuchola based on findings of an inspection in respect of his role as an interim resolution professional/resolution professional in the Corporate Insolvency Resolution Process (CIRP) of Viceroy Hotels Ltd.

Even as it imposed a monetary penalty of ₹1 lakh, the IBBI Disciplinary Committee has said that it has taken a “lenient view” on the matter as insolvency regime in India is in its emerging phase and the profession of Insolvency Professional is also at a nascent stage.

IBBI’s disciplinary committee has in its order highlighted that during CIRP, it is the utmost responsibility of an IP to run the company of a corporate debtor as a going concern and conduct the entire CIRP in a transparent manner without creating additional insolvency resolution process costs.

Not only had Karuchola outsourced his duty and engaged IPE for verification of claims, he further included the payment made for the same in the insolvency resolution process costs thereby burdening the ailing corporate debtor with additional costs. The fee of ₹3 lakhs plus GST has been paid to the IPE for verification of claims, which was the primary duty of the RP himself, the IBBI Disciplinary Committee pointed out.

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