IBBI Suspends Deloitte Partner's IP Registration For 3 Years And Imposes Penalty

Brief Background

Mr. Savan Godiawala is a Professional Member of Indian Institute of Insolvency Professionals of ICAI (IIIP-ICAI) and an Insolvency Professional (IP) registered with the IBBI with Registration No. IBBI/IPA-001/IP-00239/2017-2018/10468. He is also a partner of the Deloitte Touche Tohmatsu India LLP ("Deloitte").

Mr. Savan was appointed as the Resolution Professional in the Corporate Insolvency Resolution Process ("CIRP") of Lanco Infra Tech Limited and was later confirmed as the Liquidator by the Adjudicating Authority. Further, he was also acting as the Resolution Professional in the CIRP of Shirpur Power Private Limited and was later replaced by Mr. Dushyant Dave as the Liquidator.

The IBBI had issued a Show Cause Notice ("SCN") dated 13.06.2022 to Mr. Savan alleging contravention of Section 34(8), 208(2)(a) and 208(2)(e) of the Insolvency and Bankruptcy Code, 2016 ("IBC"), Regulation 35A of CIRP Regulations, Regulation 7(2)(a) and 7(2)(h) of IP Regulations read with Clause of Code of Conduct. Mr. Savan had replied to the SCN vide email dated 04.07.2022.

The following findings were arrived at by the Disciplinary Committee ("DC") of IBBI:

• Contravention with regard to withdrawal of excess remuneration as Liquidator's fee: The DC observed that for the period from 27.02.2019 to 27.08.2019, due to wrong calculation of liquidation fee, Mr. Savan has drawn Rs. 83,04,764/- in excess of the fees that was payable to him as per Regulations. After becoming aware of the mistake, he had subsequently refunded the amount of Rs. 92,44,758/- in the liquidation account of the Corporate Debtor. The DC opined that the contravention assumes significance as any wrong withdrawal from the liquidation estate tantamounts to lesser availability of realizable value for the creditors.

• Contravention pertaining to fee of Deloitte Touche Tohmatsu India LLP: Deloitte was hired by Mr. Savan to assist him in taking control and managing affairs of the Corporate Debtor. Deloitte was paid Rs. 3,46,15,000/- for its services rendered from 27.08.2018 to 27.08.2019; Rs. 3,22,58,065/- for services rendered from 28.08.2019 to 31.12.2020; and Rs. 80,00,000/- for its services from 01.01.2021 to 30.06.2021. Different fee was paid for different periods despite there being any change in scope of work. The DC observed that no document was available to detail the objective criteria adopted in the process of the selection of Deloitte and the Committee of Creditors ("CoC") had not agreed to the fee to be charged by the liquidator and the support services. The services of Deloitte were hired neither on the basis of well laid out terms of reference nor remunerations were fixed for the services.
  
  
• Contravention with regard to failure in filing avoidance applications in CIRP of Shirpur Power Pvt. Ltd.: The DC observed that between the initiation of CIRP and the order of liquidation, Mr. Savan had enough window of opportunity to complete the audit and get the requisite application filed. Incidentally, Mr. Savan himself being a chartered accountant needed no assistance from audit firm to do the transaction audit for establishing the Preferential, Undervalued, Extortionate and Fraudulent transactions. In fact in a CoC meeting held in October 2020, Mr. Savan had informed the CoC that transaction audit was at an advanced stage, yet no efforts were made to identify the nature of transactions and file requisite applications before NCLT. The DC observed that Sections 35A of the IBC requires an IP to timely identify and form an opinion about the transactions covered under sections 43, 45, 50 and 66 (2) of IBC. It is pertinent to note that timely identification and reversal of avoidance transactions can result in better recovery to the creditors and Mr. Savan had failed to comply with these provisions.

Decision Of The Disciplinary Committee

The Disciplinary Committee observed that contraventions in terms of wrongful withdrawal of fee and hiring of related party without proper identification of scope of work with wrong manner of determination of fee in case of Mr. Savan's dealings in respect of Lanco Infra Tech Limited and laxity in filling application on avoidance transaction in respect of Shirpur Power Pvt. Ltd. were established beyond doubt.

In exercise of its powers under Section 220(2) of the IBC, the Disciplinary Committee suspended the registration of Mr. Savan Godiawala for a period of three years and imposed a penalty while observing the following:

"Atleast to appear to be fair in his dealings, Mr. Savan Godiawala should have cancelled the contract with DTTILLP with effect from 23rd July 2019; the date when revised regulations came into the effect. In the progress report filed with the AA and the Board, it is indicated that DTTILLP is continuing to bill the professional fee in favour of the related party. In view of this, the DC hereby imposes a penalty on Mr. Savan Godiawala to deposit amount equivalent to payments made to DTTILLP after 23 rd July 2019 till now and directs him to deposit the penalty amount directly to the Consolidated Fund of India (CFI) under the head of "penalty imposed by IBBI" on https://bharatkosh.gov.in within 45 days from the date of issue of this order and submit a copy of the transaction receipt to the Insolvency and Bankruptcy Board of India."

Order date: 18.08.2022

Case No.: No. IBBI/DC/124/2022

Click Here To Read/Download Order