“Explore the case of Motel Rahans Pvt. Ltd. Vs JSM Devcons Pvt Ltd., where a secured financial creditor approached NCLT Indore Bench seeking a forensic audit of the Corporate Debtor. Learn about the scope of consideration by the Committee of Creditors (CoC) in appointing professionals, the role of the Resolution Professional, and the direction given by the court for a forensic audit. Understand the implications of the court’s decision and the limited role of CoC in approving fees for auditors.”
An application was moved by one of the secured financial creditor in the matter Motel Rahans Pvt. Ltd. Vs JSM Devcons Pvt Ltd. before the Hon’ble NCLT Indore Bench in C.P.(IB)/56(MP) 2021 who precipitate precept certain irregularities/transactions qua the assets of the Corporate Debtor. The Applicant sought the appointment of an independent transaction auditor to examine irregularities in specific transactions with the following prayers-
“a) Pass necessary orders by invoking Rule 11 of NCLT Rules read with Section 25(1)(j) and Section 26 of Code and appoint an independent transaction auditor to undertake transaction (under Section 43, 45, 50 & 66) audit for period 2009-10 till ICD and submit report to Respondent No. 1 within 30 days of this order appointing such independent transaction auditor;
b) Pass necessary orders directing that fee of lowest quotation received by Respondent No. 1 be paid to such auditor and such fees would form part of Insolvency Resolution Process Cost;
c) Pass necessary orders directing Respondent No. 1 to file appropriate application before Adjudicating Authority within 7 days from receipt of Transaction Audit report.”
In this regard, he Order No. IBBI/DC/128/2022 passed by the IBBI on 07.09.2022, was referred to espouse that the scope of consideration by the Committee of Creditors (CoC) regarding the appointment of the Professional is limited to the determination of their fees and the rest of the decision is left to the Resolution Professional (RP) i.e., whether the services of the Professional is needed or not.
The Para 3.1.3 of the aforesaid order reads thus:- “As per Regulation 34 of CIRP Regulations, the CoC shall fix the expenses incurred by the RP and expenses so incurred shall be treated as CIRP cost. Hence, the role of the CoC is limited to approval/ratification of the fee of auditors. The duty of appointment of professionals vests with RP only. Thus, it is noted that he has abdicated his duty for appointing forensic auditor in favour of the CoC members thereby violated Section 25(2)(d) of the code.” Indubitably, it is for the RP/IRP to run the affairs of Corporate Insolvency Resolution Process (CIRP) and it is for him to take a call regarding the services of the Professional to be availed for the purpose of successful completion of CIRP.
There can be no doubt that the matter needs to be placed before the CoC for its approval. In the aforementioned order, the IBBI has already made it clear that the decision of the CoC regarding the services of Professional is limited to sanction of their fees and the rest of decision is to be taken by the RP.
The Court held that as the application has been moved with the apprehension of irregularities/transactions qua the assets of the Corporate Debtor. In the wake of such apprehension, there would be no difficulty in conducting the audit of the account of the Corporate Debtor for the period referred to in the IA. In the wake, the RP is directed to appoint an auditor to conduct the forensic audit of the Corporate Debtor for the period referred to in the IA and the auditor would submit its report within four weeks thereafter.
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