IBBI imposes INR 34.22 lakh penalty on an Insolvency Professional [Read Order]

IBBI - insolvency professional - Taxscan

The Insolvency and Bankruptcy Board of India (IBBI) has imposed a penalty of Rs 34.22 lakhs on an insolvency professional, Mohan Lal Jain for non-adherence to the certain provisions of the Insolvency and Bankruptcy Code (IBC).

The penalty imposed is equal to 25% of the fee that he had received as a resolution professional (RP) in the Corporate Insolvency Resolution Process (CIRP) of Mack Soft-Tech Pvt Ltd.

The contravention is related to the resolution professional (RP) continuing to make payments to HDFC after obtaining approval of members of Committee of Creditors (CoC) during Corporate Insolvency Resolution Process (CIRP) which is in violation of provisions on moratorium contained in the IBC and imposed by the Adjudication Authority on August 11, 2017.

The IBC provision on ‘moratorium’ stipulates the prohibition of the institution of suits by or against the corporate debtor, transfer, alienation or disposal of any of the assets or legal rights or beneficial interest of the corporate debtor, action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of his property. The moratorium period is analogous to the insolvency resolution process period.

The significant issue, in this case, is whether payment of EMIs to a financial creditor (HDFC in this case) made during the period of the moratorium in CIRP is in violation of IBC or not.

The  Resolution Professional,  Mohan Lal Jain contended that the decision to continue to make payment of regular EMIs out of the rental receipts of Corporate Debtor in the ordinary course of business was taken by CoC with 100 percent voting share before he took charge as RP and was part of the CoC’s commercial decision taken in the interest of the corporate debtor. It was also submitted by the RP that the payment of EMIs was a routine business transaction undertaken by him in order to keep the corporate debtor as a going concern and thus cannot be regarded as a transfer of an asset.

The Board consisting of Dr. Navrang Saini, IBBI observed, “the RP not only failed to bring to the notice of the CoC the embargo imposed on the transfer of the assets of the Corporate Debtor during CIRP under Section 14 of IBC but also allowed the moratorium to be violated continuously by letting the EMIs to be deducted out of the cash flows/ rental income of the Corporate Debtor. This indicates RP’s casualness and negligence in performing his duty as RP and his misunderstanding of law”

The Disciplinary Committee further said that Mohan Lal Jain displayed a casual and negligent approach during the conduct of the CIRP. In the present matter, the RP compromised his independence and continued making payment of EMIs to the financial creditor during CIRP from the assets of the Corporate Debtor.

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