While deciding the case on the allegation of incorrect classification of claim as secured debt by an Insolvency Professional (IP), the Insolvency and Bankruptcy Board of India(IBBI) directed the IP to undergo a pre-registration educational course specified under regulation 5(b) of the IP Regulations from the IPA where he is registered.
The Show Cause Notice (SCN) was issued to an Insolvency Professional, registered with IBBI who is a Professional Member of the Indian Institute of Insolvency Professionals of Institute Chartered Accountant India(ICAI).
The National Company Law Tribunal, (NCLAT) had admitted the application under Section 7 of the Code filed by the financial creditor Arrow Engineering Limited, for the corporate insolvency resolution process of M/s Golden Tobacco Limited (CD) and the applicant was appointed as Interim Resolution Professional (IRP) vide the same order.
The IBBI, in the exercise of its powers under section 218 of the Code read with regulations 7(2) and 7(3) of IBBI (Inspection and Investigation) Regulations, 2017, appointed an Investigating Authority (IA) to investigate the role of IP in the Corporate Insolvency Resolution Process (CIRP) of the CD.
The IBBI issued the SCN based on findings in the Investigation Report concerning the role of IRP/RP in the CIRP of the CD. It was alleged that in the discharge of duties, the IP admitted the claim of Arrow Engineering Limited (“Arrow”) as a secured financial creditor (FC) even though, the said creditor did not hold any security created by way of any mortgage or charge or lien on the properties of the CD.
Section 3(30) of the Code defines a secured creditor as a creditor in favour of whom security interest is created and section 3(31) of the Code further defines security interest which means right, title or interest or a claim to the property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person provided that security interest shall not include a performance guarantee.
In view of section 220 of the Code read with regulation 13 of IBBI (Inspection and Investigation) Regulations, 2017, the Disciplinary Committee (DC)noted the fallacy in the submission of IP on the ground of exclusion of the powers of the DC for determination of issues arising under the Code or incidental issues arising in the process thereto. The DC directed the IP to undergo a pre-registration educational course specified under regulation 5(b) of the IP Regulations from the IPA where he is registered and restrained him from accepting any new assignment under the Code till the successful completion of the pre-registration education course.
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