Operating Bank account of CD which is under Liquidation Estate by RP is of Grave Nature : IBBI Suspends RP for 2 Years [Read Order]

The Insolvency and Bankruptcy Board of India (IBBI) has suspended the registration of the Resolution professional (RP) for operating the bank account of the Corporate Debtor (CD). The board stated that “Charges of operating the bank account of the CD, which was under liquidation estate, by the RP is of grave nature.” It is observed from the bank statement of CD Mr. Harsh Manchanda, a suspended director, transferred a total of Rs. 1.11 lakh from the CD's account to his personal SBI account on 22.10.2019 and 29.10.2019, shortly after the initiation of CD's liquidation. The liquidator, Mr. Ramit Rastogi, revealed in reports that Mr. Sandeep Bhatt (RP) had authorised the ex-director to operate the CD's bank account. Despite follow-ups, Bhatt delayed providing access to the account. By permitting the suspended director to make unauthorised withdrawals during the liquidation process, he RP violated section 25(1) of the Code, which mandates the RP to preserve and protect the CD's assets. The Board's prima facie view is that the RP contravened multiple sections of the Code and regulations, as well as the specified Code of Conduct. RP asserted that upon assuming control, he promptly took possession of all assets, managed bank accounts, and oversaw operations at franchisee locations. The CD thrived as a going concern until the liquidation order, maintaining a healthy profit margin. As the RP, he recovered and sold goods, managing bank accounts directly. Important records, including checkbooks, were stored at the RP's office, and control was evident when handed over to the liquidator in 2019. The Resolution Professional outlined strict oversight, with approvals for business operations and expenses managed exclusively by him. All banking transactions adhered to his instructions. Regarding Mr. Harsh Vikas Manchanda, appointed CEO and later director, his reduced remuneration was approved in CoC meetings. Outstanding dues were settled per CIRP expense approvals, but full payment was hindered by insufficient funds during the CIRP. The RP also submitted that the liquidator's non-cooperation claim was against the directors, not him. Documents requested by the liquidator were promptly provided as per CIRP regulations, well before the liquidation order. The liquidator, as per regulatory obligations, failed to take custody of these records despite reminders. The Disciplinary Committee noted that the money transferred to Mr. Harsh Manchanda's account from the CD's joint account on 22.10.2019 and 29.10.2019. Despite the company being under liquidation, the RP, along with the co-signer promoter director acting as CEO, made unauthorised withdrawals, breaching financial probity. The RP’s actions, withdrawing funds after the liquidation commencement date, lacked financial prudence and propriety. Operating the CD's bank account without authority, he exceeded his role as RP, even if the transfer was pre-approved. The Committee concluded that Mr. Sandeep Bhatt operated the CD's bank account without proper authorization. As a summary, the committee observed that “the understanding of Mr. Sandeep Bhatt that Form-I was not applicable to him as the same is not in consonance with the facts. Mr. Sandeep Bhatt was appointed as IRP on 25.08.2017. He made public announcement on 01.09.2017 and thereafter appointed as RP of CD on 20.12.2017. Hence, Mr. Sandeep Bhatt was required to file CIRP-I in the capacity of IRP even when he was appointed as RP of same CD. The circular No. IBBI/CIRP/023/2019 dated 14.08.2019 states that “It is directed that an IP shall file electronically - a. the Forms along with relevant information and records, which have become due on or before 15th September, 2019 in respect of all CIRPs, both closed and ongoing, conducted by him, by 30th September, 2019;” Hence, the contravention alleged by the Board is upheld.” After considering RP’s statements and the available evidence, the Disciplinary Committee found that he violated various provisions of the Code and related regulations, including sections 25(1), 25(2)(a), 25(2)(b), 208(2)(a), and (e) of the Code, regulation 40B of the CIRP Regulations, and regulation 7(2)(a) & (h) of the IP Regulations, in conjunction with clauses 1, 2, 14, and 19 of the Code of Conduct. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Operating Bank account of CD which is under Liquidation Estate by RP is of Grave Nature : IBBI Suspends RP for 2 Years [Read Order]

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