IBBI Suspends Insolvency Professional for Overlooking Conflict of Interest in Resolution Plan [Read Notification]

The action stems from his conduct during the Corporate Insolvency ResolutionProcess (CIRP) of Maa Durga Rice Products Pvt. Ltd., where he submitted a resolution plan from a director of the suspended board, despite having initiated avoidance proceedings against the same individual.

The CIRP of Maa Durga Rice Products Pvt. Ltd. commenced on September 4, 2019, following an application by Bank of India before the NCLT, Cuttack Bench. Mr. Surya Kanta Satapathy, was appointed as Interim Resolution Professional and later confirmed as the Resolution Professional (RP).

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The company was subsequently pushed into liquidation by an order dated April 26, 2022, and another professional was appointed as the liquidator.

The NCLT, while passing the liquidation order, made critical observations against Mr. Satapathy, prompting the IBBI to issue a Show Cause Notice (SCN). After reviewing his written and oral submissions, the Board found that he had acted in violation of the IBBI (Insolvency Professionals) Regulations, 2016.

Mr. Satapathy had filed an application for avoidance of transactions under Section 66 of the IBC against the directors of the suspended board, citing fraudulent and undervalued transactions involving ₹20.22 crore. Around the same time, he also accepted and submitted a resolution plan from one of the very same directors, Mrs. Lora Mitra Rath, who was under scrutiny in the pending avoidance application.

Even though the resolution plan was approved by the Committee of Creditors (CoC) with a 76% majority, the IBBI found that Satapathy failed to inform the CoC that the resolution applicant was facing serious allegations. The minutes of the 16th CoC meeting, held after the avoidance application was filed, made no mention of this critical conflict, nor did the application filed before the NCLT for plan approval.

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Mr. Satapathy argued that Section 29A(g) of the IBC only bars a person from being a resolution applicant if the Adjudicating Authority (AA) has already passed an order against them. It was held that at the time of plan submission, no such order existed. The order holding the transactions as fraudulent was only passed later in April 2022, and thus, the applicant could not be considered ineligible on the submission date.

The counsel cited the Supreme Court’s ruling in Arcelor Mittal India Private Limited vs. Satish Kumar Gupta and Others, which stated that eligibility is to be tested at the time of submission, not retrospectively. He also pointed out similar cases where RAs remained eligible despite ongoing proceedings and stressed that the IBC explicitly allows CIRP to continue even while avoidance applications are pending (Section 26).

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The Disciplinary Committee concluded that Mr. Satapathy’s actions reflected a negligent, non-transparent, and inconsistent approach and found him guilty of violating Regulation 7(2)(h) and Clause 14 of the Code of Conduct under the IP Regulations.

As a result, the IBBI suspended Mr. Satapathy’s registration for one year. The Board also directed that the order be circulated to stakeholders in all assignments currently handled by him, including CoCs and the Indian Institute of Insolvency Professionals of ICAI, for further action.

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