IBBI Suspends IP for Including Related Party in Creditors' Committee, Procedural Lapses
IP had argued that he acted in good faith based on the information available at the time and that the related party status was not immediately evident from public records.
section 220The Insolvency and Bankruptcy Board of India (IBBI) has suspended the registration of Insolvency Professional (IP) for a period of one year for multiple contraventions of the Insolvency and Bankruptcy Code, 2016 (Code), including the improper constitution of a Committee of Creditors (CoC) and other significant procedural lapses.
The disciplinary action stemmed from the IP’s role as the Resolution Professional (RP) in the Corporate Insolvency Resolution Process (CIRP) of M/s. Vjaydeep Developers LLP. The primary allegation was that he improperly included Mr. Samir Shirish Dadia, a related party of the corporate debtor, in the CoC and allowed him to participate and vote. Evidence, including a Deed of Admission and letters written by Mr. Dadia in his capacity as a partner, established his related party status, which IP failed to verify despite having access to the corporate debtor's records. The Disciplinary Committee (DC) held that this amounted to negligence, as verifying claims and ensuring the CoC is properly constituted are fundamental duties of an IP.
In addition to the improper CoC constitution, the DC found IP is guilty of significant procedural lapses. He failed to send a mandatory communication to all known creditors as per the corporate debtor's books of accounts, as required under Regulation 6A of the CIRP Regulations. Furthermore, he failed to upload the revised list of creditors to the IBBI's electronic platform after a change in the CoC's composition, contravening Regulation 13(2)(ca). IP’s defense that these were procedural oversights was rejected by the DC, which emphasized that an IP's statutory responsibilities require strict compliance.
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IP had argued that he acted in good faith based on the information available at the time and that the related party status was not immediately evident from public records. However, the DC found these arguments untenable, concluding that his actions demonstrated a lack of due diligence required of an IP.
Consequently, under its powers conferred by Section 220 of the Code, the DC ordered the suspension of IP’s registration for one year. The order will take effect after 30 days, and copies will be sent to relevant stakeholders, including the Committees of Creditors in any ongoing cases where he is providing services, allowing them to decide on his continuation.
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