Section 94 Filing Without Guarantee Deed Shows Gross Misconduct: IBBI Cancels Registration of IP [Read Order]

The Insolvency and Bankruptcy Board of India’s (IBBI) Disciplinary Committee has cancelled the registration of an Insolvency Professional (IP) for gross professional misconduct in connection with his role as Resolution Professional (RP) in the personal insolvency proceedings of Mr Nitin Jamnadas Thakkar, co-borrower to Maruti Koatsu Cylinders Limited.

The matter arose from a complaint filed by Kotak Mahindra Bank against Mr Hingorani’s conduct as RP in the insolvency resolution process of Mr Thakkar. The bank alleged that the Section 94 application filed by Hingorani was inadmissible, lacked foundational documents, and was intended to obstruct recovery proceedings under the SARFAESI Act.

The IBBI issued a Show Cause Notice (SCN). The SCN alleged contraventions of the Insolvency and Bankruptcy Code (IBC), the PG to CD Rules, and the Insolvency Professionals Regulations. Hingorani responded and was granted a personal hearing.

The SCN alleged that Hingorani applied Section 94 of the Code without annexing the personal guarantee deed. This was a mandatory requirement under Rule 6 of the PG to CD Rules. The Adjudicating Authority (AA) later dismissed the application as non-maintainable and confirmed that no guarantee agreement existed.

The Disciplinary Committee (DC) found that Hingorani failed to verify basic facts and documents before filing, despite being aware that Mr Thakkar himself claimed he was falsely treated as a guarantor. Filing without the guarantee deed was deemed a gross violation of statutory requirements.

The timing of the Section 94 filing, just days before Kotak Bank was scheduled to take possession of secured assets on 7 June 2023, was found to have triggered an interim moratorium under Section 96, thereby obstructing lawful recovery proceedings. The DC concluded that the filing was intended to frustrate SARFAESI action.

In Form A of the application, Hingorani declared “YES” to the query on whether the guarantee had been invoked, despite the absence of any guarantee deed. This was held to be a demonstrably false statement made on oath before the AA.

Hingorani claimed he withdrew from the assignment via a letter dated 3 July 2023. However, the DC noted that proper withdrawal required filing before the AA. His letter to the debtor had no legal effect, and the interim moratorium continued.

Hingorani argued that the application was filed through an advocate’s e-filing account. The DC rejected this, noting that Hingorani had sworn the affidavit himself, thereby assuming full responsibility for the correctness and completeness of the application.

Hingorani contended that the complaint was time-barred, that he acted on representations made by Mr Thakkar, and that his role was limited to applying while the AA determined the validity of guarantees. He also claimed withdrawal from the assignment and alleged malice on the part of Kotak Bank.

The DC rejected these arguments, holding that an IP cannot avoid the responsibility for verifying foundational documents and that filing in haste without a guarantee deed was unprofessional and misleading.

The DC concluded that Hingorani filed the Section 94 application solely to frustrate recovery action, knowing it was non-maintainable. His conduct violated Section 94, Rule 6 of PG to CD Rules, Section 208(2)(a) of the Code, and Clauses of the Code of Conduct under IP Regulations.

Accordingly, the DC cancelled his registration under Section 220 of the Code. The order takes effect after 30 days.

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