Accountability in Insolvency: The Case of a Suspended Resolution Professional.


16 October 2024 Bankruptcy & Insolvency Law >> Business & Commercial Law  

The recent case involving M/s. Transparent Energy System Private Limited (the Corporate Debtor) highlights critical issues in the enforcement of the Insolvency and Bankruptcy Code (IBC) and the responsibilities of Resolution Professionals (RPs). The National Company Law Tribunal (NCLT) initiated the Corporate Insolvency Resolution Process (CIRP) for the debtor on February 21, 2020, appointing the petitioner as the Resolution Professional. Subsequently, the Insolvency and Bankruptcy Board of India (IBBI) appointed an Investigating Authority (IA) to conduct an inquiry into the conduct of the RP.

In July 2023, the IBBI issued a show cause notice to the petitioner, citing two primary allegations: a lack of due diligence in verifying the Resolution Plan and failing to inform about the claim of Kanoria Chemicals & Industries Limited (KCIL), despite acknowledging its partial admission. The investigation report served as the foundation for the notice, leading to a virtual hearing and ultimately a suspension order by the Disciplinary Committee of the IBBI in August 2024, which suspended the petitioner’s registration for one year.

 
 

The petitioner challenged this suspension, arguing that the Disciplinary Committee's decision lacked a solid basis and was excessively harsh. Citing a previous NCLAT ruling that merely reprimanded him for a lack of diligence, the petitioner contended that the suspension was disproportionate. Furthermore, he claimed that any delays in his responses were exacerbated by the COVID-19 pandemic.

On the other hand, the IBBI defended the suspension, asserting that the petitioner had repeatedly failed in his duties as an RP, particularly regarding communication with KCIL and addressing objections raised in the Resolution Plan. The IBBI argued that the disciplinary action was justified based on the findings of the NCLAT, which had observed that the petitioner failed to fulfill his obligations.

The court ultimately sided with the IBBI, emphasizing that the findings made by the NCLAT had attained finality since the petitioner did not challenge them. The court acknowledged that while the pandemic affected many processes, it did not excuse the deficiencies noted in the petitioner’s conduct. It ruled that the Disciplinary Committee acted within its jurisdiction and found no grounds to interfere with the suspension, upholding the integrity of the IBC process.

The ruling underscores the critical need for RPs to exercise due diligence and maintain transparency during the CIRP, reflecting the rigorous standards set forth by the IBC. The case serves as a cautionary tale for insolvency professionals about the consequences of negligence and the importance of adhering to regulatory requirements.
In conclusion, the suspension of the Resolution Professional illustrates the delicate balance between regulatory enforcement and the practical challenges faced by practitioners in the insolvency space. As the legal landscape evolves, the expectations placed on RPs will likely continue to tighten, reinforcing the necessity for diligence and accountability in all aspects of the resolution process.

  INSOLVENCY AND BANKRUPTCY CODE, 2016