IBC – Suspension of RP registration

Judgment dated 18.7.2023 of the High Court of Bombay

Important legal issue – Whether RP is to bear CIRP cost?

Interesting facts unfolded in the order of the High Court and also order dated 24.6.2022 (IBBI/DC/108/2022) of Disciplinary Committee of the IBBI for suspension of registration of the petitioner RP for three years.

By the order dated 21.8.2019 the NCLT initiated CIRP against the Corporate Debtor Innovari Technologies and appointed the petitioner as Resolution Professional.

By the order dated 9.3.2021, the IBBI had directed inspection on the ground that the RP had contravened provisions of the IBC and the Regulations.

Show cause notice dated 8.4.2022 was issued to RP on the basis of inspection report and referred the notice, response of RP and the material to the Disciplinary Committee for Contravention Nos.I to IX.     Contravention Nos.III and IX are –

– Contravention No.III for non-appointment of two registered valuers as per Regulation 27 of the CIRP Regulations.

-Contravention No.VIII with regard to the control and custody of assets of the CD as per his duty in Section 25 of IBC

Explanation of RP was that

-the “assets of Corporate Debtor are untraceable and none of the COC members are willing to contribute for CIRP costs”.

-as the CIRP cost was not paid, RP cannot be expected to be a money-lender to CIRP and therefore, cannot be considered guilty for both the contraventions.

The Disciplinary Committee, however, found the petitioner-RP guilty of the violations and suspended his registration for three years.

In the writ petition, the contentions were –

Although it is obligation of RP to appoint registered valuers, legal or other professionals, whether IBC contemplates IRP / RP to bear the CIRP cost from his own pocket?

To fulfil duties of Section 25 of IBC to protect and preserve the assets including continued business operations of the CD, CIRP costs have to be paid as per the mandate of NCLAT Ruling in Sajeve Bhushan Deora V/s Axis Bank Ltd case (Company Appeal (AT)(Ins) No.741 of 2019).

Secondly, although the above contentions were specifically raised, the Disciplinary Committee, it did not consider the same, had not even dealt with it in the order and also had not given reasons therefor.

Finding substance in the contentions the impugned order of DC was quashed and the matter was remanded to the DC for fresh hearing.

To my mind, the questions / contentions are important and go to the root of the IBC scheme itself.

Partha Sarathy Sarkar Vs. IBBI and others (WP No.1365 of 2023)