Penalties imposed Rs 34.22 on RP by IBBI on breach of moratorium condition
IBBI assigns Rs 34.22 a lakh penalty for insolvency professional on breach of the condition of moratorium by enabling the movement of funds of the corporate debtor during the CIRP
Insolvency regulator IBBI’s Disciplinary Committee (DC) has levied a fine of Rs 34.22 for insolvency practitioners, Mohan Lal Jain for violation of some provisions of the Insolvency and Bankruptcy Code (IBC).
The penalty imposed is equivalent to 25% of the service charge that Mack Soft Tech Pvt Ltd obtained as a Professional Resolution (RP) in the Corporate Insolvency Resolution Process (CIRP).
The violation connected to the RP going to continue to make payments to HDFC after obtaining the approval of the members of the Creditors’ Committee (CoC) during the CIRP, which is in violation of the moratorium requirements found in the IBC and inflicted by the Adjudication Authority on 11 August 2017.
The main point which had to be discussed in the current context was whether or not the payout of EMIs to a financial creditor (in this case HDFC) made after the CIRP moratorium was in breach of IBC.
In its submissions, RP — Mohan Lal Jain — contested that the decision to continue paying regular EMIs on the lease invoices of Corporate Debtor in the ordinary course of business had been taken by CoC with a 100% voting share before taking over as RP and was part of the business decision of the CoC taken in the interest of the corporate debtor. It was also submitted by the RP that payment of EMIs was a routine business transaction undertaken by the RP to keep the corporate debtor as a cause of importance and thus can not be regarded as a transfer of an asset.
The Disciplinary Committee concluded, nevertheless, that the RP not just to refused to address the concerns of the CoC the prohibition put on the transfer of the properties of the Corporate Debtor during the CIRP under Section 14 of the IBC, but also permitted a consistent violation of the moratorium by allowing the EMIs to be deducted from the cash flow / rental income of the Corporate Debtor. “It demonstrates the casualness and ignorance of RP in fulfilling its role as RP and its misconception of the rules,” the Investigative Committee said.
The Disciplinary Committee noted that Mohan Lal Jain had a casual and negligent approach during the conduct of the CIRP. In the present situation, the RP lost its integrity and agreed to pay EMIs to the financial creditor during the CIRP from the assets of the Corporate Debtor, the Investigative Committee said.
The provisions of the IBC Moratorium provide for the restriction of the institution of a suit by that are against the corporate debtor, the transfer, alienation or disposal of any of the assets or legal rights or interest of the corporate debtor, the foreclosure, recovery or enforcement of any security interest of the corporate debtor in respect of its property. The moratorium period is similar to the period of insolvency resolution.