Clipped from: https://www.thehindubusinessline.com/
Penalty levied for moratorium violation by allowing transfer of assets of a corporate debtor during CIRP
Insolvency regulator IBBI’s Disciplinary Committee(DC) has slapped a penalty of Rs 34.22 lakhs on an insolvency professional, Mohan Lal Jain for violations of certain provisions of the Insolvency and Bankruptcy Code (IBC).
The penalty imposed is equal to 25 per cent of the fee that he had received as resolution professional ( RP) in the Corporate Insolvency Resolution Process (CIRP) of Mack Soft Tech Pvt Ltd.
The contravention related to the RP continuing to make payments to HDFC after obtaining approval of members of Committee of Creditors (CoC) during CIRP which is in violation of provisions on moratorium contained in the IBC and imposed by the Adjudication Authority on August 11, 2017.
The main point that had to be examined in the present case was whether payment of EMIs to a financial creditor ( HDFC in this case) made during the period of moratorium in CIRP is in violation of IBC or not.
In his submissions, the RP—Mohan Lal Jain—contended that the decision to continue to make payment of regular EMIs out of the rental receipts of Corporate Debtor in the ordinary course of business was taken by CoC with 100 per cent voting share before he took charge as RP and was part of the CoC’s commercial decision taken in the interest of the corporate debtor. It was also submitted by the RP that the payment of EMIs was a routine business transaction undertaken by him in order to keep the corporate debtor as a going concern and thus cannot be regarded as a transfer of an asset.
The Disciplinary Committee however concluded that the RP not only failed to bring to the notice of the CoC the embargo imposed on the transfer of the assets of the Corporate Debtor during CIRP under Section 14 of IBC, but also allowed the moratorium to be violated continuously by letting the EMIs to be deducted out of the cash flows/ rental income of the Corporate Debtor. “ This indicates RP’s casualness and negligence in performing his duty as RP and his misunderstanding of law”, the Disciplinary Committee has said.
The Disciplinary Committee observed that Mohan Lal Jain displayed a casual and negligent approach during the conduct of the CIRP. In the present matter, the RP compromised his independence and continued making payment of EMIs to the financial creditor during CIRP from the assets of the Corporate Debtor, the Disciplinary Committee said.
The IBC provision on ‘moratorium’ stipulates prohibition of institution of suits by or against the corporate debtor, transfer, alienation or disposal of any of the assets or legal rights or beneficial interest of the corporate debtor, action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of his property. The moratorium period is analogous to the insolvency resolution process period.