Insolvency Professional (IP) Regulations provides in the Code of Conduct must be followed during the processes: IBBI

Insolvency Professional (IP) Regulations provides in the Code of Conduct must be followed during the processes: IBBI

IBBI Disciplinary Committee debars A Arumugam from taking up new assignments for two months for not complying with rules

The Disciplinary Committee (DC) of IBBI on 5 January 2021 directed that A. Arumugam, Resolution professional (RP) shall not accept any new assignment under the IBC for two months from the date of coming into force of this order.

In this matter, the NCLT, Chennai Bench (AA), admitted the application u/s 7 of the Insolvency and Bankruptcy Code, 2016 (Code) for initiating Corporate Insolvency Resolution Process (CIRP) of M/s RRP Housing Private Limited (CD). M/s Sri Adinath Enterprises was the financial creditor (FC) of the CD. The AA appointed Tharuvai Ramachandran Ravichandran as IRP. Later, on the recommendation of Committee of Creditors (CoC), AA vide order dated 19 April 2018 appointed IP, Mr Arumugam as the Resolution Professional (RP).

An Inspection Authority was constituted to conduct an inspection of the IP, Mr Arumugam for his role as RP in the CIRP of RRP Housing Pvt. Ltd. and the inspection was conducted on 23 September 2019.

The SCN alleged contraventions of section 25(g), 29(1), 208(2)(a) and (e) of the Code, Regulation 16(A)(1), 16A (2), 36, 39A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2017 (CIRP Regulations) and Regulation 7(2)(a) and (h) of the IBBI (Insolvency Professionals) Regulations, 2016 (IP Regulations) and clause 10, 13, 14, 16, 19, 20 and 25A of the Code of Conduct under regulation 7(2) thereof.

The DC observed that Mr Arumugam is a professional and he is expected to undertake all actions which are required to take control of the assets of CD. This is the most important and primary duty and without the collection of information of assets and control and custody of assets, RP cannot determine the financial position of the CD and cannot determine the avoidance transactions too.

With respect to the issue of preservation of the records pertaining to CIRP in the electronic and physical mode as per the Regulation 39A of the CIRP regulations, the DC noted that in the instant matter, the liquidation order was passed on 4 April 2019 and vide same order, he was directed to act as the acting liquidator till the new liquidator was appointed.

Thus, Mr Arumugam acted as the RP till 4 April 2019 and Regulation 39A of the CIRP Regulations, which came into force on 5 October 2018 was applicable in the matter. Hence, his submission based on Regulation 39A was not tenable. However, the DC took on record his submission that he was maintaining the records in physical as well as electronic mode, therefore, there appeared to be no contravention of clause 16 of the Code of Conduct.

The DC also found that despite the clear provisions in clause 19 of the Code of Conduct, the RP failed to provide the copies of the records which formed the basis of the constitution of CoC, claims receipt and verification to the IA. Thus, clause 19 of the Code of Conduct of IP Regulations provided in the First Schedule of IP Regulations had not been complied with by the RP.

It was seen from the records that the RP had requested all homebuyers to choose an Authorised Representative from the list of three RPs and intimate him about the same by 7 August 2018. The homebuyers conveyed the decision with respect to the appointment of the Authorised Representative only in early September 2018 and this showed that the homebuyers failed to take the decision with respect to the appointment of the Authorised Representative expeditiously and in a timely manner.

The DC concluded that Mr Arumugam, as an RP, had contravened the provisions of section 208(2)(a), clause 19 of the Code of Conduct under regulation 7(2)(h) of the IP Regulations for not providing the copies of certain records to the IA.