IBBI penalises IP for not taking due diligence while performing IRP duties

INSOLVENCY AND BANKRUPTCY BOARD OF INDIA
(Disciplinary Committee)

No. IBBI/DC/37/2020

29th October, 2020

Order

In the matter of Mr. Sundaresh Bhat, Insolvency Professional (IP) under Regulation 11 of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016.

This Order disposes of the Show Cause Notice (SCN) No. IBBI/IP/INSP/2019/34 dated 30th June, 2020 issued to Mr. Sundaresh Bhat, Level 9, the Ruby, North West Wing, Senapati Bapat Road, Dadar West, Mumbai City, Maharashtra – 400028, who is a Professional Member of the Indian Institute of Insolvency Professionals of ICAI (“IIIP-ICAI”) and an Insolvency Professional (IP) registered with the Insolvency and Bankruptcy Board of India (Board/IBBI) with Registration No. IBBI/IPA-001/IP-P00077/2017-2018/10162.

Background

The CIRP in the matter of Mack Soft Tech was initiated vide order dated 11th August, 2017 of NCLT, Hyderabad (‘AA’) and consequently, a moratorium was declared as per section 14 of the Code. Mr. Sundaresh Bhat was appointed by the AA as an IRP. He was confirmed as RP by the CoC in the meeting held on 19th September, 2017. However, the CoC in its second meeting held on 08th January, 2018 decided to replace Mr. Sundaresh Bhat and appointed Mr. Mohan Lal Jain as RP who took over the charge on 7th February, 2018.

1.1 The Board had issued the SCN dated 30th June, 2020, to Mr. Sundaresh Bhat based on material available on record including Final Inspection Report, dated 13th March, 2020, in respect of his role as the Interim Resolution Professional (IRP) in the CIRP of Mack Soft Tech Private Limited (‘CD’) who was appointed as such vide order dated 11th August, 2017 by NCLT, Hyderabad. The SCN alleged contraventions of section 14(1) (b) and section 208 (2) (a) & (e) of the Insolvency and Bankruptcy Code, 2016 (Code), regulation 7(2) (a) and (h) of the IBBI (Insolvency Professionals) Regulations, 2016 (IP Regulations) read with clauses 2, 5, 10 and 14 of the Code of Conduct contained in the First Schedule of the IP Regulations, Circular No. IP/005/2018 dated 16th January 2018 and Circular No. IBBI/IP/013/2018 dated 12th June 2018 issued by IBBI. Mr. Sundaresh Bhat replied to the SCN vide letter dated 21st July, 2020.

1.2 The Board referred the SCN, response of Mr. Bhat to the SCN and other material available on record to the Disciplinary Committee (DC) for disposal of the SCN in accordance with the Code and Regulations made thereunder. Mr. Bhat availed an opportunity of personal e-hearing before the DC on 21st September, 2020 wherein he was represented by Mr. Zubin Mehta, Advocate. Thereafter, Mr. Bhat submitted an Addendum to the Reply to the SCN vide email dated 25th September, 2020 in support of submissions made during the course of e-hearing.

2. Alleged Contraventions and Submissions

Contraventions alleged in the SCN and Mr. Sundaresh Bhat’s written and oral submissions thereof are summarised as follows.

I. Contravention

2.1 The Hon’ble NCLT, Hyderabad Bench (AA) vide order dated 11th August 2017 admitted the application for CIRP in the matter of Mack Soft Tech Pvt. Ltd. (CD) and declared moratorium as per section 14 of the Code. It has been observed from the minutes of 1st CoC meeting dated 19th September, 2017 that Mr. Bhatt had placed the cash flow statement for the period 11th August, 2017 to 18th September, 2017 showing that loan repayment of Rs. 2,74,92,240/- was made to HDFC Limited during the CIRP, which is the financial creditor. It was also observed from the minutes of 2nd CoC meeting, dated 8th January, 2018, that the IRP had placed agenda for ratification and approval of payment of EMI towards principal loan along-with interest to HDFC Limited. Thus, regular payments were made from the assets of CD to HDFC Ltd.

2.1.1 Further, it has been observed from the minutes of 1st CoC meeting that Mr. Bhat informed the CoC members that since the Company is a going concern, all expenses/payments pertaining to the period prior to the commencement of CIRP has also been paid. Some instances of pre-CIRP expenses made by Mr. Bhat during CIRP are as follows:

• Retainership fee of Rs. 21,300/- for the month of May and June 2017 to M. Bhaskara Rao & Co.

• Property maintenance charges of Rs. 11,39,906/-for the month of May 2017 and Security Charges of Rs. 9,48,455/- for the month of May, 2017 to Cushman and Wakefield Property Management Services India Pvt. Ltd.

• Property maintenance charges of Rs. 8,422/- for the month of May 2017 and water tanker hiring charges of Rs. 39,881/- for the month of June 2017 to Tropical Ecology Pvt. Limited.

• Electrical consumables of Rs. 26,891/- for the month of July 2017 to Vaagdevi Enterprises.

• Accounting Services of Rs. 72,000/- for the month of July and August 2017 to Peregrine Guarding Pvt. Ltd.

2.1.2 Thus, Mr. Bhat made payment towards routine expenses pertaining to the period prior to CIRP commencement date after initiation of CIRP. In view of the above, the Board is of prima facie view that Mr. Bhat violated section 14(1)(b), 208 (2) (a) and 208 (2)(e) of the Code, regulations 7(2)(a) and (h) of the IP Regulations and clauses 5 and 14 of the Code of Conduct in the First Schedule of the said IP Regulations.