The Insolvency and Bankruptcy Board of India (IBBI) Disciplinary Committee (DC) noted that acts of the Interim Resolution Professional (IRP) for non-submission of documents to newly appointed IRP have caused delays in the process which could have been avoided. Hence, the DC found that IRP has violated sections 23(3), 17(2)(e), 208(2)(a) and 208(2)(e) of the Code read with Clause 1, 2, 12, 13, 14 of the Code of Conduct.
Facts:
The Hon’ble NCLT, New Delhi Bench-IV (AA) vide order dated 11.08.2021 admitted an application under section 9 of the Code for initiating the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor and Mr. Prateek Kathuria was appointed as the Interim Resolution professional (IRP). Mr. Prateek Kathuria was replaced by Mr. Prabhat Ranjan Singh as IRP vide order of AA dated 04.04.2022 who was later confirmed as Resolution Professional (RP) vide order of AA dated 25.05.2022. Since there have been no assets of the CD and the business was closed since June 2021, the Committee of Creditors (CoC) in its 5th meeting dated 30.06.2022 passed a resolution for liquidation of CD and the application for the same was pending before AA.
The IBBI, in the exercise of the powers conferred to it under section 218 of the Code read with the Investigation Regulations, appointed an Investigating Authority (IA) to conduct the Investigation of Mr. Prateek Kathuria (IRP). Based on the material available on record including the Investigation Report, the Board issued the Show Cause Notice (SCN) to Mr. Prateek Kathuria (IRP) on 21.09.2022. The SCN alleged contravention of sections 23(3), 17(2)(e), 208(2)(a) and 208(2)(e) of the Code read with clauses 1, 2, 12, 13, 14 of the Code of Conduct as specified in the First Schedule of IP Regulations (Code of Conduct). Mr. Prateek Kathuria replied to the SCN on 11.10.2022.
Contravention - Failure to handover the documents:
Section 23(3) of the Code provides that in case of any appointment of a resolution professional under sub-sections (4) of section 22, the IRP shall provide all the information, documents and records pertaining to the CD in his possession and knowledge to the resolution professional.
IBBI (Board)'s observations:
The Board noted that Mr. Prateek Kathuria was appointed as IRP by the AA vide its order dated 11.08.2021 in CP(IB) 460/ND/2020. Further, AA vide order dated 04.04.2022 passed in IA No. 4977 of 2021 and replaced him with another IRP with direction to Mr. Prateek Kathuria to deliver all the documents in his possession in respect of CIRP of CD including audit reports etc. to Mr. Prabhat Ranjan Singh, newly appointed IRP within seven days.
The Board observed that Mr. Prabhat Ranjan Singh vide email dated 06.04.2022 followed by reminder e-mail dated 08.04.2022 requesting Mr. Prateek Kathuria to hand over the various records, information, and documents as per the directions of AA’s order dated 04.04.2022. However, vide email dated 09.04.2022 Mr. Prateek Kathuria replied to him that he would not hand over the charge to him unless he will get his fees as well as the reasoning and apology letter in writing from AA for adjourning such crucial insolvency matters and not deciding his fees for a such long period and also reasoning for passing two purported wrong orders.
The Board further noted that in reply to the notice of investigation issued to Mr. Prateek Kathuria vide email dated 23.06.2022 under regulation 8(1) of Investigation Regulations, Mr. Prateek Kathuria had admitted to having refused to hand over the documents and records pertaining to CIRP of the CD to Mr. Prabhat Ranjan Singh due to non-receipt of his fees as CoC and AA were unable to decide on his fees. The provisions of the code and regulations made thereunder do not prescribe any pre-condition like payment of fees to IRP for handing over records and documents pertaining to CIRP by IRP/RP to newly appointed IRP and refusal to do so in violation of section 23(3) of the Code. However, in this case, Mr. Prateek Kathuria’s contention that the AA was unable to decide on his fees was factually incorrect as AA in its order dated 04.04.2022 has settled the issue of his fees. Hence, Mr. Prateek Kathuria’s reply to IA was misleading.
The Board noted that it is evident that he intentionally and purposefully did not give the documents/records pertaining to the CIRP of the CD to the newly appointed IRP Mr. Prabhat Ranjan Singh despite clear and unambiguous directions from the AA. Thus, not only did Mr. Prateek Kathuria fail to provide the necessary cooperation in handing over the documents to the newly appointed IRP but also wilfully disobeyed the order of the AA.
Hence, the Board was of the prima facie view that the IRP has inter alia violated sections 23(3), 17(2)(e), 208(2)(a) and 208(2)(e) of the Code read with Clause 1, 2, 12, 13, 14 of the Code of Conduct as specified in the First Schedule of IP Regulations (Code of Conduct).
The Board referred the SCN, written and oral submissions of Mr. Prateek Kathuria (IRP), 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.
Disciplinary Committee (DC)'s Analysis:
The DC noted that AA has directed Mr. Prateek Kathuria twice. Firstly on 04.04.2022 while replacing him and appointing Mr. Prabhat Ranjan Singh as IRP and secondly on 29.04.2022 when IA 1988/ND/2022 was filed by Mr. Prabhat Ranjan Singh, newly appointed IRP, stating that Mr. Prateek Kathuria has not handed over the documents related to the CD. Mr. Prabhat Ranjan Singh communicated the directions of AA on 29.04.2022 to Mr. Prateek Kathuria vide email dated 29.04.2022 itself. The DC noted that Mr. Prateek Kathuria did not comply with the directions of AA and requests from Mr. Prabhat Ranjan Singh.
The DC noted that Mr. Prateek Kathuria forwarded the documents to Mr. Prabhat Ranjan Singh on 06.10.2022 which was after the issuance of SCN dated 21.09.2022.
The DC notes that the fees of Mr. Prateek Kathuria have been fixed by AA vide order dated 04.04.2022. Hence the submission of Mr. Prateek Kathuria on the issue was not tenable.
In light of the above facts, the DC noted that the acts of Mr. Prateek Kathuria for non-submission of documents to the newly appointed IRP caused a delay in the process which could have been avoided. Hence, the DC finds that Mr. Prateek Kathuria has violated sections 23(3), 17(2)(e), 208(2)(a) and 208(2)(e) of the Code read with Clause 1, 2, 12, 13, 14 of the Code of Conduct.
The DC noted that handing over the documents with a considerable lag by Mr. Prateek Kathuria was a serious cointervention which should have been avoided at any cost. He should have been careful and vigilant in his conduct as IRP and should have been careful and prompt in forwarding documents of the CD to the newly appointed IRP. The delay in transferring documents causes a delay in the process and leads to the value erosion of CD.
The DC was of the view that the aforesaid contravention was made by the IRP due to an unprofessional attitude and wrong understanding of the provisions of the Code and requires severe indictment and suspension. The IRP should have applied his mind independently being an insolvency professional and not doing so resulted in utter disregard and disrespect to the order of AA. However, keeping in view of a written apology aided by the fact that this was his first case, some leniency is being conceded as a one-time measure.
The DC, in the exercise of the powers conferred under section 220(2) of the Code read with regulation 13 of the IBBI (Inspection and Investigation) Regulations, 2017 directed Mr. Prateek Kathuria to undergo 50 hours pre-registration educational course. In addition, he will be working as a probationer for four months with other experienced IP so nominated by the IPA under which he is registered. Till completion of these actions, the Authorisation for assignment (AFA) of Mr. Prateek Kathuria will remain in suspended animation and he will not undertake any fresh assignment in the capacity of Insolvency Professional.
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