IBBI Suspends Resolution Professional for Gross Negligence in CIRP Extension and Delayed Liquidation Filing under Insolvency Code
- REEDLAW
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REEDLAW Legal News Network reports: In a pivotal disciplinary ruling, the Insolvency and Bankruptcy Board of India (IBBI) suspended a Resolution Professional for gross negligence after he failed to seek a timely extension of the Corporate Insolvency Resolution Process (CIRP) period and delayed the filing of the liquidation application, despite explicit directions from the Committee of Creditors. The Disciplinary Committee held that such conduct undermines statutory timelines under the Insolvency and Bankruptcy Code and warrants regulatory intervention to safeguard fiduciary discipline in the insolvency ecosystem.
The IBBI Disciplinary Committee Bench, comprising Mr. Jayanti Prasad and Dr. Bhushan Kumar Sinha, both Whole-Time Members, while adjudicating the Show Cause Notice, observed that a Resolution Professional is duty-bound to comply with statutory timelines, and any delay in extending the CIRP or initiating liquidation amounts to a serious dereliction of professional duty. The Bench concluded that the failure to apply for extension within the prescribed period and the delay in liquidation filing, despite clear CoC instructions, constituted professional misconduct attracting disciplinary suspension.
The Insolvency and Bankruptcy Board of India (IBBI) issued a Show Cause Notice (SCN) against a Resolution Professional (RP), who was appointed to manage the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor. The CIRP had commenced on 08.02.2023, but the RP failed to seek an extension of the CIRP beyond the mandatory 180 days, nor did he place any proposal for extension before the Committee of Creditors (CoC). The RP continued the CIRP for over 300 days without filing the required application for extension, which was noted as a contravention of statutory provisions by both the Adjudicating Authority and the Disciplinary Committee (DC).
The RP contended that the failure to seek an extension was an unintentional procedural oversight without any fraudulent intent or personal gain, asserting that the Corporate Debtor had no substantial assets and that the CoC had already signalled intent to liquidate. He submitted corrective actions taken after realising the oversight and requested leniency based on precedent decisions involving first-time or minor procedural lapses. Nonetheless, the DC held that the statutory timelines under the Code could not be disregarded, and the RP's failure amounted to gross negligence and dereliction of duty.
Further, the RP was found to have delayed filing the liquidation application by more than a year after the CoC expressed its intent to liquidate in its third meeting. Although the RP claimed the delay was caused by the indecision of the sole CoC member and non-payment of CIRP costs, the CoC repeatedly directed him to proceed with liquidation or dissolution. The DC observed that no legal opinion on the matter was produced or discussed, and no resolution for liquidation was placed before the CoC until the ninth meeting, where the CoC finally resolved for liquidation. After this resolution, the RP still delayed filing the liquidation application, citing personal difficulties, which the DC regarded as insufficient to excuse the lack of timely compliance with the Code. The DC concluded that the RP’s conduct undermined the timeliness and integrity of the CIRP.
Consequently, in exercise of its disciplinary powers, the DC suspended the RP's registration for one year. The order notified relevant stakeholders, including the CoC and the Insolvency Professionals Institute, to take appropriate steps concerning the RP's ongoing engagements. The SCN was disposed of accordingly.
This case underscores the RP’s duty to strictly comply with statutory timelines in CIRP, timely seek necessary extensions with CoC approval, and promptly act upon CoC resolutions, particularly concerning liquidation, to maintain the integrity of the insolvency resolution process under the Code.
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