#IBBI: PENALIZES RP FOR MAKING EMI PAYMENTS TO HDFC DURING CIRP VIOLATING MORATORIUM#
Channel: R V Seckar
Date: 2020-06-05

It is precarious to be an IP as IBBI levies a whooping fine of Rs 34.22 lacs on RP for Dereliction of Duty

IBBI: PENALIZES RP FOR MAKING EMI PAYMENTS TO HDFC DURING CIRP VIOLATING MORATORIUM
In the matter of  Mr. Mohan Lal Jain Resolution Personnel (RP). 
a) In the matter of Mack Soft Tech Private Limited, it has been observed from  the minutes of the 3rd CoC meeting dated 16th March 2018 that the RP had  sought approval from the CoC members to continue making payments  through EMIs to HDFC Pvt. Ltd. („HDFC‟), one of the Financial Creditors of  the CD. That after obtaining approval from CoC members, the RP continued  to make payments to HDFC during CIRP which is in violation of Section  14(1)(e) of the Code which states that transfer and disposal of any of the  assets of the CD is prohibited during the CIRP.  
IBBI imposes a penalty of Rs. 34.22 lakh on an RP, holds that the RP displayed utter misunderstanding of IBC provisions and compromised his independence by continuously making payment of EMIs to the Financial Creditor from the assets of Corporate Debtor during CIRP; Notes that – (i) RP sought approval from CoC members to continue making payments through EMIs to HDFC, one of Corporate Debtor’s Financial Creditor, (ii) after obtaining CoC approval, RP continued making such payments in violation of Sec. 14(1)(e) of IBC which states that transfer and disposal of any of the assets of the Corporate Debtor is prohibited during CIRP; Rejects RP’s contention that the payment of EMIs was made as per the Facility agreement and thus, the same is not violative of Sec. 14 while remarking that “IBC is an exhaustive code dealing with the Insolvency Law and therefore, in the event of an inconsistency between a covenant and IBC

 it is evident that the latter would prevail.”; Referring to RP’s submission that payment of EMI was a routine business transaction in order to keep the Corporate Debtor as a going concern, IBBI observes that repayment of loan by way of EMIs to the financial creditors is clearly a financing activity which cannot be regarded as “ordinary course of business of the Corporate Debtor” or even necessary to keep it as a going concern; Lastly w.r.t. CoC’s commercial wisdom, rules that “…the decision of the CoC to ratify and approve the payment of EMI to FC in preference to other Creditors, and also to authorise HDFC Limited to continue to recover the future EMI payments from the surplus funds available in the Bank Account of the CD, can by no stretch of imagination come within the purview of commercial wisdom of CoC and goes against the basic objectives of the IBC.”:Insolvency and Bankruptcy Board of India

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