2022 (2) TMI 906 - AT - Insolvency and Bankruptcy

Suspended directors must cooperate with Resolution Professional; Tribunal clarifies prosecution procedure under IBC Section 70

Vivek Prakash (Suspended Director & MD) Versus Dinesh Kr. Gupta, Liquidator of M/s Jarvis Infratech Pvt. Ltd. & Anr.

The Adjudicating Authority determined that suspended directors were obligated to provide documents and cooperate with the Resolution Professional, ... Seeking direction to suspended directors and management to handover the complete books of accounts and other financial records and information to Resolution Professional and further all the fixed assets which belong to the Corporate Debtor - seeking for clarification and explanation as to the financial transactions which have been reported in Provisional Transaction Audit Report - also, seeking full assistance and cooperation in complete harmony and peace to the Resolution Professional - Section 19 of IBC - HELD THAT:- The order impugned has been passed in exercise of power under Section 19(2) of the IBC. Section 19 of the IBC gives extensive power to the Adjudicating Authority to issue direction to the personnel of the Corporate Debtor to cooperate. The prosecution under Section 70 has to be on complaint filed by the Board or Central Government or person authorized by the Central Government. The submission of the Learned Counsel for the Appellant that Resolution Professional is not empowered to initiate the prosecution is correct. Learned Counsel for the Resolution- Resolution Professional has however, explained that no prosecution has been initiated under Section 70 by the Resolution Professional and he has only sent the information to the Board and it is for the Board to take appropriate action. It is thus clarified that any prosecution under Section 70 can be initiated only in accordance with the procedure as provided under Section 236(2) and not by the Resolution Professional - However, with regard to any other offences including the offences under Indian Penal Code, if any complaint is filed by the Resolution Professional before a Police Station that is separate issue and has no concern with the offences under Section 70 and the order impugned shall have no bearing on such proceedings by a Police Station and they are independent proceedings which has to be considered and decided in accordance with law. There is no ground to entertain this Appeal. The Appeal is disposed of Issues:1. Failure to provide documents by suspended directors.2. Responsibility of directors to furnish information.3. Direction for initiating prosecution under Section 70 of the IBC.4. Power of Adjudicating Authority under Section 19(2) of the IBC.5. Clarification on the initiation of prosecution under Section 70.Analysis:1. The appeal was filed against an order passed by the Adjudicating Authority regarding the failure of suspended directors to provide documents and cooperate with the Resolution Professional. The Authority concluded that both directors were liable to hand over the documents and furnish required information, directing the Resolution Professional to initiate a criminal case against them under Section 70 of the IBC.2. The Appellant contended that all documents were provided, and it was the responsibility of Respondent No.2 to provide further documents if needed. The Resolution Professional had filed a police complaint, but no FIR had been registered yet. The Respondent argued that there was total non-cooperation by the Appellant and Respondent No.2, leading to the filing of an application under Section 19(2) which resulted in the impugned order.3. The Adjudicating Authority exercised its power under Section 19(2) of the IBC, which allows issuing directions to personnel of the Corporate Debtor to cooperate. Section 19(3) mandates compliance with the resolution professional's instructions and cooperation in managing the corporate debtor. If offenses under Section 70 are committed, prosecution can only be initiated as per the procedure outlined in Section 236.4. Prosecution under Section 70 can only be initiated by the Board, Central Government, or an authorized person, not by the Resolution Professional. The Resolution Professional clarified that no prosecution was initiated under Section 70, and any such action would be taken by the Board. The order had no impact on separate proceedings for other offenses under the Indian Penal Code.5. The Appellate Tribunal clarified that prosecution under Section 70 must follow the procedure in Section 236(2) and cannot be initiated by the Resolution Professional. Any other offenses, including those under the Indian Penal Code, are separate matters for which a complaint to the police station can be filed independently. The appeal was disposed of based on these clarifications.