Insolvency professional duties: continuing CIRP after a withdrawal request and incurring avoidable costs was found unjustified.
An insolvency professional must act with reasonable care, diligence, transparency and responsibility, and where a withdrawal application under Section 12A is filed before constitution of the committee of creditors, the process should not be mechanically continued without clear directions from the Adjudicating Authority. Here, continuation of the corporate insolvency resolution process after the withdrawal request was found unjustified, the disallowance of valuation-related and certain legal insolvency resolution process expenses as non-essential was upheld on the record, and adverse remarks on the interim resolution professional's conduct were held warranted because avoidable costs were incurred without adequate clarification.
Issues: (i) whether the interim resolution professional was justified in continuing the corporate insolvency resolution process after filing the withdrawal application under Section 12A; (ii) whether the disallowance of certain claimed insolvency resolution process expenses as non-essential was justified; and (iii) whether the adverse remarks on the conduct of the interim resolution professional were warranted.
Issue (i): whether the interim resolution professional was justified in continuing the corporate insolvency resolution process after filing the withdrawal application under Section 12A.
Analysis: The withdrawal application was filed before constitution of the committee of creditors and all stakeholders were pursuing closure of the process. In those circumstances, the interim resolution professional was expected to seek clear directions from the Adjudicating Authority instead of mechanically continuing the process. Mere attendance before the forum did not justify carrying on the process at full speed after the withdrawal request had been filed.
Conclusion: The continuation of the process was not justified and the finding against the interim resolution professional was upheld.
Issue (ii): whether the disallowance of certain claimed insolvency resolution process expenses as non-essential was justified.
Analysis: The expenses were examined item-wise, and the activities disallowed were those dependent on records and assets that had not been handed over by the former management. The classification of expenses as essential and non-essential was used as a practical method for determining allowability. The disallowance of valuation-related expenses and certain legal expenses was found to be supported by the record.
Conclusion: The disallowance of the impugned expenses was upheld.
Issue (iii): whether the adverse remarks on the conduct of the interim resolution professional were warranted.
Analysis: An insolvency professional is bound by the code of conduct, including the duty to act with reasonable care, diligence, transparency, and responsibility. Where withdrawal of the process was already in play, pushing forward the process without adequate clarification and thereby increasing costs was found to be inconsistent with those obligations.
Conclusion: The adverse remarks on the conduct of the interim resolution professional were warranted.
Final Conclusion: The impugned order was affirmed in full, and no interference was called for with the denial of the relief sought by the appellant.
Ratio Decidendi: An insolvency professional must act with reasonable care and diligence and, where a withdrawal application is pending before constitution of the committee of creditors, should not mechanically continue the process or incur avoidable costs without seeking clear directions from the adjudicating authority.
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