Resolution Professional faces disciplinary action for failing Section 29A due diligence on suspended director applicant

Delhi HC dismissed petition challenging IBBI disciplinary action against Resolution Professional. Court held that second show cause notice was based on new information regarding cancelled MSME certificate and non-disclosure of avoidance application, thus res judicata principles did not apply. Resolution Professional failed to conduct proper due diligence regarding joint resolution applicant's eligibility under Section 29A of Insolvency Code, who was suspended director of corporate debtor. Court found no grounds to interfere with IBBI's determination of professional misconduct.

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Issues Involved:
1. Suppression of relevant facts from the Committee of Creditors (CoC).
2. Discrepancy in examining financial capability and eligibility of a Joint Resolution Applicant (PRA), Mr. Sushant Chabbra.
3. Disposal of the assets of Corporate Debtor without the approval of CoC.
4. Executing lease agreement with the Prospective Resolution Applicants with respect to assets of Corporate Debtor without the approval of CoC.

Detailed Analysis:

Suppression of Relevant Facts from the CoC:
The Petitioner was found to have concealed facts from the CoC. The Disciplinary Committee noted that all facts pertaining to the Corporate Debtor were discussed during the CoC meetings and recorded, but the Petitioner failed to disclose critical information, such as the Avoidance Application against Mr. Sushant Chabbra in the CIRP of Unitech Machines Limited. The Court upheld this finding, emphasizing the Petitioner's statutory obligation under Section 30(2) of the Insolvency and Bankruptcy Code, 2016 (the Code) to ensure that the Resolution Plan does not contravene any provisions of law.

Discrepancy in Examining Financial Capability and Eligibility of a Joint Resolution Applicant:
The Petitioner allowed Mr. Sushant Chabbra, a suspended director of the Corporate Debtor, to become a Joint Resolution Applicant based on the premise that the Corporate Debtor was an MSME. However, the MSME certificate provided by the Petitioner was found to be canceled prior to the commencement of CIRP. The Court noted that the Petitioner failed to verify this critical information and relied on the confirmation from Mr. Sushant Chabbra, who had a conflict of interest. The Court found this to be a significant lapse in due diligence, violating Section 30(2) of the Code and related regulations.

Disposal of Assets of Corporate Debtor without Approval of CoC:
The Petitioner was found to have disposed of the assets of the Corporate Debtor without obtaining the necessary approval from the CoC. This action was in direct contravention of the Code and the regulations governing the conduct of Insolvency Professionals. The Court did not specifically elaborate on this issue in the judgment but upheld the findings of the Disciplinary Committee.

Executing Lease Agreement without Approval of CoC:
The Petitioner executed a lease agreement with Prospective Resolution Applicants concerning the assets of the Corporate Debtor without the CoC's approval. This action was also found to be in violation of the Code and the regulations. The Court upheld the Disciplinary Committee's findings on this matter as well.

Conclusion:
The Court dismissed the petition, finding no grounds to interfere with the Disciplinary Committee's decision. The Petitioner was held to have contravened the provisions of the Code and its regulations, particularly in failing to carry out due diligence and suppressing critical information from the CoC. The suspension of the Petitioner's registration for two years was deemed appropriate given the violations.

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