Former Promotor/Shareholder/Director of a Corporate Debtor resigned before filing of CIRP application u/s 10 of IBC and became SRA, Resolution Professional has the responsibility to conduct Section 29A due diligence, taking an affidavit for eligibility u/s 29A will not suffice – Vishram Narayan Panchpor RP of Blue Frog Media Pvt. Ltd. – NCLT Mumbai Bench
In this case, Successful Resolution Applicant(SRA) was a director of the company and resigned as a director of the company on 01.03.2018 and immediately within few months a section 10 petition was filed.
NCLT Mumbai Bench held that:
(i) This is nothing but misuse of the provisions of the Code. The SRA after contributing as a director in the mismanagement of the company is now coming forth as a Resolution Applicant, trying to gain a backdoor entry into the company.
(ii) The Resolution Professional has the responsibility to conduct Section 29A due diligence. A prospective Resolution Applicant submitting an affidavit stating that he/she is eligible under Section 29A to submit resolution plan will not suffice. Adequate due diligence on the prospective Resolution Applicants and its connected persons needs to be conducted effectively and within the requisite timeline to identify ineligibility, if any. The Resolution Professional should seek clarifications or additional information or document from the prospective Resolution Applicants, if needed for conducting the due diligence.
(iii) Section 29A in its entirety not only restricts promoters but also the people related/connected with the promoters. It is obvious that the intention behind inserting Section 29A is to restrict those persons from submitting a resolution plan who could have an adverse effect on the entire corporate insolvency resolution process.
(iv) The SRA is not eligible to submit a Resolution Plan as he was a former promotor/director of the company and has contributed to the downfall of the company.
