Case: Failure to represent on behalf of the CD in an arbitration proceeding. Contravention : Arbitration petition was filed by an Insurance Company against the CD. Matter was heard during CIRP and was awarded in favour o
CS Professional · Insolvency and Bankruptcy - Law and Practice · PYQS · December 2025
Case: Failure to represent on behalf of the CD in an arbitration proceeding. Contravention : Arbitration petition was filed by an Insurance Company against the CD. Matter was heard during CIRP and was awarded in favour of the CD. Consequently, the insurer handed a cheque of ₹ 8.3 Crore in the hands of the Ex-director of the CD, who accepted it as full and final settlement of the claim (thus foregoing an amount of ₹ 2.3 Crore), the correspondence in respect of claim by Insurance Company to the residential address of the Ex-Director instead of CD Address. The amount of ₹ 8.3 Crore was duly deposited by the Ex-director in the accounts of the CD. Only after the Investigating Authority raised its concern in this issue the RP filed application before NCLT claiming an additional amount of ₹ 2.3 Crore from insurer and initiated appropriate actions against the ex-director and promoter of the CD u/s 66 and 67 of the Code. Submission by IP: The IP submitted that the ex-director and promoter never informed the RP regarding settlement of the insurance claim and had filed necessary affidavits in this regard in a wrongful and clandestine manner keeping the RP in dark. Dealings with the insurer in this regard were without the prior knowledge, consent or permission of the RP. Upon being aware of the claim settlement, RP took necessary actions to file claims against the insurer and promoter and ex-director, claiming the amount of ₹ 2.3 Crore. That the amount of ₹ 8.3 Crore was deposited by the Ex-director in the Company's account without RP's knowledge and the entire sum so received by the CD was utilised to maintain going concern.
Answer & Explanation:
Section 17 of the Insolvency and Bankruptcy Code, 2016 vests the management and control of the CD with the RP and Section 25(2)(b) of the Code obligates the RP to represent and act on behalf of the CD with third parties, exercise rights on behalf of CD in judicial, quasi-judicial or arbitration proceedings. There was no reasonable ground as to why Arbitration proceeding was not within the knowledge of the RP as the notices / order / correspondence in the matter would be addressed to the CD at its registered address as against the residential address of its ex-director or promoter. RP having taken effective control on the records and documents of the CD cannot assert that proceedings were kept away from him in a wrongful or clandestine way. That the RP was ignorant of the award of insurance claim when an amount of ₹ 8.3 Crores was received in the bank account was unfathomable and reflects that RP failed to take due diligence in finding the reasons for the receipts, which is per se untenable under provisions of the Code. This issue requires further investigation and the IP's explanation is not correct. The IP failed in his duties to manage the affairs of the CD and represent it in legal proceedings.
Topics: Insolvency Professional (IP)
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