NCLT Mumbai Urges IBBI Advisory To Cut Insolvency Professionals' Dependency On Suspended Management Records

The National Company Law Tribunal (NCLT) at Mumbai has suggested that the Insolvency and Bankruptcy Board of India issue an advisory to insolvency professionals and financial creditors on reducing their dependence on information supplied by suspended management and on actively using third-party sources to reconstruct company records.

A  coram of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar made the suggestion while dealing with an application filed by the resolution professional of Neo Corp International Ltd, who alleged fraudulent transactions during the period before the company entered insolvency.

The bench observed, “The heavy dependence of insolvency professional on provision of financial information from the suspended board requires proper training of the insolvency professional as well as CoC members so that they may explore alternative available avenues, which are readily there with third persons in this digital era, to assimilate historical financial information in relation to corporate debtor.”

It added, “The IBBI may look into this aspect and consider disseminating proper advisory to Insolvency Professionals to do so and to the Financial Creditors/CoC members to insist upon the same by having regular updates from insolvency professional in their meetings on this aspect.”

Neo Corp was admitted into insolvency on September 19, 2019. During the proceedings, the resolution professional moved the tribunal under the Insolvency and Bankruptcy Code, accusing the company's former directors of several questionable transactions dating back to 2012–2016.

The suspended management claimed they were unable to provide records because the company's servers and documents had been seized during income tax search operations carried out in early 2015.

The tribunal noted that amendments to the CIRP Regulations now allow insolvency professionals to obtain information directly from banks, auditors, statutory authorities, and other specified third parties.

Despite this, the tribunal found that no serious effort was made to independently collect such material or to rebuild the company's financial history. Instead, the process largely stalled due to the non-cooperation of the suspended directors.

The bench also pointed out that the audit report for the year ended March 31, 2016, did not record any failure to produce books of account, which contradicted the stand taken by the suspended management. It noted that bank statements and other third-party records could have been accessed to verify past transactions.

In that context, the tribunal said insolvency professionals and committee of creditors members must actively explore available digital trails and external records rather than waiting indefinitely for cooperation from former directors and reiterated that regulatory guidance from the IBBI would help address this recurring issue.