TMI Blog2018 (8) TMI 838X X X X Extracts X X X X X X X X Extracts X X X X ..... BI ORDER In the matter of Mr. Rakesh Wadhwa, Insolvency Professional under sub-regulations (7) and (8) of regulation 11 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 1. Background 1.1 The Insolvency and Bankruptcy Board of India (Board) issued a show cause notice dated 21st March, 2018 (SCN) to Mr. Rakesh Wadhwa, 13, GF, Indra Vihar, Near Kingsway Camp, New Delhi - 110009, who is a Professional Member of the ICSI Institute of Insolvency Professionals and an Insolvency Professional (IP) registered with the Board with registration number IBBI/IPA-002/IP-N00159/2017-18/10428. The Board referred the SCN, response of Mr. Wadhwa to the SCN and other material available on record to the Disciplinary Committee (DC). 1.2 From the material available on record, the DC notes the following sequence of events leading to the issuance of the SCN: 1.2.1 A financial creditor, namely, Reliance Commercial Finance Limited (applicant-creditor) filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) before the Hon ble Adjudicating Authority for initiating corporate insolvency resolution process (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Adjudicating Authority on 2nd August, 2017. 1.2.6 In the meeting held on 3rd August, 2017, the corporate debtor, as resolution applicant, stated that it had reached a settlement with the applicant-creditor and submitted that settlement as resolution plan . The IRP examined the said resolution plan then and there and presented the same to the CoC for its consideration. The CoC, which comprised only the applicant-creditor approved the same. The resolution plan' stated that there was no claimant other than the applicant-creditor and the corporate debtor had entered into a settlement agreement with the applicant-creditor in terms of which it had delivered four post-dated cheques. 1.2.7 The IRP received a claim from another financial creditor, namely, Bank of India (BoI) on 3rd August, 2017. Vide an e-mail dated 4th August, 2017, he responded to BoI that he did not question the claim, but his term as IRP had ended and the CoC in its meeting held on 3rd August, 2017 had approved the settlement between the corporate debtor and the applicant-creditor. 1.2.8 On 4th August, 2017, the IRP drew up the minutes of the meeting of the CoC held on 3rd August, 2017. 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to approve the Resolution Plan as it fails to conform to the mandatory provisions of the Code and Regulations framed by the Insolvency and Bankruptcy Board of India. 1.2.12 The Board took on record the Order dated 4th October, 2017 of the Hon ble Adjudicating Authority. On consideration of the responses dated 31st January, 2018 and 12th February, 2018 of Mr. Wadhwa on the observations of the Hon ble Adjudicating Authority and other material available on record, the Board formed a prima facie opinion that Mr. Wadhwa has contravened several provisions of the law rendering him a person not fit and proper to continue as an IP. Accordingly, it issued the SCN to Mr. Wadhwa as to why suitable actions permissible under section 220(2) of the Code, including cancellation of registration, should not be taken against him. Mr. Wadhwa responded to the SCN vide e-mail dated 9thApril, 2018 and availed of an opportunity of personal hearing before the DC on 24th April, 2018. 2. Alleged Contraventions A summary of alleged contraventions is as under: (a) The term of Mr. Wadhwa as the IRP expired on 30th July, 2017 in terms of section 16(5) of the Code. However, he continued as IRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmit its claims. Regulation 12(2) of the CIRP Regulations allow an IRP/RP to accept claims till the approval of resolution plan by the CoC. Though it has been claimed that the claim of BoI was submitted by a mail on 2nd August, 2017, he never received the said mail. He received a parcel from BoI only on 3rd August, 2017 submitting claim, after approval of resolution plan by the CoC. He informed the BoI that his term as IRP had expired on 3rd August, 2017 after the meeting of the CoC and, therefore, he cannot entertain the claim. (c) The first meeting of the CoC was held on 3rd August, 2017. In the meeting, the corporate debtor submitted a resolution plan that was approved by the CoC. The resolution plan was a settlement of the dues of between the corporate debtor and the applicant-creditor. Since the claim of the only creditor was settled, the CoC did not appoint a RP. (d) In his reply to the objections raised by BoI to the resolution plan dated 3rd August, 2017, filed before the Hon ble Adjudicating Authority, Mr. Wadhwa had prayed: to extend the mandate of the IRP in view of the requirement under Section 16(5) of the Code to continue the corporate insolvency res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on his own, and (ii) the CIRP commenced from the changed date of admission (8th December, 2017) and not from the date of receipt of the Order by the IRP (5th December, 2017). Thus, Mr. Wadhwa continued beyond 30th July, 2017 in breach of explicit provision of section 16(5) of the Code and clauses 10 and 13 of the Code of Conduct appended to the IBBI (Insolvency Professionals) Regulations, 2016 (IP Regulations). 4.2 It is an undisputed fact that the first meeting of the CoC was held on 3rd August, 2017 vide notice dated 1st August, 2017, without giving at least seven days notice as required under CIRP Regulations. Mr. Wadhwa has not responded directly to this contravention. His oral submission gave an impression that had he given seven days notice, the meeting would have happened after expiry of his term. This makes clear that the IRP tried to ensure that the meeting of the CoC happens and the resolution plan is approved during his term as IRP. Mr. Wadhwa suggested at the hearing that regulation 19(2) of the CIRP Regulations allows the CoC to reduce notice period to not less than 24 hours. However, there is no evidence of CoC reducing the notice period to less than seven days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 17 of the Code, he exercises the powers of the Board of Directors of the corporate debtor. Why did he not provide information to himself to enable him to prepare the information memorandum? Further, as the IRP, Mr. Wadhwa is the final authority for all decisions taken by or on behalf of the corporate debtor. He has stated and all records show that the corporate debtor, as resolution applicant, submitted the resolution plan at the CoC. Thus, Mr. Wadhwa himself became the resolution applicant in the capacity of the corporate debtor, submitted the resolution plan at the meeting of the CoC chaired by him, examined the plan himself at the CoC, facilitated approval of the plan by the CoC, closed the CIRP on 3rd August, 2017. In the process, he ensured that no RP is appointed. These are in contravention of provisions of sections 17, 18(1)(a) and (b), 22, 23, 24, 25(2)(h), 29 and 30 of the Code. 4.4 The soul of the Code is resolution plan. In the matter of Bharatbhai Vrajlalbhai Selani (Dev Cotex Pvt. Ltd.) v. State Bank of India, the Hon ble Adjudicating Authority observed : The Object of the Code is, no doubt, to protect the genuine Corporate Debtors with a view to maximis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Mr. Dua provided the audited balance sheet for 2014-15 to the IRP on the same day and assured to provide statements for subsequent years by the end of August, 2017. The IRP constituted CoC on the same day and issued notice on the same day for holding the first meeting of the CoC on 3rd August, 2017. The agenda did not have complete information memorandum nor did it contain the resolution plan . In the meeting held on 3rd August, 2017, the corporate debtor placed a resolution plan on the table. The IRP examined the plan then and there and presented the same to the CoC for its consideration then and there and the CoC considered and approved the same. The resolution plan so approved was only a settlement between the applicant-creditor and the corporate debtor. Leaving aside whether settlement is permissible under the Code, the fact that the entire CIRP was cramped into two days in the manner narrated above raises doubts about the integrity of the process. Instead of appointing a RP in the first meeting of the CoC as required under section 22 of the Code, preparing an information memorandum and providing the memorandum to resolution applicants as required under section 29, invit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate debtor and the register of charges indicate the claims of BoI. Yet, the information memorandum did not carry the amount due to BoI. The Code and regulations provide for various tasks within a CIRP and timeline for them. One cannot imagine that a resolution plan would be received, considered and approved in the first meeting of the CoC, without an agenda on the same and without an information memorandum, unless it is designed to keep BoI out of the process. The IRP did not adhere to timeline for various activities specified in the law and contravened clause 13 of the Code of Conduct appended to the IP Regulations. Further, the IRP failed to comply with provisions of section 18(1)(a) and (b) that oblige him to collect all information and collate all claims so that the resolution plan factors in all liabilities. It is fatal for a resolution plan if it does not factor in all relevant claims. 4.7 Mr. Wadhwa s submission that he had prayed for extension of his term as IRP to continue the CIRP of the corporate debtor does not help. This is only a reaction after the Hon ble Adjudicating Authority saw through his malafide design. Mr. Wadhwa connived with the applicant-creditor and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include BoI in the CoC in contravention of provisions of section 18(1)(a) and (b), 21(2), and 208(2)(a) of the Code, regulation 12(2), 36, and 39 of the CIRP Regulations, and clause 1, 12, 13 and 14 of the Code of Conduct appended to the IP Regulations; and (v) acted in connivance with applicant-creditor and the corporate debtor to subvert the CIRP and frustrate the objective of the Code, and severely compromised his standing as a fit and proper person in breach of regulation 7(2) (a) and (b) read with regulation 4(g) of the IP Regulations and clauses 1 and 5 of the Code of Conduct appended to the IP Regulations. 5.3 In view of the above, Mr. Wadhwa has contravened provisions of - (i) Sections 16(5), 17, 18(1)(a) and (b), 21(2), 22, 23, 24, 25(2)(h), 29, 30 and 208(2)(a) of the Insolvency and Bankruptcy Code, 2016; (ii) Regulations 4(g), 7(2)(a) and (b), 12(2), 19(2), 36, 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016; and (iii) Regulations 7(2)(a), 7(2)(b) of the IBBI (Insolvency Professionals) Regulations and clauses 1, 5, 10, 12, 13, 14, 15 and 24 of the Code of Conduct appended to said r ..... 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