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TMI Blog2018 (11) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... er 3, Raheja Tipco Heights, Rani Sati Marg, Malad (East) Mumbai City - 400097, Maharashtra. Mr. Golla is a professional member of the ICSI Institute of Insolvency Professionals and an Insolvency Professional (IP) registered with the Insolvency and Bankruptcy Board of India (Board) with Registration No. IBBI/IPA-002/IP-N00095/2017-2018/10238. Mr. Golla replied to the SCN vide his letter dated 10th July, 2018. The Board referred the SCN, response of Mr. Golla to the SCN and other material available on record to the Disciplinary Committee (DC) for disposal. Mr. Golla appeared for a personal hearing along with the learned Advocate, Mr. Davesh Bhatia before the DC on 30th July, 2018. He has submitted written submission vide mail dated 8th August, 2018 after the personal hearing. Preliminary Issues 2. First things first. Mr. Golla has raised four preliminary issues, as under: 2.1 Mr. Golla has submitted that he has not been supplied copies of documents relied upon by the Board for issuing the SCN. The DC, however, notes that the SCN in the opening Para states that it relies on the following documents submitted by him vide letter dated 15th June, 2018: a. Order C.P.No.1214/I&BP/NCLT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereunder: a.: The subject line of the SCN clearly states that it is a SCN under regulation 11(1) of the IP Regulations. b. & c.: The SCN clearly states the alleged facts as well as the provisions violated. For example, Para 3(i) of the SCN reads: "The CIRP commenced on 24th August, 2017. The public Announcement was required to be made immediately, i.e., on or before 27th August, 2017. However, it was made on 15th September, 2017 in contravention of Regulation 6 of the Regulations." d.: The SCN clearly states the actions the Board proposes to take. Para 9 of the SCN states that the Board proposes to take action as permissible under section 220(2) of the Code, including cancellation of registration. Section 220(2) of the Code lists out several permissible actions. e.: It has been dealt in Para 2.1 above. f.: The constitution of the DC is available on the website of the Board. In any case, it is not a requirement to be specified in the SCN. 2.3 Mr. Golla has submitted that the Board cannot suo moto take cognisance without a complaint made under sections 217 and 218 of the Code against an IP. The DC notes that section 218 allows the Board to order inspection or investigati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of 12 months, against security of stock, book debt and machineries and factory and land and building of WAPL, and a flat belonging to Mr. Japal Amardas Wig and Ms. Indira Japal Wig and personal guarantees by Mr. Mahendra Wig, Mr. Japal Amardas Wig and Ms. Indira Japal Wig. On failure to repay the loan, it was declared a non-performing account on 9th February, 2012. With an outstanding amount of Rs. 4.6 crore on 17th February, 2012, BoB issued notice dated 17th February, 2012 under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 Act, 2002 (SARFAESI), and took physical possession of the factory, land and building of WAPL on 24th July, 2017. It also moved a petition before the Debt Recovery Tribunal (DRT) for realisation of debt of Rs. 4.9 crore plus interest thereon. 3.3 In the meantime, WAPL filed an application under section 10 of the Code on 19th July, 2017 for initiation of CIRP of itself. BoB objected to the application on the ground that it was malafide. However, the AA, vide order dated 24th August, 2017, admitted the application and imposed moratorium under section 14 of the Code. It appointed Mr. Golla as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BoB submitted OTS with an instruction to treat it as resolution plan e. RP stated that he would explore every possibility to address the issue 20.04.2018 4th Meeting of the CoC 25.04.2018 Application to AA for approval of resolution plan 04.06.2018 Approval of resolution plan by the AA Alleged Contraventions, Submission and Findings 4. A summary of contraventions alleged in the SCN, Mr. Golla's written and oral submissions thereon and the findings of the DC are as under: 4.1 Contravention: The AA admitted an application under section 10 of the Code for initiation of CIRP of WAPL vide order dated 24th August, 2017, which appointed Mr. Golla as IRP. Accordingly, the CIRP commenced on 24th August, 2017. The IRP was required under the law to complete certain tasks such as issue of public announcement, appointment of valuers, constitution of the CoC, first meeting of the CoC, appointment of RP, etc., within prescribed number of days from the date of commencement of CIRP. However, Mr. Golla failed to do so. Submission: Mr. Golla received a copy of the order dated 24th August, 2017 on 11th September, 2017. He completed the tasks mostly within the prescribed ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) The submission of Mr. Golla that he sent an e-mail to the CoC is misleading. How does one send an e-mail to the CoC? A hard copy of the e-mail dated 2nd April, 2018 of Mr. Golla and the e-mail dated 3rd April, 2018 of BoB, provided by Mr. Golla along with his response dated 10th July, 2018, indicate that he sent an e-mail to a FC, albeit the sole FC, in the CoC. And the invitation of EoI was approved by the sole FC by e-mail and not by the CoC in a meeting. The Code provides for an institutional mechanism in the form of CoC to take decisions and prescribes that such decisions shall be taken in a meeting of the CoC in accordance with regulations 18 to 26 of the CIRP Regulations. If the law provides for a certain manner of doing something, it must be done in that manner only. If Mr. Golla could conduct CIRP through e-mail to the sole FC in the CoC, there was no need for him to have four meetings of the CoC. (c) Section 25(2)(h) of the Code requires the CoC to lay down the eligibility criteria for resolution applicant (RA) keeping in view the complexity and scale of operations of business of the CD. There is no evidence of such eligibility criteria in either the mail dated 2nd A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red. Thus, Mr. Golla contravened the provisions of section 25(2)(h) of the Code, regulation 36A of the CIRP Regulations, and regulation 7(2)(a) and (h) of the IP Regulations read with clauses 1, 2, 3, 5, 9, 10, 13 and 14 of the Code of Conduct appended to the said Regulations. 4.5 Contravention: Mr. Golla failed to submit to the Board a copy of the records of every proceeding before the AA. Submission: There were no proceedings before the AA that were required to be reported to the Board. Only miscellaneous application was filed by him for approval of resolution plan. Finding: As evident from records, Mr. Golla approached the AA for the extension of CIRP period and for approval of the resolution plan. He did not submit copies of these proceedings in contravention of the provisions of section 208(2)(d) of the Code and regulation 7(2)(a) and (h) of the IP Regulations read with clauses 12 and 15 of the Code of Conduct appended to the said Regulations. 4.6 Contravention: Mr. Golla did not carry on the process during the entire period of CIRP. As RP, he convened only one meeting, that too, with only one agenda, that is, to seek approval for extension of time. Submission: Mr. Golla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during CIRP and thereby prevents any creditor from recovering its dues. (b) Several judicial pronouncements reiterate prohibition on recovery or settlement. In the matter of Innoventive Industries Limited Vs. ICICI Bank and ANR [Civil Appeal Nos. 8337-8338 of 2017], the Supreme Court summed up the Code: "The scheme of the Code, therefore, is to make an attempt, by divesting the erstwhile management of its powers and vesting it in a professional agency, to continue the business of the corporate body as a going concern until a resolution plan is drawn up, in which event the management is handed over under the plan so that the corporate body is able to pay back its debts and get back on its feet. All this is to be done within a period of 6 months with a maximum extension of another 90 days or else the chopper comes down and the liquidation process begins." In several matters, the AA and the NCLAT have made it clear that CIRP is not a recovery process. In the matter of Prowess International Pvt. Ltd. Vs. Parker Hannifin India Pvt. Ltd. [CA (AT) (Insol.) No. 89 of 2017], the NCLAT reiterated: "It is made clear that Insolvency Resolution Process is not a recovery proceeding to recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It does not envisage a mechanism for any kind of amicable settlement. Further, there is no evidence whatsoever to the effect that either he or the promoter was seeking out investors to formulate a resolution plan, contrary to the contention of Mr. Golla. The fact remains that Mr. Golla, by his conduct and action, allowed Mr. Mahendra Wig to pursue an OTS with BoB and only after the OTS was approved by BoB, he issued invitation of EoI. Therefore, Mr. Golla contravened the provisions of sections 25(2)(h) and 208(2)(a) of the Code and regulations 36A and 37 of the CIRP Regulations, and regulation 7(2)(a) and (h) of the IP regulations read with clauses 1, 3, 5, 9, 10, 12, 14, and 15 of the Code of Conduct appended to the said Regulations. 4.10 Contravention: BoB, which is the sole constituent of the CoC, submitted the OTS in the 3rd meeting of the CoC on 5th April, 2018. It "instructed the Resolution Professional to explore the possibilities of treating this OTS as Resolution Plan". In response, Mr. Golla informed the CoC that he will explore every possibility to address the issue. He appreciated the efforts put by the officer of BoB for sanctioning the OTS for the CD. In the next mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vantage of the EM and the CoC cannot tailor-make an EM to select a particular RA. In this case, the OTS was agreed between the parties, the RA and the sole FC, on 27th March, 2018. Since both parties (CoC and RA) considered the OTS as resolution plan, the resolution plan was approved on 27th March, 2018 for all practical purposes. In any case, Mr. Golla has vehemently argued that the approval (of the invitation of EoI) by BoB is the approval by the CoC. What was left was only a confirmation of RP, Mr. Golla that the OTS was in compliance with all applicable laws in terms of section 30(2)(e) of the Code. Mr. Golla committed in the meeting of the CoC on 5th April, 2018 that he would explore every possibility to do so and he did it. The actions after 27th March, 2018, such as invitation of EoI, approval of EM, Form G, etc. were only a façade to give an impression that various tasks under the CIRP were carried out. This leaves the DC with the inescapable conclusion that there was meeting of minds of the RA, the sole FC in the CoC and the RP. The conduct of Mr. Golla is in contravention of provisions of sections 23, 25(2)(h), 30, and 208(2)(a) of the Code, regulations 36A and 39 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has made an explicit provision on the applicability of section 29A, Mr. Golla cannot have any quarrel. (d) The Ordinance was promulgated to prohibit certain persons from submitting resolution plans, who on account of their antecedents, may adversely impact the credibility of the process under the Code. As stated in the Statement of Objects and Reasons appended to the Insolvency and Bankruptcy Code (Amendment) Bill, 2017, section 29A aimed to prevent rewarding unscrupulous persons at the expense of creditors. While replying to the debate on the Insolvency and Bankruptcy Code (Amendment) Bill, 2017, the Finance Minister stated: "In the case of resolution also, all type of creditors may take some haircut and the man who created the insolvency pays a fraction of the amount and comes back into management. Should we allow that to continue? The overwhelming view, as expressed by the Members, is that it should not be allowed. This was a gap which was there in the original Bill and by bringing in 29(a) we have tried to fill in that gap. That is the objective. In order that this provision must apply to all existing cases of resolution which are pending, that is the case for urgency. If we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the meeting of the CoC on 5th April, 2018 for its consideration. In the meeting on 5th April, 2018, BOB instructed Mr. Golla to consider the OTS as resolution plan and admittedly, he explored every possibility to do so. Thus, the resolution plan was approved on 27th February, 2018, even before invitation for EoI was drawn up and the steps taken after the approval of resolution were mere formality. It is not just lack of independence of Mr. Golla as RP; it is active collusion of Mr. Golla with the RA and the CoC to vitiate the process and frustrate the solemn objective of the Code. Therefore, Mr. Golla contravened the provisions of sections 208(2)(a) and regulation 7(2)(h) of the IP Regulations read with clauses 1, 2, 3, 5, 10 and 14 of the Code of Conduct appended to the said Regulations. Conclusion 5. It is unfortunate that an ineligible RA, the sole FC and the RP colluded to ensure that the people responsible for insolvency of the CD paid a fraction (33%) of the claim amount to the FC and wrested the control and management of the CD. They misused the CIRP to pass on an OTS as resolution plan and to wipe off claims of creditors, which was not possible otherwise. They did thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led the next meeting of the CoC for 5th April, 2018. Without approval of the CoC and without specifying the eligibility criteria for RAs, as required under section 25(2)(h) of the Code, Mr. Golla issued invitation of EoI on 4th April, 2018. 5.5 In the meeting of the CoC held on 5th April, 2018, BoB submitted the OTS with an instruction to Mr. Golla to treat it as resolution plan and Mr. Golla committed to explore every possibility to do so. In the next meeting of the CoC held on 20th April, 2018, Mr. Mahendra Wig submitted the OTS as resolution plan. Mr. Golla confirmed that the resolution plan did not contravene any of the provisions of any law, even though he knew that Mr. Mahendra Wig was ineligible under section 29A of the Code to submit resolution plan. As orchestrated, the CoC, which comprised only BoB, approved it. 5.6 Thus, Mr. Golla connived with the parties to allow an OTS in the garb of resolution plan and to allow an ineligible RA to submit the OTS and did absolutely nothing either to run the business of the CD or to run the CIRP. As to how an OTS was considered as resolution plan, Mr. Golla justifies that even Supreme Court does it in exercise of its powers under Art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solvency profession and rendered himself a person not fit and proper to continue as an IP. 5.9 By his conduct and action, Mr. Golla has contravened the provisions of - (a) sections 17, 23, 25(2)(h), 29A, 30(2)(e), 30(4) and 208(2)(a) and (d) of the Insolvency and Bankruptcy Code, 2016; (b) Regulations 18 to 26, 36A, 37, and 39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016; and (c) Regulations 7(2)(a) and 7(2)(h) of the IBBI (Insolvency Professionals) Regulations 2016 read with clauses 1, 2, 3, 5, 10, 12, 13, 14, 15, and 16 of the Code of Conduct for insolvency professionals specified in the First Schedule to the said Regulations. 6. Order 6.1 Considering the above deliberate, blatant, orchestrated and collusive contraventions, the Disciplinary Committee, in exercise of the powers conferred under section 220 (2) of the Code read with sub-regulations (7) and (8) of regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016, hereby cancels the registration of Mr. Martin S. K. Golla as insolvency professional, having Registration Number IBBI/IPA-002/IP-N00095/2017-2018/10238 and debars him from seeking fresh registration as an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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