TMI Blog2019 (4) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the period of suspension. He shall, however, continue to conduct and complete the assignments / processes he has in hand as on date of this order - Mr. Ruia shall (i) undergo the pre-registration educational course specified under regulation 5(b) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 from his Insolvency Professional Agency, and (ii) work for at least six months as an intern with a senior insolvency professional, at any time during the period of suspension, to improve his understanding of the Code and the regulations made thereunder. - No. IBBI/DC/16/2019 - - - Dated:- 17-4-2019 - Mr Dr. M. S. Sahoo, Chairperson, IBBI And Dr. Mukulita Vijayawargiya, Whole Time Member, IBBI ORDER Introduction 1.1 This order disposes of the show cause notice dated 28th July, 2018 (SCN) issued to Mr. Sanjay Kumar Ruia, Vishal House, 1st Floor, Plot No. 33, Sector - 19C, Off Palm Beach Road, Vashi, Navi Mumbai, Maharashtra - 400705, who is a Professional Member of the Indian Institute of Insolvency Professionals of ICAI and an Insolvency Professional (IP) registered with the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought at meetings of the CoC Consent in Form No.2 by IRP 50,000 0 NA Amount payable upon filing of petition before Hon ble NCLT as IRP 10,00,000 1,00,000 NA Professional Fee for IRP till first CoC meeting 12,50,000 1,00,000 6,00,000 Fee for the subsequent months as IRP/RP on a per month basis 12,50,000 1,00,000 4,00,000 (b) The Board found the fee as per the initial term sheet to be unreasonable in relation to services. Mr. Ruia clarified, vide mail dated 26th January, 2018, that the earlier term sheet was based on information for the year 2014-15 about the CD available in public domain. He revised the term sheet, based on financials of the CD for the year 2016-17. The Board found that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppreciate that any amount of fee can be charged by a professional just because he has discretion. (c) The law [clause 25 of the Code of Conduct for Insolvency Professionals under the First Schedule to the IPR] clearly specifies remuneration to be charged as a reasonable reflection of the work necessarily and properly undertaken by an IP. An IP, who exercises the powers of the Board of Directors, cannot feign inability that he does not understand what is reasonable reflection of work in the circumstances. There are several ways to look at reasonableness. It may be looked at with reference to the compensation payable to the MD CEO of the CD under CIRP, the fee charged by another IP in case of a similar CIRP, the fee earned by himself in a similar CIRP or even his opportunity cost (value from next best alternative). In fact, the AA approved the appointment of Mr. Ruia, after being convinced with the fee in the revised term sheet in relation to his income reflected in his income tax returns. Unfortunately, Mr. Ruia claims that he slashed his monthly fee from ₹ 12.5 lakh to ₹ 1 lakh after looking at recent financials of the CD. He does not explain why h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 9, 10, 12, 14, 16, 25 and 27 of the Code of Conduct thereof. 2.2 Appointment as RP 2.2.1 In the CIRP of Sanjay Strips Private Ltd.: 2.2.1.1 Mr. Ruia, who is well-versed with the scope of authority of the applicant and of the CoC, knows well that the applicant has no role in the appointment of the RP and in fixation of fee of the RP. Nevertheless, he signed the term sheet with the applicant, who is not legally competent to appoint RP or fix his fee, and thereby attempted to deprive the CoC of its legitimate right to appoint a RP of its choice and fix his fee. 2.2.1.2 Mr Ruia has submitted that he did not conceal anything in this regard. He placed the term sheet, which provides for fee as RP, before the AA. 2.2.1.3 Transparency is welcome. But it cannot be used to override the explicit statutory provisions. No amount of transparency can justify illegal conduct. The fact remains that Mr. Ruia signed a term sheet with the applicant which provided for his appointment as RP and his fee as RP. As an IP, he knows well that a RP is appointed only by the CoC. Yet he contracted with the operational creditor, who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) Admittedly, Mr. Ruia failed to provide material called upon by the Inspecting Authority. This amounts to non-cooperation with the Authority and hindrance to the work of the Board. (b) The SCN alleges irregularity in respect of two terms, namely, amount of fee and the appointment as RP, as explained at Para 2.1 (Fee related) and 2.2 (Appointment related), based on term sheets in respect of CIRPs of Sanjay Strips Private Ltd. and S. N. Plumbing Private Ltd. The term sheet now provided by Mr. Ruia in respect of Global Proserv Ltd. does not carry these two specific terms. The term sheet carries the terms of engagement of an IRP / RP. A key term of engagement is the fee payable to him. It is not a term sheet if it does not carry the terms about fee. Refusal to submit term sheet when called upon, coupled with subsequent submission of a term sheet which does not carry the essential terms, creates a suspicion whether the term sheet provided by Mr. Ruia, after receiving the SCN, is genuine. (c) A perusal of the term sheets in respect of the three CIRPs throws more light into this. The term sheets in respect of CIRPs of S. N. Plumbing Priva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much upon this and would prefer to grant benefit of doubt to Mr. Ruia. This allegation, however, could have been avoided if Mr. Ruia had provided complete information at the stage of inspection and classified and reported costs appropriately, which reflects his professionalism. 2.4 Appointment of IRP 2.4.1 Mr. Ruia, as IRP of S. N. Plumbing Pvt. Ltd., filed applications for initiating CIRP of 14 CDs and proposed to appoint his spouse, Ms. Bhavana Ruia as IRP of CIRP of all 14 CDs. Ms. Ruia consented to act as IRP of 15 CIRPs, including these 14, for which applications were filed by a professional, who is her spouse. The Board, therefore, alleges that Mr. Ruia appointed his spouse as IRP, failed to avoid conflict of interest, and act with integrity and independence. 2.4.2 Mr. Ruia has submitted that he proposed the name of his spouse for appointment as IRP because she did not demand any upfront fee for the same while all IPs, he had approached, wanted a signing fee and did not agree to fund the expenses for public announcement, checking claims and calling for CoC meetings etc. . Mr. Ruia has further submitted that he did this to revi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to protect and preserve the value of the property of the CD and manage the operations of the CD as a going concern. Section 23 of the Code mandates the RP to conduct the entire CIRP and manage the operations of the CD during the CIRP period. It is inconceivable that an individual (Ms. Ruia) who is a novice in the profession and has not handled a single CIRP till date, would act as IRP / RP in 15 CIRPs simultaneously and exercise the powers of Boards of Directors of 15 CDs. While the Code aims to rescue the ailing CDs, assignment of CIRPs of 15 CDs to an IP ensures just the opposite. That is why the law prohibits an IP from taking too many assignments, if he is unlikely to devote time to each of his assignment. It is not permissible for Mr. Ruia, who is an IP, to give 15 assignments to one IP. (c) The DC, therefore, finds that Mr. Ruia contravened the provisions of sections 20, 23, 208(2)(a) and (e) of the Code regulations 7(2)(a) and (h) of the IPR and clauses 1, 2, 3, 5, 9, 10, 12, 14, 25, and 27 of the Code of Conduct thereof. 2.5 Misrepresentation 2.5.1 In the CIRP of S. N. Plumbing Private Ltd., Mr. Ruia submitted to the AA in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted liquidation in the first meeting of the CoC while ruling out an attempt for resolution. In response, Mr. Ruia has submitted that the South Indian Bank, the largest financial creditor, vide email dated 19th January, 2018, had suggested that the only way forward was liquidation. The financial creditors resolved in favour of liquidation in the reconvened 1st meeting of the CoC and he had no role therein. The DC, however, finds that Mr. Ruia issued notice on 12th January, 2018 scheduling the reconvened 1st meeting of the CoC at 2.30 PM on 19th January, 2018. The notice listed the issues to be voted in the said meeting. The list included voting on: 9 (ix) (a) Future Course of Action on CIRP; or (b) Liquidation. The mail dated 19th January, 2018 of the South Indian Bank, which forms the basis of liquidation, as claimed by Mr. Ruia, was mailed at 2.52PM, while the meeting commenced at 2.30PM. If Mr. Ruia is to be believed, the notice dated 12th January, 2018 for the first meeting of the CoC listed liquidation for voting, based on the mail at 2.52PM dated 19th January, 2018! 2.6.2 On perusal of minutes of the 1st meeting of the CoC (not the reconvened first meeting) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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