TMI Blog2020 (7) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... he resolution process, the Committee believes that the Board should set minimum standards for the selection of these professionals, along with their licensing, appointment, functioning and conduct under the Code. The duties of IP and CoC are clearly provided under the provisions of the Code. In the present case, the RP permitted conduct of third valuation upon the desire of CoC despite his disbelief in conducting the third valuation. He further incurred additional financial costs upon an over-burdened CD through conduct of such third valuation. Thus, he allowed the members of CoC to usurp his powers thereby putting additional burden on an already ailing CD - Regulation 4(3) of IBBI (Liquidation Process) Regulations, 2016 clearly states that in cases where the Liquidator fees has not been decided by the CoC, then the liquidator is entitled to a fee as per the table provided in the abovementioned provision. Despite such clear and unambiguous position of the law, the IP continued to charge the same fees during liquidation process which he was charging while acting as an RP. The DC, in exercise of the powers conferred under section 220 of the Code read with Regulation 13 (3) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Process) Regulations, 2016 and IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Mr. Bhupesh Gupta replied to the SCN vide letter dated 25th November 2019. 1.4 The Board referred the SCN, response of Mr. Bhupesh Gupta to the SCN, Addendum to the Reply of SCN and other material available on record to the Disciplinary Committee (DC) for disposal of the SCN in accordance with the Code and Regulations made thereunder. Mr. Bhupesh Gupta availed an opportunity of personal hearing before the DC on 6th January, 2020 when he reiterated the submissions made in his written reply and also made a few additional submissions. Thereafter, the IP submitted an Addendum on 20th January, 2020. 2. Consideration of SCN The DC has considered the SCN, the reply to SCN, oral submissions of Mr. Bhupesh Gupta, Addendum to reply to SCN, other material available on record and proceeds to dispose of the SCN. 3. Alleged Contraventions, Submissions, Analysis and Findings A summary of contraventions alleged in the SCN, Mr. Bhupesh Gupta's written and oral submissions thereon and their analysis with findings of the DC are as under: 3.1 Contravention: As p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that: 36. (2) The information memorandum shall contain the following details of the corporate debtor- (d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims; It is an admitted fact that the IP in the IM indicated the claim amount of A.K. Plastic Industries (OC) to be ₹ 7,47,276/- and admitted claim amount as ₹ 4,74,017/-. However, the same has been erroneously reflected. Further, the IP in the 5th Progress Report submitted to NCLT, Chandigarh had corrected this data. It is also to be noted that the CD has gone into liquidation on 8-8-2018 and the claims are to be proved again on the liquidation commencement date. Regulation 16 of the IBBI (Liquidation process) Regulations, 2016 (prior to amendment dt. 25-7-2019) provides that: A person, who claims to be a stakeholder, shall prove his claim for debt or dues to him, including interest, if any, as on the liquidation commencement date. Thus, as per Regulation 16 of the IBBI (Liquidation Process) Regulations, 2016, a person claiming to be a stakeholder shall prove his clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of non-inclusion of these assets in the IM. Analysis: Regulation 36(2)(a) and (d) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides, The information memorandum shall contain the following details of the corporate debtor- (a) assets and liabilities, as on the insolvency commencement date, classified into appropriate categories for easy identification, with estimated values assigned to each category; (d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims Thus, in accordance with the provisions contained in the abovementioned regulations, the RP is duty bound to submit a correct and accurate financial position of the CD because this information is vital for the prospective resolution applicants who, based upon the information so furnished, take a decision to make a bid for the CD through submission of a resolution plan. Hence, the correctness of information provided by RP in the IM is central for the revival of the CD. Further, the Bankruptcy law Reforms Committee on compilation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich they must fulfill. In the present case, the documents furnished by the RP clearly establish that the RP has provided details of the assets in the IM i.e. the plot Khewat in village Kanagawal has been mentioned as 'Worker Colony' and Flat No. 402 has been indicated as 'Building-Flat'. These assets have been indicated as collateral security of ICICI Bank Limited in the IM. (ICICI Bank Limited has been a member of the Committee of Creditors (CoC) and has not raised the issue of non-inclusion of these two assets in the IM) In such circumstances, DC cannot hold the RP liable for non-inclusion of these assets in the IM. 3.3 Contravention: Regulation 27 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides for appointment of two registered valuers to determine the fair value and liquidation value of the CD in accordance with Regulation 35 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The RP had appointed two valuers namely M/s Anmol Sekhri Consultants Pvt. Ltd and Crest Capital Group Pvt. Ltd. to determine the fair value and liquidation value of CD. The liquidation value given by these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Plan which may be placed before it for consideration. Analysis: Regulation 35 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides that: 35. (1) Fair value and liquidation value shall be determined in the following manner:- (a) the two registered valuers appointed under regulation 27 shall submit to the resolution professional an estimate of the fair value and of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor; (b) if in the opinion of the resolution professional, the two estimates of a value are significantly different, he may appoint another registered valuer who shall submit an estimate of the value computed in the same manner; and Further under section 25 (2)(d) of the Code it has been provided that: 25. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:- (d) appoint accountants, legal or other professionals in the manner as specified by Board; Hence, it is the explicit mandate of the Code that it is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 clearly provides that a third valuer may be appointed by the RP, if he is of the opinion that the two estimates of a value are significantly different. However, in the present case, the RP despite his own lack of satisfaction about significant difference of value between the two valuations, allowed CoC to usurp his authority and thereby compromised his independence in favour of the CoC. Furthermore, it is pertinent to mention that under the Code, both the IP and the CoC have defined roles. While specifying their roles, the Code does not envisage one assuming the role of the other and thus, it is necessary that the IP and the CoC must have a complete and clear understanding of their roles and responsibilities during CIRP. In all circumstances, they must not encroach upon each other's powers and must function independently without any cross influences. Findings: It is found that the RP has admitted that the valuation was done as per desires of the CoC. The appointment of valuers and conduct of valuation are not responsibilities of CoC but of the RP. Further, the fee incurred on the third v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, 2016 and it is part of liquidation estate of which the liquidator is entitled to a percentage. It was further submitted in the Addendum to the reply to the SCN, that as the assets of the CD have been valued thrice and as per the least valuation of the assets at ₹ 159.17 Crores, the liquidator shall be entitled to a fees of ₹ 111.11 lacs, presuming a maximum period of two years for the purpose of liquidation. However, during this period of liquidation, the liquidator has kept the CD as a going concern and total turnover during this tenure are to the tune of ₹ 80 Crores approx. Though as per the Schedule given in Regulation 4, the liquidator would have been entitled to a remuneration of approx. ₹ 75 lacs to be calculated on the basis of percentages given in the schedule, however, the liquidator has charged a meagre amount of ₹ 31 lacs only during this period. Also, the IP submits that he reserves his right to charge the remaining fee out of the Liquidation Estate as the law mandates the payment of Liquidation Cost out of the Liquidation Estate. The IP asserts that he is entitled to a balance of ₹ 44 lacs to be reimburse to him out of the Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.63 0.48 0.34 0.25 On further sums distributed 0.13 0.10 0.06 0.05 (4) The liquidator shall be entitled to receive half of the fee payable on realization under sub-regulation (3) only after such realized amount is distributed. Hence, Regulation 4(3) provides that in cases where the Liquidator fee has not been decided by the CoC, then the fee payable shall be ascertained in the manner provided in the table given under Regulation 4(3) of IBBI (Liquidation Process) Regulations, 2016. The submission made by the RP that he continued to charge the same fee that he was charging while acting as an RP during Liquidation process only till the time the units remained as going concern and that the liquidator is entitled to an additional amount of ₹ 44 lacs which he is yet to claim is immaterial as the provision of the Regulation clearly provides for a separate structure of fees for the Liquidator. The Bankruptcy law Reforms Committee had given the rationale behind the fee structure of the Liquidator as, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and 7(2)(h) of the IP Regulations, read with clause 2, 14 and 25 of the Code of Conduct as given in the First Schedule of the IP Regulations. 3.5 Contravention: An arbitration petition was filed by Oriental Insurance Co Ltd (OICL) against CD in the court of Additional District Judge, Ludhiana (ADJ) challenging an arbitral award dated 12-1-2009 which was passed in favor of CD. On 1-9-2018, the Ld. ADJ passed an award wherein Oriental Insurance Co Ltd. has handed over a Demand Draft of ₹ 8,30,77,161/- towards full and final settlement of claim to Mr. Kuldeep Singh, director of CD, who has accepted the DD towards the full and final settlement of claim. CIRP of CD was started on 29-9-2017 and all these activities took place during CIRP. As per section 17 of the Code, the management and control of CD during CIRP is vested with the RP and he is authorized to act and execute in the name and on behalf of CD in all such matters. Further, it is also the duty of 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 as per section 25(2)(b) of the Code. Therefore, the Board is of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keep the CD as a going concern. Further, the RP has initiated legal action against the Insurance Company before NCLT and impleaded the ex-directors of the CD. Analysis: The CIRP of the CD was initiated on 29-9-2017. However, on 30-5-2018 the amount of insurance claim was decided by the ADJ, Ludhiana in the matter of OICL v. M/s Supreme Yarn Ltd. now known as Supreme Tex Mart Ltd., where the CD was being represented by the ex-managing director, Mr. Sanjay Gupta. Thereafter, the Order dated 30-5-2018 passed by the ADJ, Ludhiana recorded the settlement of the amount of insurance claim of ₹ 8,30,77,161/- which was paid by OICL to the ex-director of the CD, Mr. Kuldeep Singh. Section 25 (2)(b) of the Code provides that: 25. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:- (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings. It is observed that there is no reasonable ground to believe that the insurance claim proceeding before the ADJ, Ludhiana in the matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details of funds/proceeds of insurance claims deposited, (ii) Details of parties to whom payment has been made out of insurance claims, (iii) Statement of all bank accounts (ongoing/closed during the CIRP), (iv) Audited Financial Statement for F.Y 2017-2018 and 2018-2019, (v) Any other relevant document/s. 3.6 Contravention: Regulation 21(3) of the CIRP Regulation provides that every notice of CoC meeting shall contain a list of the issues to be voted upon and copies of all documents relevant to the matter be enclosed. Further, it is the duty of RP to provide necessary documents, along with the notice of the meeting to all the participants of the meetings. However, the RP failed to submit the agenda alongwith notice to the participants of the CoC meetings. This failure to furnish the requisite documents with the notice was observed in the following meetings: (i) Notice dated 14-11-2017 for 2nd CoC meeting held on 18-11-2017, (ii) Notice dated 15-5-2018 for 5th CoC meeting held on 21-5-2017, (iii) Notice dated 23-5-2018 for 6th CoC meeting held on 25-5-2018, (iv) Notice dated 11-6-2018 for 9th CoC meeting held on 13-6-2018. Submission: The IP submits t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation amongst all the members of CoC. It further aids in creating a record of proceedings of the CoC. Hence, it is vital that the RP reaches out to all the CoC members prior to each meeting and provide them a copy of the notice along with the list of agenda to ensure that there is no requirement of reiteration of the context and background of the agenda and thus, enables him to seek their immediate opinions on the various critical issues. On perusal of documents submitted by RP, it has been observed that the 7th CoC meeting was held on 21-5-2017 and not the 5th CoC meeting. Similarly, notice dated 23-5-2018 was for 8th CoC meeting and not the 6th CoC meeting. Further, the notice and agenda dated 15-11-2017 of 2nd CoC meeting held on 18-11-2017, and notice and agenda dated 16-5-2018 of 7th CoC meeting held on 21-5-2018 has been sent to the CoC members vide emails dated 16-11-2017 and 17-5-2018 respectively. With regards to the agenda for 8th and 9th CoC meeting, it has been submitted by the RP in his addendum dated 20-1-2020 as under: the 8th and 9th meetings held on 25-5-2018 and 13-6-2018 were held just to discuss the resolution plan to be presented before the CoC by R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the Code envisages for these entities in the resolution process, the Committee believes that the Board should set minimum standards for the selection of these professionals, along with their licensing, appointment, functioning and conduct under the Code. To this end, the Code empowers the Board to lay down the minimum professional standards and the code of conduct to be followed to by IPs at each stage of the insolvency and bankruptcy resolution process. Mandates for IPs, which may be prescribed through delegated legislation. 4.3 In this matter, the DC observes that Mr. Bhupesh Gupta displayed a negligent approach during the conduct of CIRP which can be elaborated as below: 4.3.1 The duties of IP and CoC are clearly provided under the provisions of the Code. In the present case, the RP permitted conduct of third valuation upon the desire of CoC despite his disbelief in conducting the third valuation. He further incurred additional financial costs upon an over-burdened CD through conduct of such third valuation. Thus, he allowed the members of CoC to usurp his powers thereby putting additional burden on an already ailing CD. 4.3.2 Regulation 4(3) of IBBI (Liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X
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