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TMI Blog2021 (3) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... e corporate insolvency resolution process (CIRP) in the matter of M/s Jhabua Power Limited, Corporate Debtor (CD) vide Order of the Hon'ble National Company Law Tribunal, Bench at Kolkata (Adjudicating Authority) dated 27-3-2019 which admitted an application for CIRP under section 9 of the Code. However, the Committee of Creditors (CoC) in its 1st meeting dated 26-6-2019 replaced the IRP with Mr. Abhilash Lal as resolution professional (RP). The Hon'ble AA vide its Order dated 24-7-2019 confirmed the appointment of RP. 1.1 The IBBI, in exercise of its power under section 218 of the Code read with the IBBI (Inspection and Investigation) Regulations, 2017, appointed an Inspecting Authority (IA) to conduct the inspection of the IP, Ms. Sonu Jain vide Order dated 17th December 2019 on having reasonable grounds to believe that the IP had contravened provisions of the Code, Regulations, and directions issued thereunder. The IA submitted the Inspection Report to IBBI on 14-2-2020. 1.2 The IBBI issued the SCN dated 24th June 2020 to Ms. Sonu Jain, based on the findings in the inspection report in respect of her role as an IRP in the CIRP of M/s Jhabua Power Limited, CD. The SCN a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses in Form II within 7 days of demitting the office as IRP to the Insolvency Professional Agency (IPA) of which she is a member. It has been observed that cost disclosures were submitted by Ms. Jain with Indian Institute of Insolvency Professionals of ICAI (IPA) on 30th October 2019 i.e. with a delay of around 3 months. 2.1.4 The above actions of Ms. Jain are in violation of section 208(2)(a), (b) and (e) of the Code, regulation 33(3) of CIRP Regulations, 2016, regulation 7(2)(h) of the IP Regulations, read with clauses 25, 25A, 26 and 27 of the Code of Conduct under the First Schedule of the IP Regulations, Circular No. IP/004/2018 dated 16th January, 2018 and Circular No. IBBI/IP/013/2018 dated 12th June, 2018. Submission 2.2 With regard to the aforesaid contravention, Ms. Jain submitted as follows. 2.3 Ms. Jain submitted that the invoice which was issued in the name of Jain Sonu & Associates was a typographical error. She submitted rectified bill, in the name of Sonu Jain before COC on 26-6-2020. The CoC had both the bills but they deducted TDS in Ms. Jain's name and transferred the net amount to Jain Sonu & Associates Bank Account. The revised bill also had PAN num ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.50 Lakhs per month was confirmed, but was communicated to Ms. Jain on 27-8-2019 almost 18 days later. The CoC had intentionally withheld Ms. Jain's payment till 23-9-2019 which is 1.5 months from the date of passing of resolution. Further, expense related to IRP's travel to CD's office at Delhi and visit to Jabalpur plant from Kolkata amounting Rs. 1,65,566/- is unpaid along with Rs. 2,00,000/- out of Pocket Expense. Even though these expenses are part of CIRP cost it was neglected by CoC and RP and they are still outstanding. So, after several requests for reimbursement to no avail the IRP filed the Cost disclosure. 2.3.4 Valuers were appointed by her who were subject to CoC approval for appointment, but no confirmation was received from CoC. As valuers appointment was also the part of CIRP cost, it was expected from RP and CoC to communicate. Without getting CoC approval Ms. Jain was unable to file disclosure. Also Ms. Jain was informed by CoC that they will appoint valuer as they wanted, irrespective of the delay to timeline. However, Ms. Jain filed the cost disclosure on 30-10-2019 with IPA assuming that any subsequent revision will be dealt later. II Contrave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which he is a member, within a period of three days. It was observed that you have made a delay of more than three months in submitting relationship disclosure with relation to your appointment as IRP of the CD. You were appointed as IRP on 27/-3-2019 and disclosure was made on 4-7-2019. It has also been observed that you have issued appointment letter dated 8th April 2019, 9th April 2019, 15th April 2019, 19th April 2019 and 14th May 2019 for the appointment of professional during the period April to July 2019 specifically in respect of M/s Jhabua Power Limited. The relationship disclosures pertaining to the appointment of professionals made by you in the course of CIRP were submitted by you only on 11th January 2020, after the Inspecting Authority had sought documents from you relating to such appointments and disclosures. The aforesaid conduct is in violation of Section 208(2)(a) and (e) of the Code, Regulation 7(2)(h) of the IP Regulations, read with clause 14 of the Code of Conduct as given in the First Schedule of the IP Regulations Circular No. IP/005/2018 dated 16th January, 2018. Submission 4.2 With regard to the aforesaid contravention Ms. Jain submitted that she had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en appointed by Ms. Jain to assist her as her employee and not any separate professional as required to be appointed by CoC approval. No person involved in the assignment was related to Ms. Jain's firm, and her firm is also not involved in the assignment, therefore there is no requirement to inform CoC about it separately. V Contravention 6.1 Regulation 6(1) of the CIRP Regulations states that an IP shall make a public announcement immediately on his appointment as an IRP. Board has observed that CIRP commenced on 27th March 2019 while the requirement of public announcement was completed by IRP on 2nd May 2019 (i.e with a delay of 35 days). The aforesaid conduct is in violation of Section 208(2)(a) and (e) of the Code, Regulation 6(1) of the CIRP Regulations. Submission 6.2 With regard to the aforesaid contravention Ms. Jain submitted that the IRP had been appointed on 27-3-2019 and the public announcement was made on 1-4-2019. The newspaper along with Form A was sent to the backend server manager. Out of laggardness, the CD had uploaded the public announcement directly on the face of the Group Company website, which looked unorganized on the website. IRP had requested thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the bye-laws of the insolvency professional agency of which he is a member; (e) to perform his functions in such manner and subject to such conditions as may be specified." Further, the clause 25 of the Code of Conduct as given in the First Schedule of the IP Regulations provides: 25. An insolvency professional must provide services for remuneration which is charged in a transparent manner, is a reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations. 7.2 The IBBI Circular No. IP/004/2018 dated 16th January, 2018 on 'Fees payable to an insolvency professional and to other professionals appointed by an insolvency professional' states that: "3. In view of the above, it is clarified that an insolvency professional shall render services for a fee which is a reasonable reflection of his work, raise bills/invoices in his name towards such fees, and such fees shall be paid to his bank account. Any payment of fees for the services of an insolvency professional to any person other than the insolvency professional shall not form part of the insolvency resolution process cost." 7.3 The DC observes in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to IRP Sonu Jain as fees plus reimbursement of Expenditure" 7.5 The IRP has submitted that the CoC had suggested her to tentatively provide the bill and as per the volume of work and she had decided that Rs. 25 Lakhs per month tentatively was justified but the same was rejected by the CoC in the 2nd CoC Meeting and the fees were then finalised. The relevant excerpts from the 2nd CoC dated 9-8-2019 is as under: "RP informed the CoC that the IRP had raised invoices worth INR 11,092,000 and requested CoC for their approval. CoC felt that the invoices were higher in value than the amount that was negotiated with the IRP - a fact that had not been mentioned clearly in the minutes. After discussions amongst themselves, the suggested the following: - An amount of INR 12.5 lakhs per month be paid to the IRP for the period of work as this was the negotiated amount - An agreed one time amount of INR 2 lakhs to be paid as OPE reimbursement - Above amounts to be paid after adjusting for any outstanding/pending reimbursements CoC members also requested RP to pay the above after handover of all information and documents." 7.6 The DC finds from the above, that the negotiations on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/2018 dated 12-6-2018 states as follows: "9. Further, the IP is directed to disclose fee and other expenses in the relevant Form in Annexure C to the Insolvency Professional Agency of which he is a member: (a) for all concluded CIRPs by 15th July, 2018, and (b) for ongoing and subsequent CIRPs within the time as specified in the relevant Form." Further, the Form II: Insolvency Resolution Process Cost of Corporate Debtor for the period under IRP under the Annexure C also provides that the Form is to be submitted by the IRP within Seven Days of his demitting office as IRP. 8.1 The DC notes that the Cost Disclosure was submitted by Ms. Jain on 30th October 2019 to the IPA which is 3 months from date of demitting office as IRP from Order dated 24th July 2019 of AA replacing IRP with RP, Mr. Abhilash Lal. However, the Ms. Jain has submitted that the disclosure requirement was not possible as her fees were not decided till her removal. The DC also notes that Ms. Jain had made several reminders and follow up vide e-mails dated 31-7-2019, 13-8-2019, 16-8-2019, 17-8-2019 and 18-8-2019 with RP and CoC. In the 2nd CoC meeting dated 9-8-2019, wherein the bills of IRP was considered and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y valuation required under the Code or any of the regulations made thereunder is required to be conducted by a 'registered valuer', that is, a valuer registered with the IBBI under the Companies (Registered Valuers and Valuation) Rules, 2017. It is hereby directed that with effect from 1st February, 2019, no insolvency professional shall appoint a person other than a registered valuer to conduct any valuation under the Code or any of the regulations made thereunder." 9.1 Thus, from a bare perusal of the provisions of the regulations and circular made thereunder, it is clear that it is the duty of the IRP to appoint registered valuers within 7 days of his appointment, but not later than 47th day from the insolvency commencement date to determine the fair value and liquidation value of the CD. The IBBI further clarified in explicit terms through the aforesaid circular that no IP shall appoint a person other than a registered valuer to conduct any valuation under the Code or any of the regulations made thereunder. 9.2 In the present case, DC notes that Ms. Jain had appointed LSI Engineering & Consultants Ltd. and AAA Valuation Professionals LLP on 12th July 2019, who were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for inspection. 10.1 The submission of the Ms. Jain that she had been informed by Axis Bank, the lead Financial Creditor on 7-9-2018 that she was to be removed as IRP and it was decided to appoint Mr. Abhilash Lal as IRP instead and Ms. Jain had been waiting for AA to take out a revised order appointing Mr. Abhilash Lal and re-initiating the process is not tenable. Even though there was the uncertainty of IRP being replaced, she still made the appointment of professionals to assist in the conducting of CIRP, but the disclosure of relationship which was to be made within 3 days of appointment of such professionals was not made. Also the submission of IRP that the professionals appointed were not charging fees from CoC and had entered into contract in her personal capacity not as IRP is erroneous as the professionals appointed by IRP were engaged in handling the matters related to CIRP of CD and disclosure of relationship is required in such instances. However, the names of the professionals appointed were also later included in the relationship disclosure. Hence, the DC finds that there is a delay in disclosure of relationship by Ms. Jain which is in contravention of regulation 7(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore there is no requirement to inform CoC about it separately. In view of the submission of Ms. Jain, the DC is of the opinion that IRP can take assistance from the back office support in managing the day to day operation of CD and no specific disclosure is required for the same. However, if the fees of the support staff are paid from CIRP Cost on ratification of the CoC the same has to be duly disclosed but in the present instance the personnel were employed directly by IRP and their fees were not charged from CIRP cost. Hence, there is no requirement of informing the CoC of the relationship as related party of the support staff. Thus, there is no contravention in this regard. Public Announcement by IRP 11. The public announcement is made by the IRP immediately after the appointment, to inform the public that a CD is undergoing CIRP. It is the vital first step after initiation of CIRP as it provides an opportunity to the creditors submit their claims of liability against the CD which are to be considered while resolving insolvency. Regulation 6(1) of the CIRP Regulations provides that an IP shall make a public announcement immediately on his appointment as an IRP. The regul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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