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TMI Blog2022 (3) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... India regarding the misconduct of the Respondent. (c) To direct the Respondent to place report of the enquiries/investigation carried out by the Respondent after passing of the Order dated 10th March, 2021 in IA 133 of 2020. (d) To direct the Respondent to conduct enquiries/investigation and submit a final report before this Hon'ble Tribunal in a time bound manner. (e) Pending the hearing and final disposal of the present Interlocutory Application this Hon'ble Tribunal be pleased to stay the hearing of the Interlocutory Application filed by the Respondent under section 31 of the Code for approval of the Resolution Plan. (f) Pending the hearing and final disposal of the present Interlocutory Application this Hon'ble Tribunal be pleased to stay the Corporate Insolvency Process and restrain the Resolution Professional from taking any steps and/or action in furtherance of the Resolution Plan submitted by M/s. Starteck Finance Limited. (g) Ad-interim reliefs in terms of prayer (e) and (f) above. 2. The factual matrix as stated by the Applicant in relation to the Applicant's claim against the Corporate Debtor are briefly given hereunder: i.) Ushdev Internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase that the Defendants owed a sum of over Rs. 106 Crore to the Plaintiffs for goods sold and delivered.' v.) The Applicant further states that a Deed of Assignment dated 31.01.2014 was executed between UIL and the Applicant i.e., G.G. Trading Pvt. Ltd. (subsequently name changed to Wahaca Trading Pvt. Ltd.), wherein, all the rights arising in respect of 90% debt of UIL was assigned to the Applicant. vi.) Thereafter, the Operational Creditor being M/s. Indu Corporation Pvt. Ltd. filed the above Company Petition bearing CP (IB) No. 228 of 2018 against the Corporate Debtor, wherein, vide order dated 08.04.2019, the Petition was admitted, moratorium was declared and appointed the Respondent herein as the IRP of the Corporate Debtor. Subsequently, the CoC in its 1st meeting held on 06.05.2019 appointed the said IRP as the Resolution Professional (RP). Pursuant to the admitted order, the Respondent called upon the Creditors of the Corporate Debtor to submit their proof of claims on or before 29.04.2019. vii.) On 26.04.2019, the Applicant submitted its proof of claim (Form B) along with supporting documents before the Respondent including the aforesaid High Court order dated 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or for the said documents. Being fully aware that it is due to these suspended Directors/Promoters that the Corporate Debtor is in the present state, the Respondent was still relying on suspended Directors of the Corporate Debtor for information to be provided for forensic audit. xi.) Further, the Applicant vide email dated 17.09.2019 requested the Respondent to incorporate the discussion held in the 4th meeting of CoC as regards the letter addressed by one of the Operational Creditor i.e., PG Mercantile Pvt. Ltd. about the fraudulent transactions in the books of the Corporate Debtor. However, the Respondent failed to record the same, except merely mentioning the same in paragraph 3(e) of the said Minutes of Meeting. xii.) Furthermore, vide above email of 17.09.2019, the said Operational Creditor raised serious allegations of fraud on the suspended Directors of the Corporate Debtor. The Applicant informed the Respondent about the loan extended by the Corporate Debtor to Shri Durga Trade Links Pvt. Ltd. The Respondent was informed that the said loan did not appear in the Annual Report of 2014, but the same appears in the books of 2015. In reference thereto, the Respondent was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsic audit on account of non-availability of people and records since the audit had to be carried out from FY 2012 onwards, inventory records were not available hence reconciliation could not be done, etc. Further, some major observations regarding related party transactions were also discussed. xv.) The RP out of his own free will issued a letter dated 05.07.2019 to the forensic auditors and directed them to carry out transaction review of the Corporate Debtor only for the period 07.04.2017 to 08.04.2019, which was in contravention of the decision of the CoC, as the CoC in its 2nd meeting resolved to conduct the forensic audit of Corporate Debtor for a period of 7 years starting from 2012-13. The Respondent failed to furnish the books of accounts for the said period and also for the FY 2018-19 to the forensic auditors. xvi.) As per the Independent Audit Report for the year ended 31.03.2018, the independent auditors had stated that the Corporate Debtor has failed to record various trade payables and instead it was recorded as contingent liability. The Respondent post verification and acceptance of claim of the Applicant and P.G. Mercantile as trade payable towards supplies of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble High Court of Karnataka extended the interim stay granted to the CIRP process till 02.01.2020. Vide order dated 03.01.2020, the Hon'ble High Court disposed of the said writ petition by directing the Respondent to consider as many Eol that are available. The Respondent gave his consent to accepting the bids of G.K. Ispat Pvt. Ltd., which came to be recorded in the said order dated 03.01.2020. This action of the Respondent was in complete contravention of the decision of CoC. As it was resolved in the 5th CoC meeting that the lawyers are in the process of vacating the stay granted by the Hon'ble High Court, the Respondent failed to inform the members that he had decided to give his consent. The Applicant once again states that G.K. Ispat and Bipin Textiles had submitted a bid after the deadline and they had documents which were only supposed to be circulated between the members of the CoC. xxi.) During the 2nd CoC meeting, it was decided that the minimum net worth criteria for the prospective Resolution Applicants will be at Rs. 25 Crores. During the 8th CoC. meeting, Respondent submitted that a total of 3 Resolution Plans i.e. M/s. PP Metallix, M/s. Starteck F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondent that the Directors of the Corporate Debtor have removed/caused to be removed the machinery from the plant of the Corporate Debtor, the Respondent showed no urgency in securing the machinery and thus failed his primary duty to preserve and protect the assets of the Corporate Debtor u/s. 25 of the Code. xxvii.) Further, the Applicant submits that once the CoC has taken a decision not to allow the Eol and/or bids by the G.K. Ispat and M/s. Bipin Textiles Processing Industries Pvt. Ltd. the same was overruled by the Respondent at the time of hearing before the Hon'ble High Court of Karnataka. It is also stated that the Respondent failed to initiate recovery proceedings against M/s. Shri Durga Trade Links who is a related party of the Corporate Debtor and owes the Corporate Debtor to the tune of Rs. 74,28,00,122/-. Hence, this IA. 3. The Respondent while opposing the instant application has filed its statement of objections dated 21.10.2021 by inter alia contending as under: i.) As per section 27 of the Code, the Applicant does not have the locus standi to seek replacement of the RP and also the application and the reliefs sought herein are barred by res judicata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was three-month delay in reporting progress. vi.) As regards the allegation that the RP had failed in his duty to recover the dues from M/s. Shri Durga Trade Links Pvt. Ltd., it is submitted that these allegations were entirely unsubstantiated and did not contain any material particulars to establish the alleged fraud. Despite, in good faith, the RP had issued notices to recover the said dues payable, through emails dated 09.10.2019 & 02.11.2019. In the absence of any documentation, the Respondent did not file any application or other legal proceedings to recover the same. vii.) As regards the stray statement made by the Applicant, supported by no document, that the RP unilaterally reduced the cover period for the forensic audit from 7 years i.e. from FY 2012-13 up to initiation of CIRP on April 08, 2019 to a period of 2 years i.e. April 7, 2017 and April 8, 2019, it is submitted that it is wholly incorrect. It is again reiterated that the RP has diligently provided all the information which was in the possession of the Corporate Debtor which he could retrieve. viii.) As regards the allegation that the RP circulated a different Agenda of the CoC meeting to the Applicant, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deliberation on the forensic audit report, it is submitted that CoC in its 10th meeting held on 30.01.2020 invited the forensic auditors for presenting the draft forensic audit report. The forensic auditors represented by Mr. Prakash Kulkarni and Mr. Nikhil Chandra presented the draft forensic audit report and explained some difficulties in final preparation of the Forensic Audit Report. Further, the RP is duty bound to complete the CIRP process in accordance with the timelines given under the Code and its regulations, and that there was no good reason to not proceed with approval of Resolution Plan for mere pendency of the final Forensic Audit Report. xii.) As regards the filing of defective IA, it is submitted that based on the findings of the forensic report, the Respondent filed application in IA No. 133 of 2020 seeking a direction to the promoters of the Corporate Debtor to make good the losses suffered by it to the tune of approximately Rs. 74.27 Crores. Pursuant to the hearing, a notice has been ordered to serve on the promoters of the Corporate Debtor and further directed the Respondent to produce a summary of the fraudulent trading engaged by the said persons, based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsic audit report was received. iii.) The Tribunal vide its order dated 10.03.2021 in IA No. 133 of 2020 records that the Respondent was required to carry out further enquiries regarding the initial findings as set out in the forensic report. It is also clear in the said order that the forensic report was incomplete and not detailed at all. Inspite thereof, Respondent has evidently taken no action. iv.) As a result of this incomplete enquiry of the Respondent and incomplete forensic report, the whole CIRP has been affected as the maximum realization from the Corporate Debtor was never attempted by the Respondent. This has also in effect devalued the Corporate Debtor. As the complete forensic audit was not completed at the behest and the instruction of the Respondent, the CoC was incapable of applying its complete commercial wisdom in dealing with the Resolution Plan. In the present scenario, the Creditors of the Corporate Debtor by way of by the Resolution Plan of Starteck Finance Ltd. have only made provisions to recover a very minute amount of the entire debt. v.) By not providing the information to the forensic auditor in a timely manner, the Respondent has ensured that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounding facts to make out his case, make enquiries from all concerned parties with reference to the transactions highlighted in the Forensic Report, and come to some definite conclusion before referring the matter to this Tribunal under section 66 of the Code and then he may consider adding the parties to the transactions as Respondents and to revive the same application or to file a fresh application u/s. 66 of the Code. But the Respondent-RP failed to comply with the said direction of this Adjudicating Authority and hence he filed the instant Application. 8. The learned Counsel appearing for the Respondent-RP while not disputing the fact of not filing a fresh application u/s. 66 against the Promoters or not filing an application seeking revival or modification of the earlier IA No. 133 of 2020, however justified his action by drawing our attention to his submissions made in the reply and the same are read as under: "This Hon'ble Tribunal was of the view that a further detailed enquiry be conducted by the Respondent herein, by seeking further responses from the suspended directors/promoters. In this view, the application was disposed of by the Hon'ble Tribunal, grantin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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