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2018 (8) TMI 838
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....DC notes the following sequence of events leading to the issuance of the SCN: 1.2.1 A financial creditor, namely, Reliance Commercial Finance Limited (applicant-creditor) filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) before the Hon'ble Adjudicating Authority for initiating corporate insolvency resolution process (CIRP) of the corporate debtor, Ved Cellulose Limited, and proposed Mr. Rakesh Wadhwa as an Interim Resolution Professional (IRP). Accordingly, the Hon'ble Adjudicating Authority, vide Order dated 30th June, 2017, admitted the application and appointed Mr. Wadhwa as the IRP for the CIRP of the corporate debtor. 1.2.2 The IRP made an application on 21st July, 2017 to the Hon'ble Adjudicating Authority under section 19(2) and (3) of the Code seeking co-operation of the erstwhile management of the corporate debtor. The Hon'ble Adjudicating Authority, vide Order dated 24th July, 2017, granted an opportunity to the erstwhile management of the corporate debtor to co-operate with the IRP in performing his duties failing which appropriate proceedings would be initiated. The IRP, however, requested the Hon'ble Adjudicating Authority on....
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....ated 4th August, 2017, he responded to BoI that he did not question the claim, but his term as IRP had ended and the CoC in its meeting held on 3rd August, 2017 had approved the settlement between the corporate debtor and the applicant-creditor. 1.2.8 On 4th August, 2017, the IRP drew up the minutes of the meeting of the CoC held on 3rd August, 2017. 1.2.9 The IRP filed his report dated 8th August, 2017 on the CIRP along with the 'resolution plan' dated 3rd August, 2017, as approved in the meeting of the CoC, with the Hon'ble Adjudicating Authority. He also sought directions from the Hon'ble Adjudicating Authority on the claim of the BoI. 1.2.10 On consideration of the report of the CIRP, the 'resolution plan' and objections of the BoI, the Hon'ble Adjudicating Authority passed an Order dated 4th October, 2017. In terms of the said Order: (a) There was a flagrant contravention of the provisions of section 21(2) of the Code, as the IRP did not include BoI in the CoC despite it figured in the certificate of charges registered with the RoC. (b) The term of the IRP came to an end on 30th July, 2017 as per section 5(12) of the Code. The 'resolution plan' was, ....
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....not be taken against him. Mr. Wadhwa responded to the SCN vide e-mail dated 9thApril, 2018 and availed of an opportunity of personal hearing before the DC on 24th April, 2018. 2. Alleged Contraventions A summary of alleged contraventions is as under: (a) The term of Mr. Wadhwa as the IRP expired on 30th July, 2017 in terms of section 16(5) of the Code. However, he continued as IRP beyond 30th July, 2017. (b) In terms of regulation 19 of the IBBI (Insolvency Resolution Process for Corporate Persons), Regulations, 2016 (CIRP Regulations), a meeting of the CoC need to be held by giving not less than 7 days' notice. However, Mr. Wadhwa held the first meeting of the CoC on 3rd August, 2017 vide notice dated 1st August, 2017. The notice carried an incomplete information memorandum and did not carry any resolution plan. (c) The CoC, in its first meeting, is required under section 22 of the Code to appoint the IRP as resolution professional (RP) or replace the IRP by another insolvency professional. Instead, the CoC considered and approved the 'resolution plan' in the said meeting, even though it was not listed in the agenda and the information memorandum w....
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....s of between the corporate debtor and the applicant-creditor. Since the claim of the only creditor was settled, the CoC did not appoint a RP. (d) In his reply to the objections raised by BoI to the 'resolution plan' dated 3rd August, 2017, filed before the Hon'ble Adjudicating Authority, Mr. Wadhwa had prayed: "to extend the mandate of the IRP in view of the requirement under Section 16(5) of the Code to continue the corporate insolvency resolution process by rejecting the Resolution Plan pending for its approval before the Hon'ble Tribunal or relieve him from his duties, whose tenure is no more, by passing the Resolution Plan." 4. Analysis and Findings The DC has carefully considered the SCN, written and oral submissions of Mr. Wadhwa and other material available on record. Its analysis of the submissions vis-a-vis the alleged contraventions is as under: 4.1 It is an undisputed fact the Hon'ble Adjudicating Authority, vide its Order dated 30th June, 2017 admitted an application for initiation of CIRP of Ved Cellulose Limited and appointed Mr. Rakesh Wadhwa as the IRP. Mr. Wadhwa has, however, submitted that he received the Order dated 30th June, 2017 from the Cou....
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....ys' notice, the meeting would have happened after expiry of his term. This makes clear that the IRP tried to ensure that the meeting of the CoC happens and the 'resolution plan' is approved during his term as IRP. Mr. Wadhwa suggested at the hearing that regulation 19(2) of the CIRP Regulations allows the CoC to reduce notice period to not less than 24 hours. However, there is no evidence of CoC reducing the notice period to less than seven days. In fact, had Mr. Wadhwa given seven days' notice, the meeting would have happened after expiry of his term, but the claim of BoI received on 3rd August, 2017 would have been considered before approval of 'resolution plan'. Expiry of his term is no excuse for having the meeting with shorter notice in breach of statutory law. Thus, Mr. Wadhwa convened the meeting of the CoC with a shorter notice in breach of explicit provision in section 208(2)(a) of the Code, regulation 19(1) of the CIRP Regulations, and clauses 1, 5, 10 and 13 of the Code of Conduct appended to IP Regulations, and thereby deprived BoI from joining COC. 4.3 Section 22 obliges the CoC to either resolve to appoint the IRP as resolution professional (RP) or replace the IRP ....
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....ess, he ensured that no RP is appointed. These are in contravention of provisions of sections 17, 18(1)(a) and (b), 22, 23, 24, 25(2)(h), 29 and 30 of the Code. 4.4 The soul of the Code is resolution plan. In the matter of Bharatbhai Vrajlalbhai Selani (Dev Cotex Pvt. Ltd.) v. State Bank of India, the Hon'ble Adjudicating Authority observed: "The Object of the Code is, no doubt, to protect the genuine Corporate Debtors with a view to maximise their value of assets and find out a 'Resolution Plan' to revive the Companies." In the matter of Innoventive Industries Ltd. v. ICICI Bank, the Hon'ble Supreme Court observed: "Under Section 30, any person who is interested in putting the corporate body back on its feet may submit a resolution plan to the resolution professional, which is prepared on the basis of an information memorandum." It further observed: "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 corpora....
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....corporate debtor. Leaving aside whether settlement is permissible under the Code, the fact that the entire CIRP was cramped into two days in the manner narrated above raises doubts about the integrity of the process. Instead of appointing a RP in the first meeting of the CoC as required under section 22 of the Code, preparing an information memorandum and providing the memorandum to resolution applicants as required under section 29, inviting resolution plans as required under section 25(2)(h), the IRP allowed consideration and approval of a 'resolution plan', which was not listed in the agenda, in the first meeting of the CoC. Mr. Dua, as part of the erstwhile management of the corporate debtor, was not cooperating with the IRP till 1st August, 2017. He did / could not provide information required for preparation of information memorandum even after he started co-operating. Yet, on behalf of the corporate debtor which is under the management of the IRP, he signed a settlement with the applicant-creditor. The settlement was presented as 'resolution plan' in the meeting of the CoC on 3rd August, 2017. This creates strong suspicion of complicity among the erstwhile and current manage....
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.... all claims so that the resolution plan factors in all liabilities. It is fatal for a resolution plan if it does not factor in all relevant claims. 4.7 Mr. Wadhwa's submission that he had prayed for extension of his term as IRP to continue the CIRP of the corporate debtor does not help. This is only a reaction after the Hon'ble Adjudicating Authority saw through his malafide design. Mr. Wadhwa connived with the applicant-creditor and the erstwhile management of the corporate debtor to close the CIRP within his term of 30 days as against permissible 180 days, with the help of a truncated CoC which did not include a financial creditor with substantial voting rights. He played the role of IRP, corporate debtor, resolution applicant and RP simultaneously. If a RP was appointed in the first meeting of the CoC, and the CoC was constituted in the manner required under the statute, such a closure of CIRP by a settlement (without information memorandum, consideration of claim of BoI, inclusion of BoI in CoC, invitation of resolution plan, appointment of resolution professional, examination of resolution plans, etc.) would not have been possible. 5. Conclusion 5.1 An insolvency prof....
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....a) and (b), 21(2), 22, 23, 24, 25(2)(h), 29, 30 and 208(2)(a) of the Insolvency and Bankruptcy Code, 2016; (ii) Regulations 4(g), 7(2)(a) and (b), 12(2), 19(2), 36, 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016; and (iii) Regulations 7(2)(a), 7(2)(b) of the IBBI (Insolvency Professionals) Regulations and clauses 1, 5, 10, 12, 13, 14, 15 and 24 of the Code of Conduct appended to said regulations. 6. Order 6.1 The Insolvency and Bankruptcy Code, 2016 provides for a process for insolvency resolution of corporate debtors in distress. The process aims to rescue the corporate debtor from distress. In the instant matter, Mr. Wadhwa, in connivance with the applicant-creditor and the corporate debtor and in contravention of several provisions of the law, subverted the CIRP of Ved Cellulose Limited and thereby attempted to scuttle the life of the corporate debtor itself and frustrate the objective of the Code. It was the timely intervention of the Hon'ble Adjudicating Authority that the CIRP was rescued by rejection of the 'resolution plan' submitted by Mr. Wadhwa and appointment of another I....