TaxTMI 
TaxTMI 
2018 (11) TMI 891
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....18 (SCN) issued to Mr. Martin S. K. Golla, 1704, Tower 3, Raheja Tipco Heights, Rani Sati Marg, Malad (East) Mumbai City - 400097, Maharashtra. Mr. Golla is a professional member of the ICSI Institute of Insolvency Professionals and an Insolvency Professional (IP) registered with the Insolvency and Bankruptcy Board of India (Board) with Registration No. IBBI/IPA-002/IP-N00095/2017-2018/10238. Mr. Golla replied to the SCN vide his letter dated 10th July, 2018. The Board referred the SCN, response of Mr. Golla to the SCN and other material available on record to the Disciplinary Committee (DC) for disposal. Mr. Golla appeared for a personal hearing along with the learned Advocate, Mr. Davesh Bhatia before the DC on 30th July, 2018. He has submitted written submission vide mail dated 8th August, 2018 after the personal hearing. Preliminary Issues 2. First things first. Mr. Golla has raised four preliminary issues, as under: 2.1 Mr. Golla has submitted that he has not been supplied copies of documents relied upon by the Board for issuing the SCN. The DC, however, notes that the SCN in the opening Para states that it relies on the following documents submitted by him vide lette....
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....were whole time members of the board." The DC finds that the SCN is in accordance with regulation 11(1) of the IBBI (Insolvency Professionals) Regulations, 2016 (IP Regulations), as explained seriatim hereunder: a.: The subject line of the SCN clearly states that it is a SCN under regulation 11(1) of the IP Regulations. b. & c.: The SCN clearly states the alleged facts as well as the provisions violated. For example, Para 3(i) of the SCN reads: "The CIRP commenced on 24th August, 2017. The public Announcement was required to be made immediately, i.e., on or before 27th August, 2017. However, it was made on 15th September, 2017 in contravention of Regulation 6 of the Regulations." d.: The SCN clearly states the actions the Board proposes to take. Para 9 of the SCN states that the Board proposes to take action as permissible under section 220(2) of the Code, including cancellation of registration. Section 220(2) of the Code lists out several permissible actions. e.: It has been dealt in Para 2.1 above. f.: The constitution of the DC is available on the website of the Board. In any case, it is not a requirement to be specified in the SCN....
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....ely and all of them are residents of Flat No. 702, Amar Residency, 7th Floor, Punjab Wadi, Sion Trombay Road, Deonar, Mumbai - 400088. 3.2 The CD, WAPL availed of a loan facility from Bank of Baroda (BoB) vide sanction dated 31st July, 2009 for a period of 12 months, against security of stock, book debt and machineries and factory and land and building of WAPL, and a flat belonging to Mr. Japal Amardas Wig and Ms. Indira Japal Wig and personal guarantees by Mr. Mahendra Wig, Mr. Japal Amardas Wig and Ms. Indira Japal Wig. On failure to repay the loan, it was declared a non-performing account on 9th February, 2012. With an outstanding amount of Rs. 4.6 crore on 17th February, 2012, BoB issued notice dated 17th February, 2012 under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 Act, 2002 (SARFAESI), and took physical possession of the factory, land and building of WAPL on 24th July, 2017. It also moved a petition before the Debt Recovery Tribunal (DRT) for realisation of debt of Rs. 4.9 crore plus interest thereon. 3.3 In the meantime, WAPL filed an application under section 10 of the Code on 19th July, 2017 for initiati....
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....y BoB 04.04.2018 Invitation of Expression of Interest 14.04.2018 Last date for receipt of EoI 05.04.2018 3rd Meeting of the CoC Where a. Information Memorandum was presented b. Invitation of resolution plan was approved c. Evaluation Matrix was approved d. BoB submitted OTS with an instruction to treat it as resolution plan e. RP stated that he would explore every possibility to address the issue 20.04.2018 4th Meeting of the CoC 25.04.2018 Application to AA for approval of resolution plan 04.06.2018 Approval of resolution plan by the AA Alleged Contraventions, Submission and Findings 4. A summary of contraventions alleged in the SCN, Mr. Golla's written and oral submissions thereon and the findings of the DC are as under: 4.1 Contravention: The AA admitted an application under section 10 of the Code for initiation of CIRP of WAPL vide order dated 24th August, 2017, which appointed Mr. Golla as IRP. Accordingly, the CIRP commenced on 24th August, 2017. The IRP was required under the law to complete certain tasks such as issue of public announcement, appointme....
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....18. The same was published on 4th April, 2018 and was ratified on 5th April, 2018 in the meeting of the COC. Finding: The DC finds the submission of Mr. Golla as untenable: (a) The minutes of the 3rd meeting of the CoC held on 5th April, 2018 has no mention whatsoever of invitation of EoI. The submission that the EoI was ratified on 5th April, 2018 is false. (b) The submission of Mr. Golla that he sent an e-mail to the CoC is misleading. How does one send an e-mail to the CoC? A hard copy of the e-mail dated 2nd April, 2018 of Mr. Golla and the e-mail dated 3rd April, 2018 of BoB, provided by Mr. Golla along with his response dated 10th July, 2018, indicate that he sent an e-mail to a FC, albeit the sole FC, in the CoC. And the invitation of EoI was approved by the sole FC by e-mail and not by the CoC in a meeting. The Code provides for an institutional mechanism in the form of CoC to take decisions and prescribes that such decisions shall be taken in a meeting of the CoC in accordance with regulations 18 to 26 of the CIRP Regulations. If the law provides for a certain manner of doing something, it must be done in that manner only. If Mr. Golla could conduct CI....
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....een that 5th May, 2018 was three months (more than 37 days) away from 5th February, 2018. The submission that less than 37 days were available for submission of resolution plans is not correct and the requirement of Form G was squarely applicable in this matter. (c) It is unimaginable that the resolution plan was submitted to the CoC in its meeting held on 5th April, 2018, when the Form G was being considered. Thus, Mr. Golla contravened the provisions of section 25(2)(h) of the Code, regulation 36A of the CIRP Regulations, and regulation 7(2)(a) and (h) of the IP Regulations read with clauses 1, 2, 3, 5, 9, 10, 13 and 14 of the Code of Conduct appended to the said Regulations. 4.5 Contravention: Mr. Golla failed to submit to the Board a copy of the records of every proceeding before the AA. Submission: There were no proceedings before the AA that were required to be reported to the Board. Only miscellaneous application was filed by him for approval of resolution plan. Finding: As evident from records, Mr. Golla approached the AA for the extension of CIRP period and for approval of the resolution plan. He did not submit copies of these proceedings in contravent....
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....of Mr. Golla is untenable for the following reasons: (a) As stated in its long title, the Code envisages reorganisation or insolvency resolution of a CD in a time bound manner for maximisation of value of its assets. It is not a settlement or recovery plan. In fact, the Code prohibits and discourages recovery in several ways. For example, section 14 of the Code prohibits any action to foreclose, recover or enforce any security interest during CIRP and thereby prevents any creditor from recovering its dues. (b) Several judicial pronouncements reiterate prohibition on recovery or settlement. In the matter of Innoventive Industries Limited Vs. ICICI Bank and ANR [Civil Appeal Nos. 8337-8338 of 2017], the Supreme Court summed up the Code: "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 corporate body is able to pay back its debts and get back on its feet. All this is to be done within a period ....
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....were in very advanced stage. However, there was no such talk except the effort by the RA to reach an OTS with BoB. Therefore, Mr. Golla obtained approval for extension of time by making a false statement to the AA. Submission: The steps were taken by Mr. Golla to come to an amicable resolution of the insolvency of the CD. Finding: The Code envisages that the RP invites resolution plans, RAs submit competing resolution plans in response, and the CoC chooses the best of them. It does not envisage a mechanism for any kind of amicable settlement. Further, there is no evidence whatsoever to the effect that either he or the promoter was seeking out investors to formulate a resolution plan, contrary to the contention of Mr. Golla. The fact remains that Mr. Golla, by his conduct and action, allowed Mr. Mahendra Wig to pursue an OTS with BoB and only after the OTS was approved by BoB, he issued invitation of EoI. Therefore, Mr. Golla contravened the provisions of sections 25(2)(h) and 208(2)(a) of the Code and regulations 36A and 37 of the CIRP Regulations, and regulation 7(2)(a) and (h) of the IP regulations read with clauses 1, 3, 5, 9, 10, 12, 14, and 15 of the Code of Conduct appe....
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....eived and considered by the CoC. This is in contravention of every provision of Chapter II of Part II of the Code, including section 30. Submission: The EM is for evaluation and to be used by the CoC for approving or rejecting a resolution plan. Its approval after receipt of resolution plan is not material. Finding: The EM is required to be provided at least 15 days before submission of resolution plan under regulation 36A(2) of the CIRP Regulations so that the RA can structure its plan to take best advantage of the EM and the CoC cannot tailor-make an EM to select a particular RA. In this case, the OTS was agreed between the parties, the RA and the sole FC, on 27th March, 2018. Since both parties (CoC and RA) considered the OTS as resolution plan, the resolution plan was approved on 27th March, 2018 for all practical purposes. In any case, Mr. Golla has vehemently argued that the approval (of the invitation of EoI) by BoB is the approval by the CoC. What was left was only a confirmation of RP, Mr. Golla that the OTS was in compliance with all applicable laws in terms of section 30(2)(e) of the Code. Mr. Golla committed in the meeting of the CoC on 5th April, 2018 that he wou....
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....f commencement of CIRP, and any such vested/crystallised rights cannot be taken away by an amendment unless stated so specifically. The Code, however, nowhere confers any legal rights on any person to submit a resolution plan. No rights accrued in favour of Mr. Mahendra Wig or any other person with admission of an application under section 7, 9 or 10 of the Code. Assuming that the rights have accrued, the legislature can make express provisions to make a law retrospective, as claimed by Mr. Golla. In this matter, when the legislature has made an explicit provision on the applicability of section 29A, Mr. Golla cannot have any quarrel. (d) The Ordinance was promulgated to prohibit certain persons from submitting resolution plans, who on account of their antecedents, may adversely impact the credibility of the process under the Code. As stated in the Statement of Objects and Reasons appended to the Insolvency and Bankruptcy Code (Amendment) Bill, 2017, section 29A aimed to prevent rewarding unscrupulous persons at the expense of creditors. While replying to the debate on the Insolvency and Bankruptcy Code (Amendment) Bill, 2017, the Finance Minister stated: "In the case of r....
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....TS by the CD was under process. Going by reasoning of Mr. Golla that the approval (of the invitation of EoI) by BoB is the approval by the CoC, the approval of the OTS by the BoB vide its letter dated 27th March, 2018 is the approval by the CoC. After the OTS plan was approved by the CoC on 27th March, 2018, Mr. Golla issued the notice on 28th March, 2018 to hold the next meeting of the CoC on 5th April, 2018, sent draft invitation of EoI on 2nd April, 2018 to BoB for its consideration, issued invitation for EoI on 4th April, 2018, placed IM, EM, Form G, etc., in the meeting of the CoC on 5th April, 2018 for its consideration. In the meeting on 5th April, 2018, BOB instructed Mr. Golla to consider the OTS as resolution plan and admittedly, he explored every possibility to do so. Thus, the resolution plan was approved on 27th February, 2018, even before invitation for EoI was drawn up and the steps taken after the approval of resolution were mere formality. It is not just lack of independence of Mr. Golla as RP; it is active collusion of Mr. Golla with the RA and the CoC to vitiate the process and frustrate the solemn objective of the Code. Therefore, Mr. Golla contravened the provi....
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....tension of CIRP period and obtained extension by making false statements to the AA. Even after extension of CIRP period, Mr. Golla did nothing. 5.4 After long follow up by Mr. Mahendra Wig, BoB approved the OTS on 27th March, 2018, with a clear understanding between them to implement the OTS as resolution plan. Thus, Mr. Mahendra Wig agreed to submit the OTS as resolution plan and BoB agreed to approve it as resolution plan, on 27th March, 2018. On the day after de facto approval of the resolution plan on 27th March, 2018, that is, on 28th March, 2018, Mr. Golla scheduled the next meeting of the CoC for 5th April, 2018. Without approval of the CoC and without specifying the eligibility criteria for RAs, as required under section 25(2)(h) of the Code, Mr. Golla issued invitation of EoI on 4th April, 2018. 5.5 In the meeting of the CoC held on 5th April, 2018, BoB submitted the OTS with an instruction to Mr. Golla to treat it as resolution plan and Mr. Golla committed to explore every possibility to do so. In the next meeting of the CoC held on 20th April, 2018, Mr. Mahendra Wig submitted the OTS as resolution plan. Mr. Golla confirmed that the resolution plan did not contraven....