TaxTMI 
TaxTMI 
TaxTMI 
2020 (7) TMI 322
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....spection of Mr. Bhupesh Gupta, on having reasonable grounds to believe that the IP had contravened provisions of the Code, Regulations, and directions issued thereunder. 1.3 The Board on 24th October 2019 had issued the SCN to Mr. Bhupesh Gupta, based on findings of an inspection in respect of his role as an Interim Resolution Professional (IRP), Resolution Professional (RP) and Liquidator in Corporate Insolvency Resolution Process (CIRP) and Liquidation of Supreme Tex Mart Ltd. The SCN alleged contraventions of several provisions of the Code, the IBBI (Insolvency Professionals) Regulations, 2016 and the Code of Conduct under regulation 7(2) thereof, the IBBI (Liquidation 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....
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.... the Code provides: "25. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:- (g) prepare the information memorandum in accordance with section 29; " Further, Section 29 (1) of the Code provides that - "29. (1) The resolution professional shall prepare an information memorandum in such form and manner containing such relevant information as may be specified by the Board for formulating a resolution plan." As per Regulation 36 (2) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 it has also been provided 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 Rs. 7,47,276/- and admitted claim amount as Rs. 4,74,017/-. However, the same has been erroneously reflected. Further, the IP in the 5th Progress Report submitted to NCLT, Chandig....
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....ated as 'Building-Flat'. Also, the information was provided to valuers and has been included in valuation reports as well. During the personal hearing, it was submitted by the IP that adequate disclosure of assets has been made with their value in IM. Further, the IP in the Addendum to the Reply to SCN has submitted that both these assets were mortgaged in favour of ICICI Bank Limited. ICICI Bank Limited has been a member of the Committee of Creditors (CoC) and that no member of the CoC raised the issue of non-inclusion of these two assets in the IM as there was no incident 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 inter....
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....e document furnished it was observed that the asset detailed as Building-Flat' in the IM corresponds to the description of Flat no. 402 which is a portion of property no. B-20-1437402. Further, at page no. 191 of the IM, Collateral Security details (ICICI Bank) of Plot Khewat and Flat No. 402 has been mentioned. Findings: Essentially the RP has to facilitate the entire resolution process while attempting to address and balance the interests of all stakeholders. To achieve this objective, RP has to assume a wide array of duties and responsibilities which 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 t....
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.... grounds to challenge or reject the decision of the CoC. He further added that the CoC, in its commercial wisdom, had decided to conduct a third valuation and had directed the RP to get the third valuation done. The RP had no option but to accept and execute the decisions of the CoC. He has also replied that the decision of the CoC to get fresh valuation done is also an exercise of its commercial wisdom and there is always a possibility that after a fresh valuation, the CoC may be in a better position to take a final call to accept/reject a 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 prof....
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.... valuer As desired by the COC, another valuation of the assets of the Co. has been assigned. The third valuers from the Panel of registered valuers of SBI Er Gurmeet Singh for Pant & Machinery and Sh Daya Singh for Land & Building have been appointed and they shall submit their report which will be placed before the COC in the next meeting." It has been observed that it was only upon the desires of the members of CoC, third valuer was appointed, and valuation was conducted. Regulation 35 of the 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 t....
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....s, which required hectic movement from unit to unit, taking decisions regarding purchase and sale, recovery of book debts, statutory compliances, legal and NCLT cases, maintenance of machinery, security arrangements, handling of staff/workers etc. Further, no fee has been charged after the units were closed. The IP also submitted that during liquidation there was realization of CD for which fees is yet to be calculated as per Regulation 4(3) of IBBI (Liquidation Process) Regulations, 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 Rs. 159.17 Crores, the liquidator shall be entitled to a fees of Rs. 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 Rs. 80 Crores approx. Though as per the Schedule given in Regulation 4, the liquidator would have been entitled to a remuneration of approx. Rs....
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....rocess) 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 Rs. 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, "In fact, it has been found that often the Liquidator has the incentive to prolong the Liquidation process purely as a mechanism to seek rents from the creditors. They earn rents either by deploying the capital realised, or differentiating payouts to those who can pay for it. The Committee agrees that the Code and the regulations thereunder should incentivise good behaviour by the Liquidator by imposing a structure on fees charged in Liquidation. An ideal structure will be one that incentivises the Liquidator to preserve time value of transactions in Liquidation. The fees that the Liquidator can charge must be a decreasing function of time....
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.... 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 prima facie view that the RP has violated section 25(2)(b), 208(2)(a) and 208(2)(e) of the Code and regulation 7(2)(a) and regulation 7(2)(h) of the IP Regulations read with clause 2 and 14 of the Code of Conduct of the IP Regulations. Submission: IP submits that the promoter and ex-director had never informed the RP regarding the settlement of an insurance claim with OICL. The affidavits had been filed by them in the case in a clandestine and wrongful manner, keeping the IP in the dark. The details were subsequently found by IP. Further, after procuring the information, the IP filed an application in NCLT on 24-5-2019 claiming the amount of Rs. 2,35,49,408 from OICL....
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....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 OICL v. M/s Supreme Yarn Ltd., (now known as Supreme Tex Mart Ltd) was not within the knowledge of the RP. This is due to the reason that during CIRP, RP must have obtained complete control over the operations of the CD and all the notices/orders in the abovementioned matter must have been addressed to the registered address of CD, and not to the residential address of the ex-directors of CD. The RP having effectively taken over the records and documents of CD cannot assert that the proceeding before the ADJ, Ludhiana in the name of the CD was kept away from him in a wrongful and clandestine manner. In the circumstances where RP admittedly had taken control over all bank accounts and operations of ....
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.... 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 that the agenda of the meetings was duly sent to all CoC members in hard copy along with notice and the email was only advance information. The email mode was not a substitute for the physical notice, which was accompanied by agenda, without fail. Also, during the personal hearing, the IP reiterated the same as given in his reply to SCN. It was further submitted in the Addendum to reply to the SCN, that the notice and agenda of 2nd CoC meeting held on 18-11-2017, 7th CoC meeting held on 21-5-2018, 8th CoC meeting held on 25-5-2018 and 9th CoC meeting held on 13-6-2018 had been duly sent to all the CoC members. These meetings were attended by members having more than 99 percent of the voting share of the CoC and all the decisions, wheneve....
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....d 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 Resolution Applicants themselves. The agenda of discussion on the resolution plan was very much part of the notice which was issued to all the CoC members. As the resolution plan was to be tabled before the meeting only, no agenda notes were possible to be circulated in advance." It has been observed from the emails dated 23-5-2018 for the 8th CoC meeting and 11-6-2018 for the 9th CoC meeting that the RP gave notice to the CoC about the schedule for the respective meetings adding that the meetings shall be conducted 'to discuss the resolution plan'. Upon a perusal of the documents abovementioned, it has been observed that all the documents are in order. Findings: The RP has submitted relevant documents to establish that he has provided the CoC m....
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....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 (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. 4.4 Thus, Mr. Bhupesh Gupta has displayed utter misunderstanding of the provisions of the Code and Regulations made thereunder. He has, therefore, contravened provisions of: i. Sections 208(2)(a) and (e) of the Code, ii. Regulation 35(1)(b) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, iii. Regulation 4(3) of the IBBI (Liquidation Process) Regulations, 2016 a....