TaxTMI 
TaxTMI 
2020 (7) TMI 322
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....Inspecting Authority (IA) to conduct an inspection 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....
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....efore the NCLT, Chandigarh. Analysis: Section 25(2)(g) of 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 ....
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....e IM, the plot Khewat in village Kanagawal has been mentioned as Worker Colony' and Flat No. 402 has been indicated 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 l....
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....been occupied for the purpose of Labour Quarters. The RP had also submitted the sale deed of Flat no. 402, which was executed on 3-2-2010 with the CD. Based on the 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 (....
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.... the reply to the SCN, the IP again submitted that the third valuation of assets of the CD had been conducted as per the decisions and the directions of the CoC and the RP had no 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....
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....allow the IP to encroach upon its role. Similarly, the IP must not compromise his independence in favour of the CoC. From the minutes of 6th CoC meeting, it has been observed as under: "To take note of appointment of third 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....
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.... of IBBI (Liquidation Process) Regulations, 2016. Submission: IP submitted that the fee as RP was charged only till units were kept as going concern and that all the four units were being run as during CIRP by the full involvement of all the team members, 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 liqui....
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.... 0.10 0.06 0.05 (4) The liquidator shall be entitled to receive half of the fee payable on realization under sub-regulation (3) only after such realized amount is distributed. Hence, Regulation 4(3) provides that in cases where the Liquidator fee has not been decided by the CoC, then the fee payable shall be ascertained in the manner provided in the table given under Regulation 4(3) of IBBI (Liquidation Process) 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 c....
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....urance Co Ltd (OICL) against CD in the court of Additional District Judge, Ludhiana (ADJ) challenging an arbitral award dated 12-1-2009 which was passed in favor of CD. On 1-9-2018, the Ld. ADJ passed an award wherein Oriental Insurance Co Ltd. has handed over a Demand Draft of Rs. 8,30,77,161/- towards full and final settlement of claim to Mr. Kuldeep Singh, director of CD, who has accepted the DD towards the full and final settlement of claim. CIRP of 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....
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.... on 30-5-2018 the amount of insurance claim was decided by the ADJ, Ludhiana in the matter of OICL v. M/s Supreme Yarn Ltd. now known as Supreme Tex Mart Ltd., where the CD was being represented by the ex-managing director, Mr. Sanjay Gupta. Thereafter, the Order dated 30-5-2018 passed by the ADJ, Ludhiana recorded the settlement of the amount of insurance claim of Rs. 8,30,77,161/- which was paid by OICL to the ex-director of the CD, Mr. Kuldeep Singh. Section 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....
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.... (iv) Audited Financial Statement for F.Y 2017-2018 and 2018-2019, (v) Any other relevant document/s. 3.6 Contravention: Regulation 21(3) of the CIRP Regulation provides that every notice of CoC meeting shall contain a list of the issues to be voted upon and copies of all documents relevant to the matter be enclosed. Further, it is the duty of RP to provide necessary documents, along with the notice of the meeting to all the participants of the meetings. However, the RP failed to submit the agenda alongwith notice 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 p....
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.... to all the CoC members prior to each meeting and provide them a copy of the notice along with the list of agenda to ensure that there is no requirement of reiteration of the context and background of the agenda and thus, enables him to seek their immediate opinions on the various critical issues. On perusal of documents submitted by RP, it has been observed that the 7th CoC meeting was held on 21-5-2017 and not the 5th CoC meeting. Similarly, notice dated 23-5-2018 was for 8th CoC meeting and not the 6th CoC meeting. Further, the notice and agenda dated 15-11-2017 of 2nd CoC meeting held on 18-11-2017, and 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 mem....
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....on of these professionals, along with their licensing, appointment, functioning and conduct under the Code. To this end, the Code empowers the Board to lay down the minimum professional standards and the code of conduct to be followed to by IPs at each stage of the insolvency and bankruptcy resolution process. Mandates for IPs, which may be prescribed through delegated legislation." 4.3 In this matter, the DC observes that Mr. Bhupesh Gupta displayed a negligent approach during the conduct of CIRP which can be elaborated as below: 4.3.1 The duties of IP and CoC are clearly provided under the provisions of the Code. In the 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....