AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (7) TMI 361
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....elieve that the IP had contravened provisions of the Code, Regulations, and directions issued thereunder. 1.3 The Board on 22nd October 2019 had issued the SCN to Mr. Koteswara Rao Karuchola, based on findings of an inspection in respect of his role as an interim resolution professional (IRP) and/or resolution professional (RP) in corporate insolvency resolution process (CIRP) of Viceroy Hotels Limited. The SCN alleged contraventions of several provisions of the Code, the IBBI (Insolvency Professionals) Regulations, 2016 (IP Regulations) and the Code of Conduct under regulation 7(2) thereof, the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016 (CIRP Regulations) and IBBI Circular No. IP/003/2018 dated 3rd January 2018. Mr. Koteswara Rao Karuchola, replied to the SCN vide letter dated 21st November 2019. 1.4 The Board referred the SCN, response of Mr. Koteswara Rao Karuchola to the 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. Koteswara Rao Karuchola availed an opportunity of personal hearing before the DC on 25thFebruary 2020 when....
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.... resolution professional or the resolution professional, as the case may be, shall verify every claim, as on the insolvency commencement date, within seven days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it." Recently, the Apex Court in the matter of Committee of Creditors of Essar Steel India Limited Through Authorised Signatory v. Satish Kumar Gupta & Ors. (Civil Appeal No. 8766-67 of 2019) also highlighted the role of RP in the revival of the corporate debtor. The Hon'ble Court remarked as under: "... Thereafter, under Regulation 13, the resolution professional shall verify each claim as on the insolvency commencement date, and thereupon maintain a list of creditors containing the names of creditors along with the amounts claimed by them, the amounts admitted by him, and the security interest, if any, in respect of such claims, and constantly update the aforesaid list - see Regulation 13(1)." IBBI Circular no. IP/003/2018 dated 3rd Janua....
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....d and approved the payment of Rs. 1,50,000/- to M/s. Ezresolve LLP..." Furthermore, an email dated 1st March 2020 was received by the RP from the IPE in response to his email dated 27th February 2020 which clarified, "During this assignment we have verified claims sent to us for verification under various criteria...". During the personal hearing on 25th February 2020, it was informed by the RP that he had intention to follow the law and the role of the IPE for re-verification of claims has been approved by the CoC. The RP has provided various documents vide email dated 4th March 2020. These include appointment letter of M/s EzResolve LLP dated 30thMarch 2018, report of the IPE on financial claims dated 3rd April 2018, email dated 1stMarch 2020 received by the RP from the IPE and specimen letter of M/s Mahal Hotels Private Limited dated 4th July 2019 under which the physical copy of the claim has been returned to them. However, neither the minutes of the CoC meetings nor any document provided by the RP reflect that the IPE was appointment for reverification of claims. It is pertinent to note that the appointment letter dated 30th March 2018 clearly states....
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....ls as may be necessary. However, he cannot outsource duties assigned to himself under the regulations. Section 5 (13) of the Code defines the term 'Insolvency Resolution Process Costs' (IRPC) in the following words - " "insolvency resolution process costs" means- (a) the amount of any interim finance and the costs incurred in raising such finance; (b) the fees payable to any person acting as a resolution professional; (c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern; (d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and (e) any other costs as may be specified by the Board" Regulation 31 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016 provides: " "Insolvency Resolution Process Costs" under section 5(13)(e) shall mean - (a) amounts due to suppliers of essential goods and services under Regulation 32; (aa) fee payable to authorised representative under [sub-regulation (8)] of regulation 16A; (ab) Out of pocket....
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....mits that he had prepared the IM which contained details of securities created in favour of different secured creditors. However, there was an inadvertent omission to suffix the word "interest" along with security. The RP submits that the amended IM depicting "security interest" has been supplied to the stakeholders vide communication dated 29th December 2018. The RP further submits that the security interest has also been incorporated in the Claims Register and in the list of Financial Creditors sent to the members of the CoC vide email dated 29th January 2019. During the personal hearing on 25th February 2020, RP reiterated his submission. The RP has provided a copy of the IM vide email dated 4th March 2020 and has submitted that the security interest is also included in the IM at Annexure 6. Analysis: The Code has clearly outlined the duties which must be performed by the RP during the insolvency resolution process. One of the key functions of the RP with respect to conduct of CIRP include preparation of IM. An IM is a very crucial document and provides a holistic view about the operations of the Corporate Debtor. Section 25 (2) (g) of the Code clearly provides: "....
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....nsactions made by the corporate debtor. It was observed that the RP filed such an application before the AA. However, the Special Audit Report dated 4th July 2018 provides that the Corporate Debtor had entered into tripartite letters of confirmations/agreements for adjustment of Rs. 63, 20, 43, 151/- (Sixty-three crore twenty lakhs forty-three thousand one hundred and fifty-one only) which were not included in the Section 43 application before the AA as preferential transactions by the RP on the ground that such amount was adjusted against the amounts payable. Submission: The RP submits that the information regarding the tripartite letters of confirmations/agreements has been brought to the notice of the AA as per para 7 of IA no. 377 of 2018 filed by the RP before the AA (application under section 43 of the Code). Further, the RP has submitted that the same was also mentioned in the Special Audit Report which was part and parcel of the IA. Analysis: During CIRP, an IRP/RP possess the highest professional responsibility. His conduct and performance have a substantial bearing on the survival of an ailing entity. He, therefore, is expected to function with a strong sense of urg....
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....annexed with the IA no. 377 of 2018 contained information regarding tripartite letters as mentioned above. In such a scenario, a natural presumption which can be made is that the AA was aware of the information about tripartite letters. In the absence of any mens rea to hide anything relating to the tripartite agreement specifically when paragraph 7 of IA no. 377 of 2018 mentions that, "It is seen that against an receivable amount of Rs. 63, 20, 43, 151/- the same has been adjusted against the payable credit balances.", the RP cannot be held liable for contravening the provisions of the Code. 4. Conclusion: 4.1 An IRP or RP is appointed by the AA. He is an officer of the Court and he is duty bound to conduct CIRP with fairness and diligence and must maintain absolute independence in discharge of his statutory duties without any external influences. The entire resolution process of a Corporate Debtor is dependent on the IRP/RP who is primarily responsible for efficiently and effectively steer it towards resolution. It is due to this reason that the role of the IRP/RP becomes paramount during CIRP. Further, it is the duty of the IP to follow the guidelines laid down under th....