TaxTMI 
TaxTMI 
2021 (1) TMI 809
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....kground The Hon'ble NCLT, Kolkata Bench (AA) vide order dated 20th September, 2017 admitted the application under section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) for initiating Corporate Insolvency Resolution Process (CIRP) of M/s Mintri Tea Company Private Limited (CD). In this matter, CoC compised of only Punjab National Bank (PNB). The resolution plan was approved by CoC on 31st May, 2018 and CIRP was completed within 270 days. Later on, PNB filed an application for withdrawal under section 12A before the AA, however, the same was rejected by the AA vide its order dated 03rd August, 2018. This order of AA was set aside by the Hon'ble NCLAT vide order dated 27th February, 2019 wherein the application filed by the PNB for withdrawal of application under section 7 of the Code was allowed and the CD was restored to its old position. 1.1 The IBBI had issued the SCN to Mr. Kamalesh Kumar Singhania on19th May, 2020 based on material available on record including Inspection Report dated 7th December, 2019 in respect of his role as a Resolution Professional (RP) in CIRP of M/s Mintri Tea Company Private Limited (CD). The SCN alleged contraventions of section 20....
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....required to verify every claim as on the insolvency commencement date. The Form C in the schedule of CIRP regulations provides that the claim of the FC would be the total amount of claim including any interest as on the Insolvency commencement date. Thus, the revised claim admitted by Mr. Singhania after including interest amount from 20th September, 2017 to 10th April, 2018 (post CIRP commencement period) is in contravention of regulation 13(1) of the CIRP regulations. Due to this admission of additional claim on 21st April, 2018, PNB got additional voting share in CoC (79.62%). Thus, the IBBI is of the prima facie view that Mr. Singhania have violated section 208(2)(a) and (e) of the Insolvency and Bankruptcy Code, 2016 (Code), Regulation 13 of the CIRP Regulations and Regulation 7(2)(a) and (h) of the IP Regulations and clause 1, 2, 3, 10 and 14 of the Code of Conduct under regulation 7(2) thereof. Submission 2.2 Mr. Singhania stated in his reply that during the CIRP, it was informed by PNB vide e-mail dated 17th April, 2018 and 18th April, 2018 that they have received a payment of Rs. 9,53,24,405.00 and Rs. 72,98,539.00 aggregating to Rs. 10,26,22,944.00 from the guaranto....
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....bers of CoC. As two of the guarantors were directors of CD and other two were daughters of the Directors, they were falling within the definition of related party under the provisions section 5(24) of the Code. As per section 21(2) of the Code, a related party cannot be admitted as a member of COC. In the instant case, all the guarantors became financial creditor of the CD by virtue of law of subrogation although were not admitted as a member of CoC by the RP due to operation of section 21(2) of the Code. In this situation, where the guarantors have claimed to step into the shoes of original claimant, the existence of debt was always there under the law and he could not consider that the debt had extinguished. In fact, only the names of the claimant were changed as per the law of subrogation. Mr. Singhania placed reliance on section 29A of the Code to submit that the dues of a creditor even after the date of commencement of CIRP is recognized under the Code and he took a decision to admit the fresh claim of PNB. II Contravention 2.3 The PNB filed a claim in Form C dated 3rd October, 2017 of Rs. 10,37,69,840.00 plus interest and other charges to be calculated till actual reali....
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.... of four unsecured FCs have been paid by them. Federal Bank Ltd. had informed Mr. Singhania that their dues have been repaid and they had withdrawn their claim. Thus, Mr. Singhania submitted that in this situation, there would have been only one claimant left, namely, PNB with 100% voting rights irrespective of the quantum of claim admitted. As there was no information with him about the payment to four unsecured FCs, Mr. Singhania continued with the CIRP and the plan was approved by CoC on 31st May, 2018. III Contravention 2.5 As per minutes of 4th CoC meeting dated 9th February, 2018, it was proposed that advertisement for invitation of EoI will be published in the newspapers on 13th February, 2018 and the last date for submission of EoI to be kept at 28th February, 2018. During the meeting Mr. Mintri, promoter of the CD, requested Mr. Singhania to defer the date of publication of EOI as he had submitted a proposal to PNB to settle and pay the outstanding dues of the Bank. Thus, it was decided that, if the said proposal of settlement is not accepted by the Bank by 20th February, 2018, the advertisement shall be published on 23rd February, 2018 and the last date of submissio....
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....tted that CoC even ignored the direction of Hon'ble NCLT vide order dated 25th September, 2018 to consider providing interim finance required to takeover the management and run the business of CD. IV Contravention 2.7 Information Memorandum (IM) is a critical document during CIRP and preparation of the same is one of the primary duties of the IP as per section 25(2)(g) of the Code. There were following discrepancies in the IM prepared by Mr. Singhania. (a) The IM mentioned that lease of the land on which the company's tea estate is situated and operating has expired in 2000 and the same has not been renewed or extended by the Government. However, as per the notes forming the integral part of the balance sheet dated 31st March, 2016, the land of tea estate was shown as fixed asset of the CD and also, the same was considered as an asset during the valuation conducted during the CIRP. (b) In the IM, at page no. 13 of total liabilities of the CD, the total dues payable to workers and employees of the CD were mentioned to be Rs. 1.72 Cr. However, at page no. 17 of the same IM, while mentioning the claim of the workers, the dues payable to them were record....
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....al language newspaper with wide circulation at the location of the Registered office and Principal office, if any, of the CD. Mr. Singhania made the Public announcement of initiation of CIRP and called for submission of claims on 20th September, 2017 at the location of registered office, i.e., in Kolkata Editions of Financial express and Dainik Statesman newspaper. That the CD was engaged in production and manufacturing of processed tea and their tea gardens were situated in Darjeeling. Also, as per IM, the principal place of Business of the CD was Darjeeling,West Bengal. Even in the appointment letter issued to valuers, the principal place of business was Darjeeling only. Since the principal office of the CD was in Darjeeling, the public announcement should have been made at the place of principal office also. Further, Form A (Public Announcement) also provides for the address of the principal office (if any). However, Mr. Singhania failed to provide the details of principal office in the Public announcement. Thus, the IBBI is of the prima facie view that Mr. Singhania have violated section 208(2)(a) of the Code, Regulation 6(2)(b) of the CIRP Regulations, Regulation 7(2)(a) an....
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....of Conduct under regulation 7(2) thereof. Submission 2.12 With regard to the issue of valuation by valuers, Mr. Singhania submitted that as per law, valuation should be done by two independent valuers who shall compute the estimate of the liquidation value in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the CD. That, in the instant case, the two valuers had adopted two different approaches while ascertaining the liquidation value of CD. He submitted that following valuation methods were adopted by the Valuers: a. Adroit Technical Services Pvt Ltd - Direct Income Capitalization or Capitalization of Earning method of Income approach. (Liquidation Value - Rs. 16,09,28,704.00 given on 16thApril, 2018). b. Mr. K.K. Kharga - Prevalent Market Rates and depreciation in their cost. (Liquidation Value - Rs. 16,00,00,000.00 given on 24thApril, 2018). 2.12.1 Mr. Singhania submitted that KMPs/Directors of CD never cooperated during CIRP and as such no details of individual assets were available with RP. Mr Singhania further submitted that as independent professionals, their reports were ....
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.... the impugned order dated 3rd August, 2018, allow the application filed by the Punjab National Bank for withdrawal of the application under section 7 and dismiss the Company Petition C. P. (I.B.) No. 421/KB/2017, the parties having settled the claim. 10. The Corporate Debtor is restored to its original position. In effect, order passed by the Adjudicating Authority appointing 'Resolution Professional', declaring moratorium, freezing of accounts, and all other orders passed pursuant to impugned order and action taken by the Resolution Professional, including the advertisement published in the newspaper calling for applications and actions are declared illegal and are set aside. The CD is released from the rigorous of law and is allowed to function independently through its Board of Directors from immediate effect." Finding and Analysis 3. After considering the allegations in the SCN and submissions made by Mr. Singhania in light of the provisions of the Code, regulations and the relevant circulars, the DC finds as follows. 3.1 In respect of the first and second issue regarding claims and admission of PNB's revised claim by Mr. Singhania during CIRP, the....
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....RP commencement period as revised claim. Claims can be accepted only as on insolvency commencement date. 3.1.2 Regarding the allegation of providing amount of Rs. 10.38 crore to PNB as against the revised claim of Rs. 1.27 crore, the DC noted that the revised claim was a new claim for the interest amount from 1st June, 2017 to 10th April, 2018. However, Mr. Singhania did not give extra voting rights to PNB on account of new claim. Therefore, DC finds that acceptance of claim in respect of the interest for the period from 1st June, 2017 to 20th September, 2017 is as per Regulation 13 of the CIRP regulations. However, acceptance of any claim for the post CIRP period i.e. 21st September, 2017 to 10th April, 2018 is in violation of Regulation 13 of the CIRP Regulation. 3.2 Regarding the third issue, with respect to the deferment of publication of EoI by Mr. Singhania, the DC notes that the provisions of section 208(2), Regulations made under the Code require an IP to follow, at all times, the provisions of the Code and Regulations and the bye-laws of Agency of which the IP is a member. Section 208 of the Code reads as under: "208. (2) Every insolvency professional sha....
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.... the context of limited purpose of the outcome of settlement proposal submitted by the promoter of the CD. Therefore, regarding deferring of the publication of EoI in that context, the DC is of the opinion that lenient view may be taken. 3.3 As far as the Fourth issue of incorrect statements made by Mr. Singhania in the Information Memorandum is concerned, the Code has clearly outlined the duties which must be performed by RP during the insolvency resolution process. One of the key functions of RP with respect to conduct of CIRP include preparation of IM. An IM is a very crucial document and provides a financial position about the Corporate Debtor. Section 25(2)(g) of the Code clearly provides that the resolution professional shall prepare the information memorandum in accordance with section 29. Section 29 of the Code provides that 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. Regulation 36 of the CIRP Regulations provides as under: "36. Information memorandum. (1) Subject to sub-regulation (4), the resolutio....
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.... from the orders of AA in that regard. Hence, DC takes a lenient view. 3.4 Regarding the Fifth issue of making public announcement of initiation of CIRP at the place of principal office, the DC notes that when a corporate debtor undergoes corporate insolvency resolution process, an IP is vested with the management of its affairs and he manages its operations as a going concern. He complies with the applicable laws on behalf of the corporate debtor. He conducts the entire CIRP. Such responsibilities of an IP require the highest level of professional excellence and integrity. Section 15(2) of the Code provides for the Public announcement of corporate insolvency resolution process to be made in such manner as may be specified. Regulation 6 (2) of the CIRP Regulations provides as follows: "(2) The public announcement referred to in sub-regulation (1) shall: (a) be in Form A of the Schedule; (b) be published- (i) in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate debtor and any other location where in the opinion of the interim resolutio....