2021 (12) TMI 1057 - Tri - Insolvency and Bankruptcy

Interpretation of statute - section 17 of IBC - Confusion regarding section 17 among Corporate Debtors and practitioners - main allegation was that the Respondent/ Resolution Professional has failed to take over the affairs of the Corporate Debtor and to immediately take over custody and control of the assets without taking necessary steps to ascertain the financial position of the Corporate Debtor - HELD THAT - A plain reading of the Section 18 of IBC makes it clear that the Code empowers the Resolution Professional to take control and custody of any property which the Corporate Debtor has complete ownership. This power of the Resolution Professional extends to properties that are part of the court proceedings. Section 20 mandates the IRP to preserve and protect the value of the property and to manage the operations of the corporate debtor as a going concern. But in this case, even though the RP is empowered to take possession of the Registered Office and records of the Corporate Debtor, he has taken only symbolic possession of the same and allowed the suspended Directors to enjoy for their benefits. This is against the provisions of the Code. With the concept of Creditors in Control under IBC, after the initiation of the Corporate Insolvency Resolution Process (CIRP), the CoC assumes decision-making powers for the management of the CD. IRP/ RP is an independent professional to take care of the interests of all the stakeholders. Thus both IRP/RP and CoC have to work in tandem and the overall interest of resolution while balancing the interests of all stakeholders. But here there is a clash of interest among the member of CoC and the Resolution Professional. In its first meeting of the CoC, it appointed the Resolution Professional, who was then convening and conducting the meetings of the committee - On verification of records of this case, it is seen that only one meeting of Committee of Creditors took place with the presence of Resolution Professional, and without making any endeavour for inviting Expression of Interest, the CoC unanimously resolved to liquidate the Corporate Debtor. In the interest of justice the time spent till now before the Adjudicating Authority from the 2nd CoC Meeting till the date of this order should be excluded from calculating the period under Section 12 (1), (2) (3) of the IBC - Since, the Committee of Creditors is reconstituted with the Financial Creditor M/s Bajaj Finance Limited and the Operational Creditor is not having any voting right in the CoC, the main prayer to permit them to change the Resolution Professional and refer the case to Insolvency and Bankruptcy Board of India (IBBI) for proposing the name of a new RP cannot be entertained, since they have no locus standi to do so. Application disposed off.

Summary

Issues Involved:
1. Failure of Resolution Professional to take control of Corporate Debtor's assets.
2. Misconduct and non-cooperation of the Operational Creditor.
3. Application to replace the Resolution Professional.
4. Application for liquidation of the Corporate Debtor.
5. Application for prosecution against the Corporate Debtor.

Issue-wise Detailed Analysis:

1. Failure of Resolution Professional to Take Control of Corporate Debtor's Assets:
The Resolution Professional (RP) was accused of not taking immediate possession and custody of the Corporate Debtor's (CD) assets, violating Sections 25(1) and 25(2)(a) of the Insolvency and Bankruptcy Code (IBC), 2016. The RP contended that he had taken symbolic possession of the registered office and records of the CD. The Tribunal found that the RP's actions were against the provisions of the Code, as he allowed the suspended Directors to continue managing the assets, which should have been under the RP's control as per Section 18(f) of the Code.

2. Misconduct and Non-Cooperation of the Operational Creditor:
The RP alleged that the Operational Creditor (OC) took undue advantage of being the sole member of the Committee of Creditors (CoC) and made several improper decisions. The OC filed objections, claiming that the RP failed in his statutory duties and violated several provisions of the IBC. The Tribunal noted that there was a clash of interest between the RP and the CoC member, which hindered the resolution process. The Tribunal emphasized that both the RP and CoC must work in tandem to balance the interests of all stakeholders.

3. Application to Replace the Resolution Professional (MA/15/KOB/2020):
The OC filed an application to replace the RP, citing professional misconduct and non-cooperation. The RP argued that the OC had no locus standi to file the application as they were removed from the CoC after the inclusion of a Financial Creditor (FC), Bajaj Finance Ltd. The Tribunal dismissed the application, stating that the OC had no voting rights in the reconstituted CoC and therefore could not seek the replacement of the RP.

4. Application for Liquidation of the Corporate Debtor (MA/143/KOB/2020):
The RP filed an application to liquidate the CD under Section 33(2) of the IBC, citing non-cooperation and negligence from the CD and OC. The Tribunal found that the RP had not followed the mandates of the Code, such as calling for Expressions of Interest (EoI), before seeking liquidation. The Tribunal dismissed the application, directing the RP to continue with the Corporate Insolvency Resolution Process (CIRP) from the stage of reconstitution of the CoC, and proceed as per the Regulations.

5. Application for Prosecution Against the Corporate Debtor (MA/144/KOB/2020):
The RP sought to conduct an inquiry and refer the matter for prosecution against the CD for certain debit transactions made after the moratorium order. The Tribunal dismissed the application, stating that it was not necessary at this juncture and directed the erstwhile Directors of the CD to fully cooperate with the completion of the CIRP.

Order:
The Tribunal disposed of the applications with the following orders:
a. Report No. 28/KOB/2020 was taken on record, except for the allegations and reliefs sought against the OC.
b. The main prayer in MA/15/KOB/2020 to replace the RP was dismissed as the OC had no locus standi.
c. The application for liquidation (MA/143/KOB/2020) was dismissed, and the RP was directed to continue the CIRP from the stage of reconstitution of the CoC.
d. The application for prosecution (MA/144/KOB/2020) was dismissed, and the erstwhile Directors of the CD were directed to cooperate with the CIRP.

Conclusion:
The Tribunal emphasized the need for the RP and CoC to work together in the interest of all stakeholders and directed the continuation of the CIRP as per the regulations. The RP's fee was restricted during the period of litigation, and the erstwhile Directors were instructed to cooperate fully.