2018 (11) TMI 802 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - mala fides on the part of the action of Ld. IRP and AR. - Whether prior to constituting the CoC the IRP is obliged to verify every claim as on insolvency commencement date within 7 days from the last date of receipt of the claims in terms of Regulation 13? - first meeting of the CoC held on 27.07.2018 was bad in law in light of the averments made by the Applicants? - Held that - AR appointed to represent the Financial Creditors in this matter is required to act diligently and independently of the office of the IRP behoving his status as an AR. AR in his reply has failed to provide satisfactory answers for the lapse on his part to circulate the agenda and obtain voting instructions. Further both the IRP and the AR cannot be seen to form a caucus amongst themselves and act in a veil of secrecy to give an impression that they are trying to exclude the interest of the creditors, primarily for whose benefit the CIRP has been initiated apart from the protection of the other stakeholders and which apprehension had forced the applicants in the present instance to approach this tribunal. The changes made to the Code as well as attendant regulations in light of the consistent refrain of the Hon ble Supreme Court taking into consideration the plight of the home buyers in Jaypee s Case as well as other real estate companies have confronted the IRP s and the AR s with a challenging task thereby creating confusion in role clarity, particularly in a case like the instant one, where there are only home buyers who constitute the financial creditors and thereby eligible to be members of CoC as there are no institutional Financial Creditors or bankers who had financed the operations of the CD in order to become part of the COC. However, this should make the role of AR as well as the IRP more onerous and they should perform their duties with utmost diligence as required to be performed by them of which they will be aware and do accordingly. Taking into consideration all of the above we prima facie find no mala fides on the part of the action of Ld. IRP and AR. Thus within a period of two weeks from the date of this order Ld. IRP to process all the claims and categorically admit or reject the claims received from the home buyers as of the date of this order including the claims of the applicants and publish the updated list. Update the list of creditors whose claims have been admitted in order to enable them to participate in the voting process in the CoC through their Authorized Representative as envisaged under the code of the relevant provisions and regulations as extracted above. Within a period of four weeks from the date of this order Ld. IRP to convene a meeting of the CoC clearly spelling out the agenda for the said meeting and circulate the notice and agenda, as well as Resolution proposed therein

Summary

Issues Involved:
1. Whether prior to constituting the CoC the IRP is obliged to verify every claim as on insolvency commencement date within 7 days from the last date of receipt of the claims in terms of Regulation 13?
2. Whether the first meeting of the CoC held on 27.07.2018 was bad in law in light of the averments made by the Applicants?

Issue-wise Detailed Analysis:

1. Verification of Claims by IRP:
- Legal Framework: The interim resolution professional (IRP) must make a public announcement within three days of appointment, stating the last date for submitting claims and offering names of three insolvency professionals to act as authorized representatives. Creditors must submit claims with proof by the last date mentioned in the public announcement or within ninety days of the insolvency commencement date. The IRP must verify every claim within seven days from the last date of receipt and maintain an updated list of creditors.
- Continuous Process: The verification of claims is a continuous and staggered process. The IRP constitutes the CoC with financial creditors whose claims have been admitted and updates the CoC as new claims are verified. The validity of decisions taken by the CoC is not affected by subsequent inclusions of financial creditors.
- Regulation 13: The seven-day period for verification of claims is directory, not mandatory. The IRP can continue verifying claims beyond seven days and include new financial creditors in the CoC as their claims are admitted.
- Case Specifics: The IRP in this case faced challenges due to the high number of creditors and the general unawareness of the correct process among creditors. The IRP made a public announcement six days after appointment and filed the list of creditors and the report confirming the constitution of CoC four days later than required. The IRP has been gradually verifying claims and updating the list of creditors.

2. First CoC Meeting:
- Applicants' Averments: The Applicants argued that the IRP failed to verify all claims before constituting the CoC, included only 207 financial creditors out of 1000 claims, and did not provide a plausible justification. They also claimed that the authorized representative (AR) failed to circulate the agenda and obtain voting instructions before the first CoC meeting, which lacked the required quorum.
- IRP's Response: The IRP explained the challenges faced, including abandoned projects, lack of cooperation from the corporate debtor's employees, and defects in the claims submitted by creditors. The IRP has been processing claims and updating the list of creditors.
- AR's Response: The AR received the notice and agenda for the first CoC meeting on 21.07.2018 and the updated list of creditors on 24.07.2018, leading to the adjournment of the meeting. The AR did not receive any voting instructions from creditors for the first meeting.
- Tribunal's Findings: The Tribunal found no evidence that the first CoC meeting affected the interests of financial creditors. The IRP and AR acted within their roles, and the actions taken during the meeting (engaging an advocate and security guards) did not require voting. The Tribunal highlighted the need for the AR to act diligently and independently and avoid any appearance of collusion with the IRP.

Directions Issued by the Tribunal:
1. The IRP must process all claims and admit or reject them within two weeks, updating the list of creditors.
2. The updated list of creditors must be published to enable participation in the CoC voting process.
3. The IRP must convene a CoC meeting within four weeks, circulating the agenda and proposed resolutions to the AR for distribution to creditors.
4. The stay granted on 09.08.2018 is vacated.
5. The period from 09.08.2018 to the date of this order is excluded from the CIRP period.

Conclusion:
The Tribunal concluded that the IRP and AR acted within their roles and found no mala fides in their actions. The application was ordered and closed without costs, with directions to ensure proper processing and participation of creditors in the CIRP.