2018 (11) TMI 891 - Board - Insolvency and Bankruptcy

Misconduct by insolvency professional - misleading and false statements before the DC - Held that - Mr. Golla confirmed that the resolution plan did not contravene any of the provisions of any law, even though he knew that Mr. Mahendra Wig was ineligible under section 29A of the Code to submit resolution plan. As orchestrated, the CoC, which comprised only BoB, approved it. Thus, Mr. Golla connived with the parties to allow an OTS in the garb of resolution plan and to allow an ineligible RA to submit the OTS and did absolutely nothing either to run the business of the CD or to run the CIRP. As to how an OTS was considered as resolution plan, Mr. Golla justifies that even Supreme Court does it in exercise of its powers under Article 142 of the Constitution. As to how an ineligible person explicitly prohibited by law could submit a resolution plan, he justifies that the Parliament does not have competence to enact a law to make a person, who was eligible on the date of commencement of CIRP, ineligible on the date of submission of resolution plan. By using the CIRP as a facade and in connivance with Mr. Golla, Mr. Mahendra Wig successfully (a) thwarted actions, liabilities and obligations under the SARFAESI and proceeding before the DRT, released the personal guarantors, and the secured properties, (b) made himself eligible to submit a resolution plan by misrepresentation, (c) passed on an OTS as resolution plan, and (d) used the resolution plan to wipe off claims of various creditors, including 66% of claim of BoB. He could not have done any of these if Mr. Golla as an RP played by the rule book and did not explore every possibility to address the issue (illegality) . He made several misleading and false statements before the DC to justify what he did. Behind the nefarious design of the CD and Mr. Mahendra Wig in this matter, there is one Mr. Golla. By his conduct and action, Mr. Golla has caused irreparable damage to the reputation of the institution of insolvency profession and rendered himself a person not fit and proper to continue as an IP. By his conduct and action, Mr. Golla has contravened the provisions of (a) sections 17, 23, 25(2)(h), 29A, 30(2)(e), 30(4) and 208(2)(a) and (d) of the Insolvency and Bankruptcy Code, 2016; (b) Regulations 18 to 26, 36A, 37, and 39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016; and (c) Regulations 7(2)(a) and 7(2)(h) of the IBBI (Insolvency Professionals) Regulations 2016 read with clauses 1, 2, 3, 5, 10, 12, 13, 14, 15, and 16 of the Code of Conduct for insolvency professionals specified in the First Schedule to the said Regulations. Order - Considering the above deliberate, blatant, orchestrated and collusive contraventions, the Disciplinary Committee, in exercise of the powers conferred under section 220 (2) of the Code read with sub-regulations (7) and (8) of regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016, hereby cancels the registration of Mr. Martin S. K. Golla as insolvency professional, having Registration Number IBBI/IPA-002/IP-N00095/2017-2018/10238 and debars him from seeking fresh registration as an insolvency professional or providing any service under the Insolvency and Bankruptcy Code, 2016 for ten years from the date of this order.

Summary

Issues Involved:
1. Non-supply of documents relied upon by the Board.
2. Validity of the Show Cause Notice (SCN).
3. Board’s suo moto cognizance without a complaint.
4. Issuance of SCN without inspection or investigation.
5. Timeliness and management of the Corporate Insolvency Resolution Process (CIRP).
6. Presentation of Information Memorandum (IM).
7. Issuance of Expression of Interest (EoI) without CoC approval.
8. Publication of Form G.
9. Submission of records to the Board.
10. Conduct of CIRP meetings.
11. Allowing recovery during moratorium.
12. Treating a recovery plan as a resolution plan.
13. Misleading statements for extension of CIRP.
14. Approval of OTS as a resolution plan.
15. Extension of time to facilitate OTS.
16. Application of Section 29A.
17. Compromising independence and collusion.

Detailed Analysis:

1. Non-supply of Documents:
Mr. Golla claimed he was not provided with documents relied upon by the Board. The Disciplinary Committee (DC) found this claim meritless as the documents were submitted by Mr. Golla himself and no additional documents were relied upon.

2. Validity of the Show Cause Notice (SCN):
Mr. Golla argued the SCN was not in accordance with regulation 11(1). The DC found the SCN complied with the regulation, detailing the alleged facts, violated provisions, proposed actions, and was properly constituted.

3. Board’s Suo Moto Cognizance:
Mr. Golla contended the Board cannot act without a complaint. The DC clarified that the Board can act on reasonable grounds of contravention and does not require a complaint to initiate proceedings.

4. Issuance of SCN without Inspection or Investigation:
Mr. Golla argued the SCN was invalid as it was issued without inspection or investigation. The DC noted that the Board can issue an SCN based on available material without an inspection if sufficient evidence exists.

5. Timeliness and Management of CIRP:
Mr. Golla delayed tasks such as public announcement and appointment of valuers. The DC acknowledged the delay but noted that Mr. Golla did not effectively manage the Corporate Debtor (CD) after the CIRP commenced, violating section 17(1) of the Code.

6. Presentation of Information Memorandum (IM):
Mr. Golla presented the IM at the third CoC meeting, which was delayed. The DC found no lapse as the IM was presented in compliance with the Code and regulations.

7. Issuance of Expression of Interest (EoI):
Mr. Golla issued the EoI without CoC approval. The DC found this action in contravention of the Code, noting the EoI was approved by email rather than in a CoC meeting, violating sections 25(2)(h) and regulations 18 to 26 and 36A.

8. Publication of Form G:
Mr. Golla did not publish Form G, claiming it was not applicable. The DC disagreed, stating the requirement was applicable and Mr. Golla's conduct implied its necessity, thus violating regulation 36A.

9. Submission of Records to the Board:
Mr. Golla failed to submit records of proceedings before the Adjudicating Authority (AA) to the Board. The DC found this in contravention of section 208(2)(d) and regulation 7(2)(a) and (h).

10. Conduct of CIRP Meetings:
Mr. Golla convened only one CoC meeting with minimal agenda, failing to actively manage the CIRP. The DC found this in violation of sections 23 and 208(2)(a), and regulation 36A.

11. Allowing Recovery During Moratorium:
The DC found no merit in the allegation that Mr. Golla allowed BoB to recover its loan during moratorium as the resolution plan did not permit recovery before its approval.

12. Treating a Recovery Plan as a Resolution Plan:
Mr. Golla permitted an OTS to be considered as a resolution plan. The DC found this action contrary to the objectives of the Code, violating section 30(4) and regulation 7(2)(a) and (h).

13. Misleading Statements for Extension of CIRP:
Mr. Golla sought an extension by making false statements about seeking investors. The DC found no evidence of such efforts, violating sections 25(2)(h) and 208(2)(a), and regulations 36A and 37.

14. Approval of OTS as a Resolution Plan:
The DC found that the OTS was approved without proper consideration of feasibility and viability, violating sections 25(2)(h), 30, and 208(2)(a), and regulations 36A and 39.

15. Extension of Time to Facilitate OTS:
Mr. Golla sought an extension to facilitate the OTS, compromising his independence. The DC found this in violation of sections 208(2)(a) and regulation 7(2)(h).

16. Application of Section 29A:
Mr. Golla argued that section 29A was not applicable, allowing an ineligible person to submit a resolution plan. The DC found this contrary to the explicit mandate of the Parliament, violating sections 29A and 30(2)(e).

17. Compromising Independence and Collusion:
The DC found Mr. Golla colluded with the RA and CoC, compromising his independence and vitiating the CIRP process, violating sections 208(2)(a) and regulation 7(2)(h).

Conclusion:
The DC concluded that Mr. Golla’s actions caused irreparable damage to the insolvency profession's reputation. He contravened multiple provisions of the Code and regulations, leading to the cancellation of his registration as an insolvency professional and a ten-year debarment from seeking fresh registration or providing services under the Insolvency and Bankruptcy Code, 2016. This order was to come into immediate effect and was communicated to relevant authorities for enforcement.