9911796707
TMI Blog2018 (5) TMI 641X X X X Extracts X X X X X X X X Extracts X X X X ..... ority for initiating corporate insolvency resolution process (CIRP) of a corporate debtor, namely, Madhucon Projects Limited. The applicant proposed Ms. Ruia as the Interim Resolution Professional (IRP) for CIRP of Madhucon Projects Limited. Ms. Ruia filed the 'Term Sheet for Professional Assignment' dated 3rd November, 2017, which envisaged her appointment as IRP and also as Resolution Professional (RP) for the CIRP. While the application was under consideration, the Hon'ble Adjudicating Authority issued an order dated 22nd November, 2017 in the matter of Shri Shrikrishna Rail Engineers Private Limited vs. Madhucon Projects Limited, [CP(IB) SR No. 4322/9/HDB/2017] where it observed as under: - "3. The Operational Creditor has proposed Ms. Bhawna Sanjay Ruia as Interim Resolution Professional of Madhucon Projects Limited. The IRP has filed Term Sheet for Professional Assignment dated 03.11.2017. While perusing records, the Adjudicating Authority was alarmingly shocked/surprised to notice that the Professional fee quoted by the IRP is Rs. 5 Crores till the First Committee of Creditors Meeting. Further it is noticed that fee for the subsequent months as IRP/RP on a per month basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, should not be taken against her. 1.4 Ms. Ruia responded to the SCN vide letter dated 22nd March, 2018. Further, she availed of an opportunity of personal hearing on 19th April, 2018 along with her learned Counsel, Ms. Prachi Manekar Wazalwar. She has submitted further written submission vide letter dated 21st April, 2018. 2. Show Cause Notice The DC notes from the SCN and the term sheet for professional assignment, as under: a) Ms Ruia contracted a professional IRP fee of Rs. 5 crore till the first meeting of the Committee of Creditors (CoC) and a monthly fee of Rs. 1.75 crore for the subsequent months as IRP/RP. This is exclusive of (a) Government taxes, as applicable, (b) professional fee for Valuers, Advocates, Solicitors, Forensic Auditors, Consultants and Advisers, (c) fee for representation before the NCLT, (d) expenses on public announcement and (e) all out of pocket expenses. The Board found professional fee of such magnitude for her services as IRP / RP exorbitant. b) Ms. Ruia signed the term sheet for the services as RP with the applicant operational creditor who has no role whatsoever under the law in the appointment of RP or fixing of fees of the RP. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee quoted is subject to approval of the incoming CoC and to the extent approved by them. iii) Oral submission on 19th April, 2018 a) The fees for engaging professionals listed in the term sheet such as forensic auditors, consultants, advisors, advocates/solicitors would be charged as per actuals as per the term sheet. However, other professionals engaged by her would be paid from her fee. b) The size of operations of the corporate debtor is huge; it has many subsidiaries and associate companies; and it is also a listed company. Accordingly, the job requires huge effort on the part of IRP / RP justifying the amount of fee. c) The Hon'ble Adjudicating Authority has merely made an observation in its order dated 22nd November, 2017 and the same cannot regarded as a conclusive finding. iv) Submission dated 21st April, 2018 a) The annual turnover of the corporate debtor is Rs. 693 crore and it has assets of Rs. 2,761 crore. It has several projects and several subsidiaries. She has to run the corporate debtor as a going concern and preserve and enhance its value. Her fee includes the cost to be incurred in running the business of the corporate debtor as a going concern: (a) sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Para 3.3, as under: a) It is an undisputed fact that Ms. Ruia contracted a professional fee of Rs. 13.75 crore comprising IRP fee of Rs. 5 crore for the first one month and RP fee @ Rs. 1.75 crore for five subsequent months. It is also an undisputed fact, as per the term sheet and also the provisions of regulation 33 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, that the amount of fee ratified by the CoC shall be considered as the IRPC. It obviously means the amount of fee not ratified by CoC would not form part of IRPC. This does not alter the amount of professional fee payable to Ms. Ruia as IRP / RP. b) Ms. Ruia has submitted that the fee includes the cost of running the corporate debtor as a going concern and running the CIRP. This is not tenable in view of the following: i) To justify the amount of fee, Ms. Ruia has provided some details of the size of the corporate debtor. As claimed by her, the corporate debtor has an annual turnover of Rs. 694 crore / average monthly turnover of Rs. 58 crore. She claims that her fee includes the cost of running the corporate debtor as a going concern. It is difficult to believe that the total c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IRP / RP includes (a) fee for CA / CS professional firms, (b) fee for services of professional firms, (c) fee for CA / professional representative for representation, (d) fee for lawyers, (e) fee for professionals, (f) fee for project valuers, etc. iv) An IRP/RP exercises the powers of the Board of Directors. He is not expected to replace or replicate the entire set of human resources of the corporate debtor. It is difficult to appreciate that she would recruit additional manpower, including CEO, CFO, 75 supervisors and 15 engineers for running the corporate debtor. This would drain the resources of an ailing corporate debtor further and thereby frustrate the CIRP. If a corporate debtor does not have some critical human resources, such resources can be hired for the corporate debtor, not in the team of the IRP / RP. It is further difficult to appreciate that she can recruit hundreds of qualified engineers instantaneously who would join her team only for 30 days of CIRP. v) Ms. Ruia has claimed that 'if need be', she shall engage top notch professionals for various locations. As per the term sheet, her fee does not include the payments for such top-notch professionals. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 'reasonable' in the circumstances. There are several ways to look at reasonableness. One way, as rightly observed by the Hon'ble Adjudicating Authority, is comparison with the compensation payable to the MD & CEO. However, Ms. Ruia does not find that comparison appropriate on grounds that the MD & CEO gets some perquisites and role of IRP is different. The law requires an IRP to run the corporate debtor as a going concern, which is also the responsibility of the MD & CEO. Though the responsibilities of an IRP and those of a MD & CEO overlap to a large extent, the role of IRP is different from that of the MD & CEO. The question is: Is the difference is so much to justify an IRP fee of Rs. 5 crore, which is 100 times of the compensation of the MD & CEO of the same corporate debtor? Another way would be to compare with the fee charged by another IP in case of a similar CIRP. Yet another way would be to look at the fee earned by herself in a similar CIRP. One can even look at the opportunity cost (value from next best alternative) of Ms. Ruia. Unfortunately, she compares with an incomparable, the fee of a liquidator, and she states that the Code prescribes fee for the liquidator. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IRP. He manages the affairs of the corporate debtor as a going concern. He is the custodian of the property of the corporate debtor and protects and preserves the value of such property. He conducts the entire CIRP and manages the operations of the corporate debtor during the CIRP period. His responsibilities during CIRP are detailed in the Code and relevant regulations. He has similar onerous responsibilities in liquidation of corporate debtors, and individual insolvencies and bankruptcies. These responsibilities require highest level of standing, calibre and integrity which inspire confidence and trust of the society and the stakeholders. In sync with the role of IPs under the Code, the regulations provide for their capability and conduct and requires an individual to be a fit and proper person for continuation of his registration as an IP. 5.2 In this background, the DC finds that the conduct of Ms. Ruia is unacceptable as explained hereunder: i) The fee (Rs.13.75 crore comprising IRP fee of Rs. 5 crore for the first one month and RP fee @ Rs. 1.75 crore for five subsequent months) contracted by Ms. Ruia is exorbitant and not reasonable reflection of work to be done by her. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the term sheet, her fee as IRP / RP is exclusive of (a) professional fee for Valuers, Advocates, Solicitors, Forensic Auditors, Consultants and Advisers, and (b) fee for representation before the Hon'ble NCLT. She has now misrepresented that her fee as IRP / RP includes (a) fee for CA / CS professional firms, (b) fee for services of professional firms, (c) fee for CA / professional representative for representation before various tax authorities, (d) fee for lawyers, (e) fee for professionals, (f) fee for project valuers, etc. d) She has misrepresented that she would meet all running expenses of the corporate debtor and all cost of running the IRP from her fees. e) Vide her submission dated 22nd March, 2018, Ms. Ruia stated that professionals hired for specialised and critical operations shall be paid by the corporate debtor as part of CIRP and routine staff, assistants and supervisors appointed for the purpose of monitoring within the scope of her duties shall be paid by her from her fees. Vide her submission dated 21st April, 2018, she has misrepresented that her fee as IRP / RP includes (a) fee for CA / CS professional firms, (b) fee for services of professiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not undertaken any process under the Code. 6.2 Section 220(2) and (3) of the Code read with regulation 11(8) of the Regulations empower the DC to impose penalty as specified in sub-section (3) of section 220 or suspend or cancel the registration of the IP. Further, where any IP has contravened any provision of the Code or rules or regulations made thereunder, the DC may impose a penalty which shall be (i) three times the amount of the loss caused, or likely to have been caused, to persons concerned on account of such contravention; or (ii) three times the amount of the unlawful gain made on account of such contravention, whichever is higher and that where such loss or unlawful gain is not quantifiable, the total amount of the penalty imposed shall not exceed more than one crore rupees. In the instant case, the Hon'ble Adjudicating Authority prevented Ms. Ruia from causing loss to others or making unlawful gain. 6.3 Accordingly, the Disciplinary Committee, in exercise of powers conferred under section 220 (2) of the Code read with sub-regulation (8) of regulation 11 of the IBBI (Insolvency Professionals) Regulations, 2016, hereby suspends the registration of Ms. Bhavna Sanjay Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
