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TMI Blog2018 (11) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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) Regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard of India (Board) with Registration No. IBBI/IPA-002/IP-N00095/2017-2018/10238. Mr. Golla replied to the SCN vide his letter dated 10th July, 2018. The Board referred the SCN, response of Mr. Golla to the SCN and other material available on record to the Disciplinary Committee (DC) for disposal. Mr. Golla appeared for a personal hearing along with the learned Advocate, Mr. Davesh Bhatia before the DC on 30th July, 2018. He has submitted written submission vide mail dated 8th August, 2018 after the personal hearing. Preliminary Issues 2. First things first. Mr. Golla has raised four preliminary issues, as under: 2.1 Mr. Golla has submitted that he has not been supplied copies of documents relied upon by the Board for issuing the SCN. The DC, however, notes that the SCN in the opening Para states that it relies on the following documents submitted by him vide letter dated 15th June, 2018: a. Order C.P.No.1214/I BP/NCLT/MB/MAH/2017 dated 24th August, 2017 of the Adjudicating Authority (AA) commencing corporate insolvency resolution process (CIRP); b. Letter dated 14th September, 2017 of Mr. Golla appointing valuers; c. Public announcement dated 15th Septembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, Para 3(i) of the SCN reads: The CIRP commenced on 24th August, 2017. The public Announcement was required to be made immediately, i.e., on or before 27th August, 2017. However, it was made on 15th September, 2017 in contravention of Regulation 6 of the Regulations. d.: The SCN clearly states the actions the Board proposes to take. Para 9 of the SCN states that the Board proposes to take action as permissible under section 220(2) of the Code, including cancellation of registration. Section 220(2) of the Code lists out several permissible actions. e.: It has been dealt in Para 2.1 above. f.: The constitution of the DC is available on the website of the Board. In any case, it is not a requirement to be specified in the SCN. 2.3 Mr. Golla has submitted that the Board cannot suo moto take cognisance without a complaint made under sections 217 and 218 of the Code against an IP. The DC notes that section 218 allows the Board to order inspection or investigation either on receipt of a complaint or when it has reasonable ground to believe that an IP has contravened any provision of the law. Thus, the Board can take cognisance of a contravention suo moto and order an inspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarantees by Mr. Mahendra Wig, Mr. Japal Amardas Wig and Ms. Indira Japal Wig. On failure to repay the loan, it was declared a non-performing account on 9th February, 2012. With an outstanding amount of ₹ 4.6 crore on 17th February, 2012, BoB issued notice dated 17th February, 2012 under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 Act, 2002 (SARFAESI), and took physical possession of the factory, land and building of WAPL on 24th July, 2017. It also moved a petition before the Debt Recovery Tribunal (DRT) for realisation of debt of ₹ 4.9 crore plus interest thereon. 3.3 In the meantime, WAPL filed an application under section 10 of the Code on 19th July, 2017 for initiation of CIRP of itself. BoB objected to the application on the ground that it was malafide. However, the AA, vide order dated 24th August, 2017, admitted the application and imposed moratorium under section 14 of the Code. It appointed Mr. Golla as the interim resolution professional (IRP). 3.4 Mr. Golla conducted CIRP of the CD, namely, WAPL. He admitted a claim of ₹ 10.67 crore of BoB, the only financial creditor (FC). The sole FC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Expression of Interest 14.04.2018 Last date for receipt of EoI 05.04.2018 3rd Meeting of the CoC Where a. Information Memorandum was presented b. Invitation of resolution plan was approved c. Evaluation Matrix was approved d. BoB submitted OTS with an instruction to treat it as resolution plan e. RP stated that he would explore every possibility to address the issue 20.04.2018 4th Meeting of the CoC 25.04.2018 Application to AA for approval of resolution plan 04.06.2018 Approval of resolution plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and presented the complete IM at the 3rd meeting of the CoC, in compliance with applicable provisions of the Code and regulations. Finding: The minutes of the 1st meeting and 3rd meeting of the CoC indicate that Mr. Golla has submitted IM. The DC does not find any lapse on this count. 4.3 Contravention: Mr. Golla issued the invitation of EoI on 4th April, 2018 without the approval of the CoC. Submission: Mr. Golla circulated the EoI via e-mail to the CoC on 2nd April. 2018. BoB, being the only FC, approved the draft EoI through email dated 3rd April, 2018. The same was published on 4th April, 2018 and was ratified on 5th April, 2018 in the meeting of the COC. Finding: The DC finds the submission of Mr. Golla as untenable: (a) The minutes of the 3rd meeting of the CoC held on 5th April, 2018 has no mention whatsoever of invitation of EoI. The submission that the EoI was ratified on 5th April, 2018 is false. (b) The submission of Mr. Golla that he sent an e-mail to the CoC is misleading. How does one send an e-mail to the CoC? A hard copy of the e-mail dated 2nd April, 2018 of Mr. Golla and the e-mail dated 3rd April, 2018 of BoB, provided by Mr. Golla along with h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Form G was applicable, and he knew it well. If it was not applicable, his conduct (seeking approval of the CoC for Form G) amounts to gross abuse of the forum of CoC by an IP. (b) Form G carries brief particulars of invitation of resolution plans. As per regulation 36A(1) of the CIRP Regulations, the RP needs to allow at least one month from the issue of Form G to prospective RAs to submit resolution plans. The CoC approved Form G on 5th April, 2018, obviously to receive resolution plans at the earliest by 5th May, 2018. It is seen that 5th May, 2018 was three months (more than 37 days) away from 5th February, 2018. The submission that less than 37 days were available for submission of resolution plans is not correct and the requirement of Form G was squarely applicable in this matter. (c) It is unimaginable that the resolution plan was submitted to the CoC in its meeting held on 5th April, 2018, when the Form G was being considered. Thus, Mr. Golla contravened the provisions of section 25(2)(h) of the Code, regulation 36A of the CIRP Regulations, and regulation 7(2)(a) and (h) of the IP Regulations read with clauses 1, 2, 3, 5, 9, 10, 13 and 14 of the Code of Conduct ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its approval by the CoC and the AA. Finding : The Code prohibits any payment to a creditor from the assets of the CD during moratorium. It does not prohibit payment to creditors through a resolution plan. Therefore, the DC does not find any merit in this allegation. 4.8 Contravention: Mr. Golla permitted a recovery plan to be considered as resolution plan. Submission: The resolution plan was not only in accordance with the law, but also approved by the AA. Further, every resolution plan is an OTS. Finding: The submission of Mr. Golla is untenable for the following reasons: (a) As stated in its long title, the Code envisages reorganisation or insolvency resolution of a CD in a time bound manner for maximisation of value of its assets. It is not a settlement or recovery plan. In fact, the Code prohibits and discourages recovery in several ways. For example, section 14 of the Code prohibits any action to foreclose, recover or enforce any security interest during CIRP and thereby prevents any creditor from recovering its dues. (b) Several judicial pronouncements reiterate prohibition on recovery or settlement. In the matter of Innoventive Industries Limited Vs. ICICI Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the OTS was used as resolution plan to write off dues of other claimants. Thus, Mr. Golla contravened the provisions of section 30(4) of the Code and regulation 7(2)(a) and (h) of the IP regulations read with clauses 10 the Code of Conduct appended to the said Regulations. 4.9 Contravention: Mr. Golla sought an extension of time, vide application dated 19th February, 2018 to the AA, on the ground that he and the promoter were actively seeking out investors to formulate resolution plan and talks were in very advanced stage. However, there was no such talk except the effort by the RA to reach an OTS with BoB. Therefore, Mr. Golla obtained approval for extension of time by making a false statement to the AA. Submission: The steps were taken by Mr. Golla to come to an amicable resolution of the insolvency of the CD. Finding: The Code envisages that the RP invites resolution plans, RAs submit competing resolution plans in response, and the CoC chooses the best of them. It does not envisage a mechanism for any kind of amicable settlement. Further, there is no evidence whatsoever to the effect that either he or the promoter was seeking out investors to formulate a resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olla contravened the provisions of sections 25(2)(h) and 208(2)(a) of the Code and regulation 7(2)(a) and (h) of the IP regulations read with clauses 5, 10, 14, 15 and 16 of the Code of Conduct appended to the said Regulations. 4.11 Contravention: Mr. Golla sought extension of time only to facilitate BoB and Mr. Wig to arrive at the OTS and Mr. Golla allowed the OTS to be considered as resolution plan. The EM and request for resolution plan were approved after the resolution plan was received and considered by the CoC. This is in contravention of every provision of Chapter II of Part II of the Code, including section 30. Submission: The EM is for evaluation and to be used by the CoC for approving or rejecting a resolution plan. Its approval after receipt of resolution plan is not material. Finding: The EM is required to be provided at least 15 days before submission of resolution plan under regulation 36A(2) of the CIRP Regulations so that the RA can structure its plan to take best advantage of the EM and the CoC cannot tailor-make an EM to select a particular RA. In this case, the OTS was agreed between the parties, the RA and the sole FC, on 27th March, 2018. Since both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Mr. Golla not only rejected the explicit unambiguous mandate of the law, but also questioned the authority of legislature to make such a law. (c) Mr. Golla cited, in his written submission before the AA, several case laws to contend that an amendment to a statute affecting the legal rights of a person must be presumed to be prospective unless it is made expressly or is impliedly retrospective. He submitted that rights of persons are crystallised at the time of commencement of CIRP, and any such vested/crystallised rights cannot be taken away by an amendment unless stated so specifically. The Code, however, nowhere confers any legal rights on any person to submit a resolution plan. No rights accrued in favour of Mr. Mahendra Wig or any other person with admission of an application under section 7, 9 or 10 of the Code. Assuming that the rights have accrued, the legislature can make express provisions to make a law retrospective, as claimed by Mr. Golla. In this matter, when the legislature has made an explicit provision on the applicability of section 29A, Mr. Golla cannot have any quarrel. (d) The Ordinance was promulgated to prohibit certain persons from submitting resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd vitiated the entire CIRP. Submission: The insolvency of a CD has the most chance of being resolved if the RP, the CoC and the RA work closely to identify common ground and the best way forward. Acting with the stakeholders cannot be called as siding with the parties or compromising independence. Finding: As explained earlier, Mr. Golla did nothing till expiry of normal CIRP period. He obtained extension of time as the approval of the OTS by the CD was under process. Going by reasoning of Mr. Golla that the approval (of the invitation of EoI) by BoB is the approval by the CoC, the approval of the OTS by the BoB vide its letter dated 27th March, 2018 is the approval by the CoC. After the OTS plan was approved by the CoC on 27th March, 2018, Mr. Golla issued the notice on 28th March, 2018 to hold the next meeting of the CoC on 5th April, 2018, sent draft invitation of EoI on 2nd April, 2018 to BoB for its consideration, issued invitation for EoI on 4th April, 2018, placed IM, EM, Form G, etc., in the meeting of the CoC on 5th April, 2018 for its consideration. In the meeting on 5th April, 2018, BOB instructed Mr. Golla to consider the OTS as resolution plan and admittedly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Mr. Mahendra Wig approached BoB on 30th October, 2017 with a proposal for OTS, where he offered to pay ₹ 3.55 crore for full and final settlement of the loan taken from BoB. 5.3 Mr. Golla, as RP, did nothing for the entire period of CIRP, except waiting for approval of OTS by BoB. As the permissible time for conclusion of CIRP was approaching, Mr. Golla as RP, organised the first meeting of the CoC on 5th February, 2018 only to seek approval for extension of CIRP period and obtained extension by making false statements to the AA. Even after extension of CIRP period, Mr. Golla did nothing. 5.4 After long follow up by Mr. Mahendra Wig, BoB approved the OTS on 27th March, 2018, with a clear understanding between them to implement the OTS as resolution plan. Thus, Mr. Mahendra Wig agreed to submit the OTS as resolution plan and BoB agreed to approve it as resolution plan, on 27th March, 2018. On the day after de facto approval of the resolution plan on 27th March, 2018, that is, on 28th March, 2018, Mr. Golla scheduled the next meeting of the CoC for 5th April, 2018. Without approval of the CoC and without specifying the eligibility criteria for RAs, as required under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g advantage of absence of an opposite party to the matter, Mr. Golla made misleading submission before the AA. 5.8 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. 5.9 By his conduct and action, Mr. Golla has contravened th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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