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TMI Blog2020 (6) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... the SCN to Ms. Kavitha Surana, based on findings of an inspection in respect of her role as an interim resolution professional (IRP) and/or resolution professional (RP) in corporate insolvency resolution process (CIRP) of M/s Shri Veerganapathi Steels Private Limited (Corporate Debtor). The SCN alleged contraventions of several provisions of the Code, the IBBI (Insolvency Professionals) Regulations, 2016 (IP Regulations) and the Code of Conduct under regulation 7(2) thereof, the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016 (CIRP Regulations) and Circular No. IBBI/IP/013/2018 on 'Fee and other Expenses incurred for CIRP' dated 12th June 2018. Ms. Kavitha Surana replied to the SCN vide letter dated 24th December 2019. 1.4 The Board referred the SCN, response of Ms. Kavitha Surana to the SCN and other material available on record to the Disciplinary Committee (DC) for disposal of the SCN in accordance with the Code and Regulations made thereunder. Ms. Kavitha Surana availed an opportunity of personal hearing before the DC on 16th January 2020 when she reiterated the submissions made in her written reply and made a few additional submissions. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the RP with entries for the period of 11th to 17th July 2018 and copies of cheques dated 11th July 2018 issued by the RP to the two valuers, M/s Hi-Tech Valuers Private Limited and Mr. V Selvaraj. The RP has clarified that at the 2nd meeting of the CoC held on 6th July 2018, the CoC had approved and agreed to reimburse some expenses including the payments to the two valuers. As the bills of the valuers were raised in the name of the RP, the Bank of India made payments into the personal account of the RP, after which the requisite cheques were issued to the two valuers by the RP. Analysis: Section 18 (1) (f) of the Code provides: "The interim resolution professional shall perform the following duties, namely: - (f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including - (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (ii) assets that may or may not be in possession of the corporate debtor; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting as a resolution professional; (c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern; (d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and (e) any other costs as may be specified by the Board. Regulation 31 of CIRP Regulations provides: "Insolvency Resolution Process Costs" under section 5(13)(e) shall mean - (a) amounts due to suppliers of essential goods and services under Regulation 32; (aa) fee payable to authorised representative under [sub-regulation (8)] of regulation 16A; (ab) Out of pocket expenses of authorised representative for discharge of his functions under [Section 25A]; (b) amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d); (c) expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 33; (d) expenses incurred on or by the interim resolution professional fixed under Regulation 34; and (e) other costs directly relating to the corporate insolvency resolution process and approved by the commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with properties of the Corporate Debtor. Ideally, such expenditure (which is not part of the IRPC) should be recovered and deposited into the account of the Corporate Debtor. However, this is a peculiar case where all the expenses relating to the IRPC has already been borne by the Bank of India itself which is sole CoC member and the proceeds of the liquidation will ultimately be deposited into the accounts of the sole CoC member. In such circumstances, since the professional fees paid to the valuers has been paid by the Bank of India itself which is the sole CoC member and not from the account of the Corporate Debtor, recovering the amount and depositing it into the account of the Corporate Debtor would be superfluous. Further, in initial days there was lack of clarity whether property of personal guarantors would be covered under moratorium till the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (effective 6th June, 2018) where section 14 (3) was amended to provide that moratorium shall not apply to a surety in a contract of guarantee to a corporate debtor. 3.2 Contravention: Pursuant to regulation 34 of the CIRP Regulations all expenses borne by the IP duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to them as of date. Therefore, there has been no burden on the Corporate Debtor. Findings: RP did not get the fees of M/s. Kaliannan & Associates, Chartered Accountants fixed by the CoC (in the meeting of the CoC). However, since the CoC consists of the sole member bank (who gave approval on email), there seems to be no mens rea. Hence, keeping in mind the fact that Bank of India is the sole CoC member and it has approved the expenses vide email dated 18th December 2018, a lenient view may be taken as the Code is new and one learns by experience. 4. Conclusion: 4.1 The role of IP is vital to the efficient operation of the insolvency and bankruptcy resolution process. A well-functioning system of resolution driven by a competent IP plays a significant role in cementing together the interests of the Corporate Debtor with those of the creditors. It is for this reason that the need of specialized professionals to complete the resolution processes has been unequivocally emphasized. The UNCITRAL Legislative Guide on Insolvency Law recognizes the role of an IP in the following words: "However appointed, the insolvency representative plays a central role in the effective and efficie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a going concern and conduct the entire CIRP in a transparent manner without creating additional insolvency resolution process costs. 4.3 In this matter, the DC observes that (a) Admittedly, the RP has got done the valuation of the properties of personal guarantor and has acted on the directions of the CoC by directing valuation of properties of the personal guarantor along with the properties of the Corporate Debtor and including the same within the IRPC. (b) The RP has not been independent from the CoC by receiving payments into her personal account and making payments to the valuers from the same. (c) The fee of Rs. 1,76,820/- paid to the valuers (out of which Rs. 96, 360/- paid for valuation of properties of personal guarantor) has been included in the IRPC. Thus, the RP has not acted in an independent manner. 5. Order 5.1 The DC is conscious of the fact that the insolvency regime in India is at its infancy. Also, the insolvency profession is new and emerging. Further, it is also recognised that the role of an IP in India is significantly different as compared to other matured jurisdictions. These facts may call for some leniency as long as these are not mala fide. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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