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TMI Blog2020 (7) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Code, Regulations, and directions issued thereunder. 1.3 The Board on 22nd October 2019 had issued the SCN to Mr. Koteswara Rao Karuchola, based on findings of an inspection in respect of his role as an interim resolution professional (IRP) and/or resolution professional (RP) in corporate insolvency resolution process (CIRP) of Viceroy Hotels Limited. 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 IBBI Circular No. IP/003/2018 dated 3rd January 2018. Mr. Koteswara Rao Karuchola, replied to the SCN vide letter dated 21st November 2019. 1.4 The Board referred the SCN, response of Mr. Koteswara Rao Karuchola 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. Mr. Koteswara Rao Karuchola availed an opportunity of personal hearing before the DC on 25thFebruary 2020 when he reiterated the submissions made in his wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y claim, as on the insolvency commencement date, within seven days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it." Recently, the Apex Court in the matter of Committee of Creditors of Essar Steel India Limited Through Authorised Signatory v. Satish Kumar Gupta & Ors. (Civil Appeal No. 8766-67 of 2019) also highlighted the role of RP in the revival of the corporate debtor. The Hon'ble Court remarked as under: "... Thereafter, under Regulation 13, the resolution professional shall verify each claim as on the insolvency commencement date, and thereupon maintain a list of creditors containing the names of creditors along with the amounts claimed by them, the amounts admitted by him, and the security interest, if any, in respect of such claims, and constantly update the aforesaid list - see Regulation 13(1)." IBBI Circular no. IP/003/2018 dated 3rd January 2018 provides:" ". ** ** ** Sub: Insolvency professional not to outsource his responsibilities ** ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which clarified, "During this assignment we have verified claims sent to us for verification under various criteria...". During the personal hearing on 25th February 2020, it was informed by the RP that he had intention to follow the law and the role of the IPE for re-verification of claims has been approved by the CoC. The RP has provided various documents vide email dated 4th March 2020. These include appointment letter of M/s EzResolve LLP dated 30thMarch 2018, report of the IPE on financial claims dated 3rd April 2018, email dated 1stMarch 2020 received by the RP from the IPE and specimen letter of M/s Mahal Hotels Private Limited dated 4th July 2019 under which the physical copy of the claim has been returned to them. However, neither the minutes of the CoC meetings nor any document provided by the RP reflect that the IPE was appointment for reverification of claims. It is pertinent to note that the appointment letter dated 30th March 2018 clearly states that "we are appointing you as Claims Verifier for the said company with a professional fee of Rs. 3,00,000 plus applicable GST with terms mentioned in this engagement letter. ** ** ** OTHER TERMS 1. You are required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means- (a) the amount of any interim finance and the costs incurred in raising such finance; (b) the fees payable to any person acting 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 IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016 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) expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the security interest has also been incorporated in the Claims Register and in the list of Financial Creditors sent to the members of the CoC vide email dated 29th January 2019. During the personal hearing on 25th February 2020, RP reiterated his submission. The RP has provided a copy of the IM vide email dated 4th March 2020 and has submitted that the security interest is also included in the IM at Annexure 6. Analysis: The Code has clearly outlined the duties which must be performed by the RP during the insolvency resolution process. One of the key functions of the RP with respect to conduct of CIRP include preparation of IM. An IM is a very crucial document and provides a holistic view about the operations of the Corporate Debtor. Section 25 (2) (g) of the Code clearly provides: "(2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely: - ** ** ** (g) prepare the information memorandum in accordance with section 29;" Regulation 36 (2) (d) of the CIRP Regulations provides an exhaustive list of details which should form a part of IM which provides as under: "(2) The information memorandum shall contain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n before the AA as preferential transactions by the RP on the ground that such amount was adjusted against the amounts payable. Submission: The RP submits that the information regarding the tripartite letters of confirmations/agreements has been brought to the notice of the AA as per para 7 of IA no. 377 of 2018 filed by the RP before the AA (application under section 43 of the Code). Further, the RP has submitted that the same was also mentioned in the Special Audit Report which was part and parcel of the IA. Analysis: During CIRP, an IRP/RP possess the highest professional responsibility. His conduct and performance have a substantial bearing on the survival of an ailing entity. He, therefore, is expected to function with a strong sense of urgency and with utmost care and diligence. He is further expected to carefully study and analyse the financial statements of the Corporate Debtor. Section 43 (1) of the Code provides: "43. Preferential transactions and relevant time. - (1) Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me has been adjusted against the payable credit balances.", the RP cannot be held liable for contravening the provisions of the Code. 4. Conclusion: 4.1 An IRP or RP is appointed by the AA. He is an officer of the Court and he is duty bound to conduct CIRP with fairness and diligence and must maintain absolute independence in discharge of his statutory duties without any external influences. The entire resolution process of a Corporate Debtor is dependent on the IRP/RP who is primarily responsible for efficiently and effectively steer it towards resolution. It is due to this reason that the role of the IRP/RP becomes paramount during CIRP. Further, it is the duty of the IP to follow the guidelines laid down under the Code and the Regulations made thereunder so as to legitimately meet the interests of all stakeholders. 4.2 The UNCITRAL Legislative Guide on Insolvency Law as well as the BLRC, the recommendations of which has led to the enactment of the Code, has also laid emphasis on the role of an IP and has identified the role of the IP as central to the entire process as well as one which is of the pillar on which the CIRP exists. 4.3 The Code also requires an IP to play a cat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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