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RP was to be debarred for being a silent spectator abdicating his authority in favour of the CoC
The Insolvency and Bankruptcy Board of India (IBBI) is a regulatory body of the Insolvency and Bankruptcy Code. The Disciplinary Committee headed by Dr. Mukulita Vijayawargiya, Whole Time Member, IBBI, on 8th July 2021, In the matter of Mr. Anupam Tiwari, REED 2021 IBBI DC 07523 under section 220 of the Insolvency and Bankruptcy Code, 2016 (Code) read with regulation 11 of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016, Mr. Anupam Tiwari shall not seek or accept any process or assignment or render any services under the Code for a period of one year from the date of coming into force of this Order. He shall, however, continue to conduct and complete the assignments/ processes he has in hand as on date of this order.
The fact of the case is that, a SCN has been issued to Mr. Anupam Tiwari in respect of his role as resolution professional (RP) while conducting the corporate insolvency resolution process (CIRP) in the matter of M/s Jain Manufacturing (India) Private Limited, the Corporate Debtor (CD). Mr. Vikas Tiwari, the operational creditor (OC) of CD, had filed an application under section 9 of the Code for initiation of CIRP against the CD before the Hon’ble National Company Law Tribunal, Bench at Allahabad Bench (AA). The AA vide its order dated 22.02.2019 admitted the aforesaid application and appointed Mr. Manoj Kumar Singh as an Interim Resolution Professional (IRP).
The IBBI had issued the SCN on 13th January, 2021 to Mr. Anupam Tiwari, on the basis of material available on record including the order dated 18.12.2020 passed by the Hon’ble National Company Law Appellate Tribunal (NCLAT) in the matter of Mr. Rajnish Jain Vs. Manoj Kumar Singh & Ors., wherein adverse findings were made against Mr. Tiwari with regard to his conduct while acting as a RP in respect of CIRP of CD and the clarification submitted by Mr. Tiwari vide emails dated 27.12.2020, 28.12.2020 and 29.12.2020. The SCN alleged contraventions of section 12A, 25, 28 and 208 (2)(a) of the Code read with regulation 30A of CIRP regulations, regulation 13(1) and regulation 14(2) of CIRP Regulations, regulation 7(2)(a) and 7(2)(h) of IP Regulations and clauses 1, 2, 3, 5, 9 and 14 of Code of Conduct as specified in first schedule of IP Regulations. Mr. Anupam Tiwari replied to the SCN vide letter dated 2nd February, 2021. The IBBI referred the SCN, response of Mr. Anupam Tiwari to the SCN, order of Hon’ble NCLAT 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.
In this matter, it was been alleged that Mr. Tiwari has violated the provisions of the section 12A of the Code read with regulation 30A of CIRP regulations, section 25 of the Code read with regulation 13(1) and regulation 14(2) of CIRP Regulations, section 28 of the Code and section 208(2)(a) of the Code read with regulation 7(2)(a) and 7(2)(h) of IP Regulations and clause 1, 2, 3, 5, 9 and 14 of Code of Conduct as specified in first schedule of IP Regulations.
Mr Rajnish Jain, the promoter, stakeholder and managing director of the suspended Board of Director of CD had on 28.05.2019, filed a Company Application under section 60(5) of the Code before the AA seeking to declare BVN as an OC and not as a FC. Thereafter, Mr. Tiwari sought the advice from M/s Jain Ashwani & Co, Chartered Accountant vide its letter dated 17.07.2019 and from D N Awasthi, Advocate vide its letter dated 19.07.201 on the issue whether the debt of BVN is “Financial Debt” or “Operational Debt”. This act of Mr. Tiwari’s after filing of the application by the suspended director of CD seeking to declare BVN as OC and not as FC indicates concerted action on IP’s part with an apparent nexus between him and the suspended director showing intention to modify the category of BVN as OC for some ulterior purpose in the garb of updating of claim.
In the 5th CoC meeting held on 9.10.2019, Mr. Tiwari had informed CoC about settlement of claims and withdrawal of members of the CoC, i.e., Edelweiss, Magma Incorp and Tata Capital, and thereby reconstitution of CoC and revision in voting share and proposed for withdrawal of CIRP of CD under the ambit of applicable provisions of the Code.
In the 6th CoC meeting held on 15.11.2019, Mr. Tiwari had informed the CoC about – Firstly, the settlement of claim and withdrawal of another member of the CoC (i.e., Kotak Mahindra Bank) and thereby again reconstituting CoC and consequent revision in voting share. Secondly, the withdrawal of claim by members of CoC have their claims due to personal settlement of the claims by the suspended director of the CD. Thirdly, the reduction of the liabilities of CD for which RP to seek extension of CIRP period to obtain expression of interest from prospective resolution applicants & lastly, postponing the agenda pertaining to withdrawal of CIRP of CD (which was opposed by BVN) considering that it would not receive the requisite voting.
In the 7th CoC meeting held on 14.02.2020, Mr. Tiwari had apprised CoC about continuation of BVN as FC in view of the aforesaid order of the AA. Mr. Tiwari conducted a voting on additional agenda for withdrawal of CIRP which was defeated in CoC with 69.10% votes in favour and 30.90% votes (held by BVN) against it as the requisite majority (90% votes) was not obtained. However, Mr. Tiwari also conducted a voting on another additional agenda for not considering BVN as FC despite aforesaid order of AA. This was approved with 69.10% votes held by other members of CoC in favour and 30.90% votes held by BV against it.
In the 8th CoC meeting held on 18.02.2020, Mr. Tiwari had proceeded with elimination of BVN from CoC despite the aforesaid order of the AA dated 23.01.2020 which clearly stated that the category of BVN cannot be changed for the purpose of changing the CoC as has been done during the 7th and 8th CoC meetings.
There were two prominent issues firstly, whether Mr. Tiwari had no authority to suo moto review or change the category of BVN from FC to OC in the garb of updating the list of creditors in view of the order of Hon’ble NCLAT dated 18.12.2020. If he had all, he had any objection to the formation of the CoC, he should have approached the AA for any of his grievance & secondly, on the issue of Preferential treatment of creditors
In the aforesaid backdrop and on the basis of analysis and findings, Section 25 of the Code, inter alia, provides duties of RP to preserve and protect the assets of the CD including its continued business operations. In furtherance of this duty section 25(2) further mandates the RP to maintain an updated list of claims as the Code does not permit the change of category of a creditor in a CoC once it is constituted as, Regulation 13(1) of CIRP Regulations requires RP to verify every 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. Regulation 14(2) of CIRP Regulations allows RP to revise the amounts of claims admitted. None of these provisions allow the RP or CoC to change the category of FC to OC in the CoC.
Regarding the first allegation as to modification in the category of creditor in connivance with suspended director of CD, Mr. Tiwari contends and relies on the judgment passed by the Hon'ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, REED 2019 SC 11505, as it has been held that the role of the RP is not adjudicatory but administrative. Further, with respect to the claim, it has been stated that in the CIRP, all claims must be submitted to and decided by the IRP/ RP so that a prospective resolution applicant knows exactly what has to be paid so that it may then take over and run the business of the CD. Hence there is no express power granted to an IRP/RP to adjudicate the claim during the CIRP like that power granted to a liquidator to verify and either admit or reject a claim made by a creditor. However, it may be noted that the IRP/RP has substantial power to decide which claim and how many claims of a creditor is to be admitted or rejected during the CIRP.
It can also be noted that, He had exercised due professional care, scepticism and due diligence during whole CIRP having regard to sections 18, 20, 25 and 28 of the Code which outlines the duties and functions of the IRP/RP. Section 20(2)(a) of the Code confers power on the RP to appoint accountants, legal, or other professionals as may be necessary wherein, such professional may include specialists and management experts who may provide specialist advice to RP. The professional in section 20(2)(a) of the Code is on the same analogy as contemplated in section 45 of the Indian Evidence Act, 1872. Therefore, he having regard to section 20(2)(a) of the Code obtained the advice from M/s Jain Ashwani & Co Chartered Accountant (also appointed as Transaction Auditor) vide its letter dated 17.07.2019, and D N Awasthi, Advocate vide its letter dated 19.07.2019 to enable him to ascertain whether the debt of BVN is “Financial Debt” or “Operational Debt' from concurrence of opinion of two experts. This opinion was sought being a novice in the insolvency profession and taking into consideration principles of due diligence to avoid scope of any mistake and/or misunderstanding. Therefore, seeking advice is within authority as contemplated in section 20(2)(a) of the Code.
With regard to allegation as to preferential treatment of creditors, Mr. Tiwari submitted as follows:
(i) The settlement of four FC is with one Mr. Rajnish Jain, who is both the promoter of the CD as well as a personal guarantor of CD and who paid to Edelweiss Retail Finance Limited, Magma Fincorp Limited, Kotak Mahindra Bank and Tata Capital. After the constitution of the CoC, the said four FCs issued No Dues Certificate to CD, stating that their dues had been settled and no balance amount is pending.
(ii) The judgement of Hon'ble Apex Court in Swiss Ribbon case mentioned in SCN is applicable where the decision for the settlement of the dues of individual FC was taken by CoC.
The DC noted that under the Code, the RP plays a central role in resolution process of the CD, he is appointed by the AA as an officer of the Court to conduct the process with integrity, transparency and accountability ensuring that interests of all the stakeholders are equally balanced. As per Section 23(2), the RP is to exercise powers and perform duties as are vested or conferred on the IRP under Chapter II of Part II of the Code
The RP while verifying any claim will come to know the nature of claim (FC/ OC) and amount of the claim. Then only he can constitute the CoC. It is a settled position of the law that the RP only has the power to admit or reject a claim based on the records available and that this role of the RP is administrative and not adjudicatory in nature which was held by the Hon’ble NCLT, Mumbai Bench in the order dated 05.02.2019 in the matter of Dr. Ramakant Surya Nath Pande v. CS Prakash K. Pandya and others.
The bench also, envisaged that it is the duty of the IP to ensure that their conduct would not undermine the public’s trust. Therefore, it is imperative for an IP to perform his duties with utmost care and diligence. Section 208(2) of the Code provides that every insolvency professional shall abide by the Code of conduct. Moreover, while granting certificate of registration to an IP they are subjected to follow the Code of Conduct specified in the First Schedule to the IP Regulations to ascertain that the IP is a fit and proper individual at all times.
Conclusively, it is the sacrosanct duty of the RP to be unbiased, balance interest of all stakeholders and being an officer of the court to uphold the objectives of the Code. Hence, the DC finds that this conduct of Mr. Tiwari, being a silent spectator abdicating his authority in favour of the CoC and enabling in ousting a bona fide CoC member to accomplish the withdrawal of CIRP while disregarding the order of the AA is in clear contravention of section 25 of the Code read with regulation 13(1) and regulation 14(2) of CIRP Regulations, section 28 of the Code and section 208(2)(a) of the Code read with regulation 7(2)(a) and 7(2)(h) of IP Regulations and clauses 2,3,5,6,10,11 and 12 of Code of Conduct as specified in first schedule of IP Regulations.
The DC notes the allegation that there is a violation of the provisions of section 12A read with regulation 30A of the CIRP Regulations as collective decision of the CoC (ninety percent of voting share) is required for any settlement under the Code as, Mr. Tiwari had no option but to reconstitute the CoC. The DC notes that Mr. Tiwari was not aware of such settlements, hence, DC takes a lenient view with regard to the said allegations. Thereby, the bench held that, Mr. Anupam Tiwari shall not seek or accept any process or assignment or render any services under the Code for a period of one year from the date of coming into force of this Order. He shall, however, continue to conduct and complete the assignments/ processes he has in hand as on date of this order.