The Disciplinary Committee (DC) of the IBBI on Tuesday held that the second proviso to Regulation 16A(9) of the CIRP Regulations states that preliminary views shall not be considered voting instructions by creditors and imposed a penalty of Rs. 2,50,000/ on the Resolution Professional.
The Insolvency and Bankruptcy Board of India (IBBI), in the exercise of its powers under section 218 of the Code read with IBBI (Inspection and Investigation) Regulations, 2017 appointed an Inspecting Authority (IA) to conduct the inspection of Resolution Professional (RP) on having reasonable grounds to believe that he had contravened provisions of the Code and Regulations. The IA submitted a draft inspection report dated 22.03.2022 to the RP and the Resolution Professional submitted his reply to the draft inspection report on 08.04.2022. IA submitted the Final Inspection Report in accordance with regulation 6(4) of the IBBI (Inspection and Investigation) Regulations, 2017 to IBBI on 11.05.2022.
The IBBI issued the SCN to the RP on 16.06.2022, based on the findings in the inspection report and material available on record. The Resolution Professional replied to the SCN vide email dated 01.07.2022. The IBBI referred the SCN, the response of the RP 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. The Resolution Professional availed an opportunity of e-hearing before the DC on 20.07.2022. The RP was represented by an Advocate, who made submissions during the e-hearing. The DC has considered the SCN, the reply to the SCN, oral and written submissions of the RP, and other material available on record and proceeds to dispose of the SCN.
It was observed from the minutes of the 6th meeting of the committee of creditors (CoC) held on 17.10.2020 that the RP conducted e-voting on two resolutions, namely (i) for approval and ratification of the interim finance under Section 28(1)(a) and (ii) approval of an extension of the time period under Section 12 of the Code. It is, however, seen that RP started e-voting on the proposed resolutions on 15.10.2020 at 8 pm and closed on 16.10.2020 at 9 pm., i.e., before the 6th meeting of CoC was held. The said minutes further reveal that in this spell of voting, out of 136 participants, 134 voted in favour of the first resolution and two voted against it, whereas 136 participants voted in favour of the second resolution. It is also mentioned in the said minutes that 82 participants were yet to vote and the voting window for them would be opened again on 19.10.2020 at 9 AM and closed on the same day at 10 PM. After the 6th CoC meeting, the voting window was indeed opened again on 19.10.2020 at 9 am and closed on 19.10.2020 at 10 pm.
On perusal of e-voting results, it is seen that a total of 139 participants voted on the resolution 1 out of whom only 5 voted on 19.10.2020. Similarly, a total of 141 participants voted on resolution 2 out of whom only 5 voted on 19.10.2020. The date of votes remaining has been shown as 15.10.2020 and 16.10.2020. The voting conducted by the RP prior to the 6th CoC meeting held on 17.10.2020 can only be preliminary views that the Authorized Representative (AR) was required to ascertain as per Regulation 16A(9) of CIRP Regulations. The second proviso to Regulation 16A(9) clearly mentions that such preliminary views shall not be considered voting instructions by the creditors.
By taking into account votes cast by creditors in class prior to the meeting of the 6th CoC for declaring a resolution as passed, the board is prima facie of the view that the Resolution Professional had inter-alia violated Section 208(2)(a) and 208(2)(e) of the Code, Regulation 16(A)(9) of the CIRP Regulations, Regulation 7(2)(a) and 7(2)(h) of IBBI (Insolvency Professional) Regulations, 2017 (‘IP Regulations’) read with Clause 1, 2, 3 and 14 of the Code of Conduct as specified in the First Schedule of IP Regulations (Code of Conduct).
Disciplinary Committee (DC) Analysis:
The DC notes from the perusal of the minutes of the 6th CoC meeting that the meeting was held on 17.10.2020 and the preliminary views were taken before starting the meeting on 15.10.2020 at 8 pm till 16.10.2020 at 9 p.m. Further, the DC noted that the minutes clearly state that out of a total of 136 participants for the voting, 82 participants were yet to vote on both the proposed resolutions. The voting window opened again on 19.10.2020 at 9 am and closed on 19.10.2020 at 10 pm. On perusal of the documents of voting results, DC noted that the voting link for casting the voting post the 6th CoC meeting was shared with all CoC members. However, the voting results were compiled in such a manner that the preliminary views of the CoC members, who had earlier cast their votes, were taken as final votes and the votes of CoC members who had voted on 19.10.2020 were added to the voting of the CoC members who had previously cast their preliminary views before 6th CoC meeting.
It is to be noted that the second proviso to Regulation 16A(9) of the CIRP Regulations states that preliminary views shall not be considered voting instructions by the creditors. Hence, the DC was of the view that the conduct of the RP considering the preliminary views of creditors who had voted prior to the meeting of the CoC, as final views and based on that, declaring an agenda approved is negligence as considering preliminary votes taken prior to the discussions/ deliberations in the CoC when full information has not been supplied and informed decision has not been made goes against the provisions of the Code. Hence, this is a contravention of regulation 16(A)(9) of the CIRP Regulations and clause 3 of the Code of Conduct for IP provided in the first schedule of IP Regulation.
In view of the foregoing contravention, the DC, in the exercise of the powers conferred under section 220(2) of the Code read with IBBI (Insolvency Professionals) Regulations, 2016 and the IBBI (Inspection and Investigation) Regulations, 2017, imposed a penalty of Rs. 2,50,000/ on the Resolution Professional and directed him to deposit the penalty amount directly to the Consolidated Fund of India (CFI) under the head of “penalty imposed by IBBI” on https://bharatkosh.gov.in within 45 days from the date of issue of this order.
The DC also reminded the Resolution Professional to be more cautious in future and directed him to strictly comply with the applicable provisions of the Code and its underlying Regulations while performing his duties.
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