The Disciplinary Committee (DC) of the Insolvency and Bankruptcy Board of India (Board) noted that the Code is structured around the timebound resolution of the corporate debtor. Any stakeholder does not have the liberty to interpret the provisions which are contrary to the intent on the grounds that in his or her understanding explicit provisions do not warrant a particular action.
The Hon’ble NCLT, Ahmedabad Bench (AA) vide order dated 14.06.2019 admitted the application under section 9 of the Code for initiating Corporate Insolvency Resolution Process (CIRP) of Brain Master’s Classes Private Limited (CD-1) and appointed the Interim Resolution Professional (IRP) who was later confirmed as Resolution Professional (RP). Mr. Sunil Kumar Agarwal was replaced by Ms. Bhavi Shreyans Shah as RP vide order of Hon’ble NCLT, Indore Bench (AA) dated 08.01.2021. On the application filed by Ms. Bhavi Shreyans Shah for exclusion of 538 days from CIRP, AA observed that such exclusion cannot be allowed and directed the liquidation of CD-1 and appointed Mr. Navin Khandelwal as Liquidator on 23.04.2021. With the consent of the Stakeholders Consultation Committee (SCC), the Liquidator filed an application for dissolution of CD-1 on 03.05.2022, consideration of which is pending before AA.
The Hon’ble NCLT, Ahmedabad Bench (AA) vide order dated 15.10.2019 admitted the application under section 9 of the Code for initiating CIRP of Eagle Corporation Private Limited (CD-2) and Mr. Sunil Kumar Agarwal was appointed as the IRP who was later confirmed as RP. Mr. Sunil Kumar Agarwal was replaced by Mr. Dhaval Jitendrakumar Mistry as RP vide order of AA dated 08.09.2020. The Committee of Creditors (CoC) in its commercial wisdom decided to take the CD-2 into liquidation and subsequently AA ordered CD-2 into liquidation on 30.03.2022 and appointed Mr. Dhaval Jitendrakumar Mistry as Liquidator. As per the 2nd progress report dated 11.10.2022, the SCC decided to sell the CD-2 as a going concern but no bid was received. Thereafter, SCC in its meeting dated 03.10.2022 decided to sell vehicles being passenger buses through public auction.
The Board, in the exercise of the powers conferred to it under section 218 of the Insolvency and Bankruptcy Code (Code) read with the Inspection Regulations, appointed an Inspecting Authority (IA) to conduct the Inspection of Mr. Sunil Kumar Agarwal. In compliance with regulation 6(1) of Inspection Regulations, IA shared the Draft Inspection Report (DIR) with Mr. Sunil Kumar Agarwal on 30.6.2022 to which a response was received on 18.07.2022. Thereafter, IA submitted the Inspection Report (IR) to the Board on 20.07.2022 in accordance with regulation 6(4) of the Inspection Regulations.
Based on the material available on record including the Inspection Report, the Board issued the SCN to Mr. Sunil Kumar Agarwal on 10.10.2022. The SCN alleged contravention of sections 12, 25(2)(f), 208(2)(a) and 208(2)(e) of the Code, regulation 34 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations), regulation 7(2)(a) and 7(2)(h) of IBBI (Insolvency Professional) Regulations, 2017 (IP Regulations) read with clauses 1, 2, 13, 14 and 16 of the Code of Conduct. Mr. Sunil Kumar Agarwal replied to the SCN on 17.10.2022.
The Board referred the SCN and written submissions of Mr. Sunil Kumar Agarwal, 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. Sunil Kumar Agarwal availed an opportunity of a personal hearing before DC on 09.11.2022 through virtual mode where he was represented by Mr. Nipun Singhvi, Advocate. During the personal hearing. Mr. Sunil Kumar Agarwal requested to submit additional written submissions which were allowed by DC and additional written submission was received vide email dated 11.11.2022.
Contraventions alleged in the SCN and Mr. Sunil Kumar Agarwal’s submissions thereof are summarized below:
Contravention 1 : Lapses in the conduct of CIRP, in the matter of Brain Master’s Classes
Section 12 of the Code provides that the CIRP shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process. The RP shall file an application to the AA to extend the period of the CIRP beyond one hundred and eighty days if instructed to do so by a resolution passed at a meeting of the CoC by a vote of sixty-six per cent of the voting shares.
The Board noted that CIRP of the CD-1 was initiated vide order dated 14.06.2019 of AA in an application filed under section 9 of the code and Mr. Sunil Kumar Agarwal was appointed as an IRP. The Board further observed that the CIRP period expired on 10.03.2020, However, Mr. Sunil Kumar Agarwal failed to file the necessary application either for approving the resolution plan or Liquidation of the CD-1. Mr. Sunil Kumar Agarwal even did not file an application for an extension of time for CIRP. The Board also observed that Mr. Sunil Kumar Agarwal failed to conduct any CoC meetings for the period from January 2020 to September 2020. The IBBI also noted that AA in its order dated 23.04.2021 has taken cognizance of Mr. Sunil Kumar Agarwal’s casual approach in conducting the CIRP of the CD-1 and made certain serious observations on his conduct.
In view of the above, the Board held the prima facie view that by not conducting CoC meetings either in physical or virtual form for more than 9 months and not filing the necessary application before AA, Mr. Sunil Kumar Agarwal has inter alia violated section 12, 25(2)(f), 208(2)(a) of the Code, regulation 7(2)(a) and 7(2)(h) of IP Regulations read with clauses 1, 2, 13 and 14 of the Code of Conduct as specified in the First Schedule of IP Regulations (Code of Conduct).
The DC took note of the efforts taken by Mr. Agarwal in conducting a meeting of the CoC after the 5th meeting held on 02.01.2020 by sending an email on 31.01.2020 to all members of the CoC and drafting the agenda to conduct the meeting on 10.06.2020. However, the draft agenda is silent about seeking an extension of CIRP. In the 6th CoC meeting held on 12.09.2020, the agenda for filing a liquidation application was deferred. Further in IA 27(MP) 2021 filed by newly appointed RP Ms. Bhavi Shreyans Shah seeking the exclusion of 538 days from the CIRP period
The above observations point to negligence more on part of the CoC of CD-1 rather than erstwhile RP ie. Mr. Sunil Kumar Agarwal. Further section 12(2) of the Code provides that RP has to file an application for an extension of CIRP if instructed to do so by a resolution passed at a meeting of CoC by sixty-six percent of the voting share. However, observations of AA that ‘…erstwhile RP and CoC totally failed’ in filling an application within a stipulated time do not absolve Mr. Sunil Kumar Agarwal on charges of laxity on one count or the other. If CoC was not cooperating as per the statutory requirements under the Code, nothing prohibits him from approaching the AA to apprise them about the alleged noncooperation of the CoC. Hence the DC finds that Mr. Sunil Kumar Agarwal has violated section 208(2)(a) of the Code, regulation 7(2)(a) and 7(2)(h) of IP Regulations read with clauses 1, 2, 13 and 14 of the Code of Conduct.
Contravention 2 : Non-approval of CIRP Cost in the matter of Eagle Corporation Private
Regulation 34 of the CIRP Regulations which deals with resolution professional costs provides that the CoC shall fix the expenses to be incurred on or by the RP and the expenses shall constitute insolvency resolution process costs (IRPC). The Board observed from the minutes of the 2nd meeting of the CoC dated 10.12.2019 that one of the agendas discussed in the meeting was to ratify the IRPC incurred during the CIRP of the CD. The minutes further state that CoC members decided not to put on e-voting in order to save the cost and to send details of CIRP cost by e-mail for seeking internal approval and convey the same accordingly.
The IBBI however observed that the minutes of the subsequent CoC meetings do not mention or even indicate approval of the said CIRP cost by the CoC. In view of the above, the Board held the prima facie view that Mr. Sunil Kumar Agarwal has inter alia violated section 208(2)(a) of the Code, regulation 34 of the CIRP Regulations, regulation 7(2)(a) and 7(2)(h) of IP Regulations read with clauses 1, 2, 14 and 16 of the Code of Conduct.
The DC noted that approval expenses placed for approval in the first CoC meeting was approved by HDFC Bank which was the sole CoC member during that time. Further HDFC Bank, the sole CoC member during the second CoC meeting, also gave approval for the appointment of a forensic auditor and other appointments as deemed necessary to Mr. Sunil Kumar Agarwal. However, the expenses like travelling, lodging & boarding & conveyance expenses of RP and team, professional accounting firm fees, forensic auditor fees, meeting hall charges and security expenses were not accorded specific approval by HDFC Bank, sole CoC member during or after the second CoC meeting.
The DC noted that CoC has ratified the fees and expenses of Mr. Sunil Kumar Agarwal after deliberation other than those which are not substantiated with proper information/documents such as above. The DC observes that HDFC has passed a resolution for the appointment of forensic auditors and authorized Mr. Sunil Kumar Agarwal to appoint other professionals. Further, the expenses were deliberated by CoC and not approved for lack of substantiation. The issue is pending before AA for final adjudication. The DC notes that Mr. Sunil Kumar Agarwal has referred expenses to CoC for ratification Hence DC found that the contravention reported is more of a procedural nature and it is nobody’s case that it has been done with any mala fide intent.
The Code is structured around the timebound resolution of the corporate debtor. Any stakeholder does not have the liberty to interpret the provisions which are contrary to the intent on the grounds that in his or her understanding explicit provisions do not warrant a particular action. Seeking an extension of time on the expiry of the deadline is an essential requirement and in the normal courses, RP is in a position to nudge the CoC to take an appropriate decision as per stipulations of the Code. Even if CoC is not cooperating, the RP has the responsibility to approach AA for seeking directions for moving the case for liquidation or not as CoC in a particular case is not cooperating in making its mandate available.
In respect of CD-1, as per the facts available, a meeting of the CoC was convened by Mr. Sunil Kumar Agarwal, however, a perusal of the draft Agenda indicates that an item related to seeking an extension of time beyond 270 days was not included. This is indicative of the fact that RP was in no way interested to push the Agenda for an extension of time. It is immaterial whether this scheduled meeting was held or not.
Timelines for the process as enshrined in the code needed to be followed. The value maximization maxim mandates that all efforts are required to be put in place for resolution; failing which liquidation can be pursued. This is rather a bad example that both RP and CoC worked towards pushing the CD to liquidation on technical grounds.
In view of the above, the Disciplinary Committee, in the exercise of the powers conferred under Section 220 of the Code read with regulation 11 of the IP Regulations and regulation 13 of Inspection Regulations issues the following directions:
Mr. Sunil Kumar Agarwal shall pay a penalty of Rs. 2,00,000/- (Rupees Two Lakhs only) and 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 and submit a copy of the transaction receipt to the Insolvency and Bankruptcy Board of India.
In addition, he will be working as a probationer for four months with another experienced IP so nominated by her IPA under which he is registered. Till completion of this probation, the Authorisation for assignment (AFA) of Mr. Sunil Kumar Agarwal will remain in suspended animation and he will not take any fresh assignment or service under the Code in the capacity of Insolvency Professional.
Mr. Sunil Kumar Agarwal is directed to be more careful and cautious while dealing with assignments under the Code and Regulations made thereunder