Monitoring the performance of insolvency professionals under the Insolvency and Bankruptcy Code, 2016 -Discussion Paper by IBBI

Monitoring the performance of insolvency professionals under the Insolvency and Bankruptcy Code, 2016 -Discussion Paper by IBBI

Insolvency And Bankruptcy Board Of India (IBBI) has brought a discussion paper on the subject of monitoring the performance of insolvency professionals  under the Code. The discussion paper is limited to the role of IPs in corporate insolvency resolution processes (CIRP). 

According to the IBBI public consultation enables collective choice and imparts relevance and legitimacy to decisions. Accordingly, the Board invites comments, suggestions and feedback covering modifications / additions / deletions / regrouping in the contents in Forms A to H and timing of filing.

The comments and suggestions may be mailed at ea-wtm.rm@ibbi.gov.in by 12th May, 2018 in the prescribed format:

THE HIGHLIGHTS OF THE DISCUSSION PAPERS ARE AS UNDER:

The Insolvency and Bankruptcy Code, 2016 amends the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders.

The Insolvency and Bankruptcy Code, 2016 (Code) provides for a class of regulated professionals, namely, Insolvency Professionals (IP), who constitute one of the four key pillars of the insolvency regime, other three being the Adjudicating Authority, the Insolvency and Bankruptcy Board of India (Board), and the Information Utilities. The IPs play an important role in resolution, liquidation and bankruptcy processes of companies, LLPs, partnership firms and individuals.

SECTION 20 OF THE IBC 2016

Section 20 of the Code requires an IP, who is acting as interim resolution professional, to make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.

SECTION 20 OF THE IBC 2016

Section 23 requires an IP, who is acting as resolution professional, to conduct the entire corporate insolvency resolution process and manage the operations of the corporate debtor during the CIRP period. The IP, either as interim resolution professional or as resolution professional, exercises powers of the Board of Directors of the corporate debtor undergoing CIRP.

THE SPECIFIC DUTIES AND RESPONSIBILITIES OF AN IP

The specific duties and responsibilities of an IP during CIRP are detailed in the Code and regulations made thereunder.

The Code makes provision for monitoring of their performances. It empowers the Board to perform the following functions, among others:

BOARD TO MONITOR THE PERFORMANCE OF IPAs, IPs & IUs

a. monitor the performance of insolvency professional agencies, insolvency professionals and information utilities and pass any directions as may be required for compliance of the provisions of this Code and the regulations issued hereunder; [(section 196(1)(g)]

b. call for any information and records from the insolvency professional agencies, insolvency professionals and information utilities; [(section 196(1)(h)]

c. collect and maintain records relating to insolvency and bankruptcy cases and disseminate information relating to such cases; [(section 196(1)(k)]

In order to facilitate the IBBI to monitor the performance of the IPs, the Code casts obligations on them to submit certain information. The examples are:

RESOLUTION PROFESSIONAL TO FORWARD ALL RECORDS TO IBBI

a. The resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. [section 31(3)(b)]

b. Every insolvency professional shall submit a copy of the records of every proceeding before the Adjudicating Authority to the Board as well as to the insolvency professional agency of which he is a member. [section 208(2)(d)]

c. A professional member shall submit information, including records of ongoing and concluded engagements as an insolvency professional, in the manner and format specified by the Agency, at least twice a year. [Para 16 of the Model Bye-laws of an Insolvency Professional Agency]

6. In order to facilitate and submission of records by IPs and monitoring of their performance, the Board proposes, in consultation with the Insolvency Professional Agencies, to provide a platform for online filing of eight forms along with records at specified times as under:

FORMS TO BE FILED BY IRPs

.l

a. The forms shall be filed electronically.

b. Three forms (A, B and C) shall be filed by Interim Resolution Professional.

FORMS TO BE FILED BY IRPs

Four forms (D, E, F and G) by the Resolution Professional, and one event-specific form (H) by IRP or RP, as the case may be, depending upon the period of the event.

c. The forms shall be certified and filed by the Insolvency Professional of the respective corporate debtor undergoing CIRP by affixing DSC or after e-signing.

d. The forms shall be filed with a nominal fee.

e. The forms shall be filed within the specified time.

f. Late filing, inaccurate filing, and incomplete filing shall be construed as noncompliance with the directions of the Board.

MISLEADING THE CREDITORS , OUTSOURCING THE RESPONSIBILITY OF AN INSOLVENCY PROFESSIONAL MAKES THE IBBI TO DEBAR A CHARTERED ACCOUNTANT TO FUNCTION AS AN INSOLVENCY PROFESSIONAL

MISLEADING THE CREDITORS , OUTSOURCING THE RESPONSIBILITY OF AN INSOLVENCY PROFESSIONAL MAKES THE IBBI TO DEBAR A CHARTERED ACCOUNTANT TO FUNCTION AS AN INSOLVENCY PROFESSIONAL

INSPECTING AUTHORITY FINDINGS

The disciplinary committee of the Insolvency and Bankruptcy Board of India (IBBI), on last week, passed an interim order debarring a Chartered Accountant from practicing as an Insolvency Professional. The Board, in January, appointed the Inspecting Authority to conduct an inspection of Mr. Mukesh Mohan, Insolvency Professional on suspicion of violation of the provisions of the Insolvency and Bankruptcy Code.

FAILURE TO QUOTE REGISTRATION NUMBER , EMAIL ID IN CORRESPONDENCE BY IRP

One of the major allegation made against the Chartered Accountant, Mr. Mohan was that at the time of issuing the Certificate of Registration an Insolvency Professional, the Board had directed him to quote Registration Number, email id, and address registered with the Board in all his future correspondences with various agencies relating to insolvency professional related work. However, he failed to comply with these directions in the advertisement inviting EoI.

SEEKING BOARD OF DIRECTORS APPROVAL AFTER INITIATION OF CIRP

In another matter, of Athena Demwe Power Limited, Mr. Mohan wanted approval of EoI from the Board before its issue though there is no such provision in the Code. Thus, he tried to push the EoI to the Board for approval.

MISLEADING THE COC , AA and BOARD OF DIRECTORS

 The authority, after investigation, found that Mr. Mohan has attempted to mislead the CoC, the AA, and the Board, outsourced his responsibilities to a third person, acted beyond his authority without the approval of the CoC, acted for and on behalf of one of the creditors, and thereby contravened provisions in sections 21(8), 23(1), 25(2)(h), 30(2)I, 70 (2), 235A of the Code and regulation 7 (2) (i) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulation, 2016 and clauses 1, 2, 3, 5, 9, 12, 13 and 14 of the Code of Conduct under First schedule of these regulations.

DEBARING DECISION

On the above charges, the disciplinary committee upheld its interim order debarring Mr. Mukesh from undertaking any new assignment, either as an Interim Resolution Professional, Resolution Professional, Liquidator or otherwise, under the Code.

A copy of the order was later forwarded to the Indian Institute of Insolvency Professional of ICAI where Mr. Mukesh Mohan is enrolled as its member.

Courtesy: TAX SCAN 

An insolvency professional who has been issued a show cause notice shall not accept any fresh assignment- IBBI

An insolvency professional who has been issued a show cause notice shall not accept any fresh assignment- IBBI

Commencement of Disciplinary Proceeding

The Insolvency and Bankruptcy Code, 2016 (Code) envisages that an insolvency professional may be appointed as interim resolution professional, resolution professional, liquidator, or a bankruptcy trustee if no disciplinary proceeding is pending against him. Some of these provisions are extracted at Annexure A. 2.

Issue of Show Cause Notice

The Code, however, does not define ‘disciplinary proceeding’. Section 219 envisages issue of show cause notice following an inspection or investigation and section 220 envisages constitution of a disciplinary committee for consideration of the inspection or investigation report. 

Various regulations made under the Code envisage issue of show cause notice based on findings of an inspection or investigation or on material otherwise available on record. They also envisage constitution of disciplinary committee for disposal of show cause notice.

Disposal by Disciplinary Committee

A show cause notice is issued after application of mind to the material available on record or on consideration of the inspection or investigation report. The disciplinary committee disposes of the show cause notice by a reasoned order in adherence to principles of natural justice.

reasoned order

The reasoned order carries the determination of contravention, if any, of the provisions of the Code, the rules and regulations, or guidelines, directions or orders issued by the Insolvency and Bankruptcy Board of India.

INSOLVENCY PROFESSIONAL CANNOT ACCEPT NEW ASSIGNMENTS

Thus, a disciplinary proceeding commences with the issue of show cause notice and concludes with the disposal of show cause notice by a reasoned order.

 It is, therefore, clarified that

(i)             a disciplinary proceeding is considered as pending against an insolvency professional from the time he has been issued a show cause notice by the Insolvency and Bankruptcy Board of India till its disposal by the disciplinary committee; and

(ii) An insolvency professional who has been issued a show cause notice shall not accept any fresh assignment as interim resolution professional, resolution professional, liquidator, or a bankruptcy trustee under the Code.

WHETHER LIMITATION ACT,1963 IS APPLICABLE TO IBC ,2016?

WHETHER LIMITATION ACT,1963 IS APPLICABLE TO IBC ,2016?

LIMITATION ACT ,1963

The Limitation Act, 1963, proposes a time limit for diverse suits within which an injured party can approach the court. The purpose of limitation laws is as follows:

·       To force a litigant to be meticulous in pursuing remedies in a Court of law; and

·       To circuitously penalize those who are not active i.e. who did not approach the Court and/ or did not initiate legal action to recuperate their dues.

The importance of the Limitation Act is not to extinguish the privileges but it is originated on public policy setting a life period for legal relief for over-all welfare. An aggrieved person who did not quickly react to claim his privileges should lose them as shale claims makes the court no time to attend sharply to more current and crucial matters.

Article 137 of the Limitation Act 1963

According to the Article 137 of the Limitation Act 1963 ‘The period of limitation for any other application for which no period of limitation is provided elsewhere in this Division is three years and the limitation commences from the date when the right to apply accrues’.

Deem Roll-Tech Limited v. M/S R.L. Steel & Energy Ltd

In Deem Roll-Tech Limited v. M/S R.L. Steel & Energy Ltd, NCLT held that in the absence of any specific bar in the IBC to the application of the Limitation Act, 1963 coupled with the provisions of Sec. 433 of the Act as contained in the Companies Act 2013 which makes Limitation Act applicable to this Tribunal the debt as claimed by the petitioner is barred by limitation and hence cannot be the basis for invoking IBC before this Tribunal"

In Black Pearls Hotels Pvt. Ltd. vs Planet M Retail Ltd 

The consideration that arose was whether the application preferred by Appellant-operational creditor (Black pearls hotel Pvt ltd.) was barred by limitation. The appellant contended that Insolvency and Bankruptcy code, 2016 came into force with effect from 1st December, 2016. Therefore the right to apply under I&B code accrues only on or after 1st December, 2016, and not before the said date thus the application cannot be said to be barred by limitation.

The judgment of the Appellate tribunal was appealed by the corporate debtor before the Supreme Court by way of a civil appeal, the Supreme Court dismissed the appeal while keeping the question on the applicability of Limitation Act to the Code open, which once again leaves the question unanswered. 

NCLAT in Neelkanth Township held that limitation Act does not applicable to IBC 2016

Nevertheless, the position seems to have now been changed with the ruling given by Appellate Tribunal NCLAT in Neelkanth Township and Construction Pvt. Ltd. v. Urban Infrastructure Trustees Limited.25The NCLAT held that there is nothing on the record that Limitation Act, 1963 is applicable to I&B Code. There is no provision of the I&B Code which suggest that the Law of Limitation is applicable.

B.K Educational Services Pvt Ltd vs. Parag Gupta & Associates, 

Where Supreme Court stayed the order of National Company Law Appellate Tribunal which stated that the provisions of the limitation act were not applicable for initiation of Corporate Insolvency Resolution Process under Insolvency and Bankruptcy code. The matter came up in an appeal filed by B.K Educational Services Pvt Ltd against the order of NCLAT contending that the NCLAT failed to consider various decisions of the Supreme Court wherein the court had held that the Limitation Act was based upon the policy to fix a life span of legal remedy for the purpose of general welfare. 

Where Supreme Court in this case stayed the order of National Company Law Appellate Tribunal which stated that the provisions of the limitation act were not applicable for initiation of Corporate Insolvency Resolution Process under Insolvency and Bankruptcy code. 

Speculum Plast Pvt. Ltd. vs. PTC Techno Pvt. Ltd

NCLAT held that the Limitation Act is not applicable for initiation of CIRP. law is settled in terms of the judgment of NCLAT that Limitation Act is not applicable to proceedings under the Code in absence of any authoritative pronouncement by Hon’ble Supreme Court

SUPREME COURT YET TO DECIDE WHETHER LIMITATION ACT IS APPLICABLE TO IBC 2016

The Hon'ble Supreme Court, in the appeal filed against the Neelkanth Judgment, has not decided the question of the limitation being applicable to insolvency proceedings and kept the same open, there is presently no conclusive position on the controversy as on date.

NCLAT Recalls Order that Allowed Sale of Rcom's Tower and Fiber Assets as per Supreme Court Direction.

NCLAT Recalls Order that Allowed Sale of Rcom's Tower and Fiber Assets as per Supreme Court Direction.

NCLAT RECALL ORDER

The National Company Law Appellate Tribunal (NCLAT) on Wednesday recalled its previous order which allowed debt-ridden Reliance Communications to proceed with the sale of its tower and fibre assets.

The sale of these businesses form an important part of the overall Rs 250 billion asset monetization blueprint of the troubled company.

The appellate tribunal would start its hearing on the plea of Reliance Infratel (RCom's subsidiary that runs the tower and fibre businesses) from April 23 over sale of its businesses.

SUPEREME COURT’S DIRECTION

"In view of the order passed by the Supreme Court, dated April 16, 2018...interim order dated April 6, 2018 is recalled," said NCLAT bench headed by Justice S J Mukhopadhaya.

CHALLENGE BY HSBC DAISY INVESTMENTS (MAURITIUS) LTD

NCLAT had on April 6 partially allowed sale of the businesses, which was challenged by HSBC Daisy Investments (Mauritius) Ltd.

The National Company Law Appellate Tribunal (NCLAT) on Wednesday recalled its previous order which allowed debt-ridden Reliance Communications to proceed with the sale of its tower and fibre assets.

The sale of these businesses form an important part of the overall Rs 250 billion asset monetization blueprint of the troubled company.

NCLAT FRESH HEARING ON Reliance Infratel’s Insolvency Petition

The appellate tribunal would start its hearing on the plea of Reliance Infratel (RCom's subsidiary that runs the tower and fibre businesses) from April 23 over sale of its businesses.

"In view of the order passed by the Supreme Court, dated April 16, 2018...interim order dated April 6, 2018 is recalled," said NCLAT bench headed by Justice S J Mukhopadhaya.

NCLAT had on April 6 partially allowed sale of the businesses, which was challenged by HSBC Daisy Investments (Mauritius) Ltd.

IIBBI Slaps Penalty on Electro Steel’s Resolution Professional

IBBI Slaps Penalty on Electro Steel’s Resolution Professional 

The bankruptcy regulator has slapped a penalty and issued a show cause notice to the resolution professional of Electrosteel Steels, Dhaivat Anjaria, who is backed by consulting PWC for neglecting the claims made by operational creditors. 

The Insolvency and Bankruptcy Board of India has ordered a fine of one-tenth of the amount of fees that is payable to him as RP of Electrosteel Steels within 30 days of the order. 

Quantum of Penalty

IBBI stated that ideally the penalty on Anjaria for the violations would be three times the loss caused to the person concerned. However, considering that Anjaria is new to the insolvency professional IBBI said that “a penalty equal to one tenth of the total fee payable to him as IRP and RP in the CIRP of Electrosteel Steels would meet the ends of justice.”

Omitting the Claim by an Operational Creditor

Anjaria has invited claims on August 4, 2017 and an operational creditor M/s National Sales had submitted a claim on August 16 which the RP did not include in the list of claims nor did he justify the rationale to claimant. The RP neglected the claim when the claimant resubmitted the claims on October 3. On receiving complain from the operational creditors, when IBBI sough clarifications from Anjaria thrice (between November 17 to January 3) “he failed and neglected to respond to three communications of the Board and the resolution plan was to close on 16th January, 2018,” IBBI said. 

REPLY TO SHOW CAUSE NOTICE

On January 29, a show cause notice was issued seeking explanation on “why disciplinary action should not be initiated against him for failure to respond to the clarifications sought through various mails by IBBI”.

Anjaria responded saying that claim was subject of ongoing proceedings. He admitted the claim after seeking approval from Adjudicating Authority seeking guidance on admission of disputed claims which was admitted on January 25.

The claim of Rs 72 lakh would have meant a penalty of almost more than Rs 2.1 

COURTESY : THE ECONOMIC TIME S

ACcrore. However, Anjaria would only be required to pay a tenth of his fee. 

Why Binani Cement deal is a test case for Insolvency and Bankruptcy Code?

Why Binani Cement deal is a test case for Insolvency and Bankruptcy Code?

UltraTech Cement Struck a Deal with Binani Cement

That UltraTech Cement struck a deal with Binani Cement outside the IBC framework, especially when lenders had already chosen Dalmia Bharat as the top bidder, tests the sanctity of the Insolvency and Bankruptcy Code

14 Petitions Against Binani Cement Ltd , Insolvency Case

Fourteen petitions. That’s the number of pleas filed against the insolvency proceedings of Binani Cement Ltd, which is fast turning out to be a test for the Insolvency and Bankruptcy Code (IBC) due to multiple issues ranging from allegations of fraud to lack of transparency in the bidding process. Hearings are currently underway at the Kolkata bench of the National Company Law Tribunal (NCLT).

1. What’s the background?

Binani Cement was a regular bankruptcy case under IBC. Bids were called for, and the committee of creditors chose a Dalmia Bharat Ltd-consortium as the winner. The resolution professional had also filed the Dalmia Bharat resolution plan with the tribunal. However, UltraTech Cement Ltd, which had also put in a bid for Binani Cement, alleged that the process for choosing the top bidder was not transparent and that the resolution professional had not followed established best practices.

2. What did UltraTech do then?

It complained to NCLT and also wrote to Binani Cement’s resolution professional, offering to increase its bid to about Rs6,900 crore from about Rs6,200 crore earlier. But when that was not accepted, the firm struck a deal with Binani Industries Ltd, the parent of Binani Cement, to buy its 98.43% stake in the cement unit, provided the insolvency case was terminated. On its part, Binani Industries approached NCLT asking that the case be terminated. At a hearing last week, Binani Industries told the tribunal that it will repay creditors within two weeks.

3. Why is this important?

UltraTech has struck this deal outside the bankruptcy framework. Striking a deal outside the framework, especially when the process is nearing completion, tests the sanctity of the code. If UltraTech wins, every unsuccessful bidder could approach the promoter and strike a deal to fund the repayment of the liabilities with the banks.

                    4. What does the law say?

The code itself does not have a procedure laid down for terminating the insolvency process. However, in another case last July, the Supreme Court ruled that a settlement can be considered and a case can be withdrawn after insolvency proceedings have started against a company. In that particular case, the company and its creditors had settled their dispute.

In Lokhandwala Kataria Construction Pvt. Ltd. Vs Nisus Finance and investment Manager case ,Supreme Court allowed settlement to be recorded between the parties even when the insolvency application had already been admitted and put quiet status under 142 of the Constitution.

5. What next?

The committee of creditors has indicated its willingness to consider the UltraTech-Binani Industries deal since it would entail a lower sacrifice on the lenders’ part. Its counsel had sought time till Monday to consider UltraTech’s offer. If the lenders do choose to accept the offer, the Kolkata NCLT will have to rule. An adverse ruling for Dalmia may prompt the consortium to approach higher courts. If the case ends up at the Supreme Court, its ruling could set a precedent for other cases. Expect the drama to continue.

Courtesy: Live Mint