IBBI Disciplinary Committee Restrains Insolvency Professional From Rendering Services For Two Years

Background Facts

The NCLT New Delhi Bench-II ("Adjudicating Authority"), vide an order dated 27.01.2020, had admitted an application under Section 9 of the IBC for Corporate Insolvency Resolution Process ("CIRP") of Palm Developers Pvt. Ltd. ("Corporate Debtor"). Mr. Manoj Kumar Singh, Insolvency Professional, was appointed as the Interim Resolution Professional ("IRP").

Mr. Singh had constituted the Committee of Creditors ("CoC") on 20.02.2020 with two Corporate Guarantors whose guarantees were yet to be invoked; their voting share was approximately 88%. On 25.02.2020, an interim application bearing I.A. No. 1610 /2020 was filed before the Adjudicating Authority by a member of the CoC, seeking re-constitution of the CoC. In pursuance of which, the Adjudicating Authority on 28.02.2020 had passed the following directions:

"In view of the aforesaid situation where CoC has been constituted with Corporate Guarantors who do not have a cause of action, no further steps shall be taken in the meeting of the CoC till the voting percentage is ascertained. The IRP is restrained from holding a meeting of CoC or putting any agenda to vote physically or online till the constitution of CoC is ascertained. It is also brought to the notice of this Bench that the IRP has not taken any steps as mandated under the Code nor taken any steps to take over the assets of the Corporate Debtor till date".

On 07.09.2020, the Adjudicating Authority had modified the direction passed in the order 28.02.2020 and directed Mr. Singh to proceed in the matter in accordance with the provisions of the IBC.

Thereafter, on 13.01.2021, the IBBI had appointed an Inspecting Authority ("IA") in the exercise of its power under Section 196 of IBC read with Regulation 3 of the Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017 ("Inspection Regulations"). The IA was appointed to inspect Mr. Manoj Kumar Singh, on having reasonable grounds to believe that he had contravened provisions of the IBC, Inspection Regulations, and directions of Adjudicating Authority issued thereunder. Accordingly, the IA submitted its report dated 06.06.2021 to the IBBI.

Show Cause Notice Issued By The IBBI

The IBBI had issued a Show Cause Notice ("SCN") to Mr. Singh on 30.07.2021, in respect of his role as an IRP in the CIRP of the Corporate Debtor. The SCN alleged the contravention of the following provisions by Mr. Singh:

1. Constitution of Committee of Creditors ("CoC") with two Corporate Guarantors whose guarantees were yet to be invoked and hence, did not have any cause of action.
2. Failure to take the CIRP forward after the directions given in order dated 07.09.2020.
3. Depriving the legitimate creditors of their rightful rights and share despite being fully aware of the provisions of the IBC and Regulations made thereof.
4. Failure to consider that CoC could be constituted in terms of Regulation 16B of the CIRP Regulation i.e. with the creditors in class whose claims had been verified in the present matter.
5. No notable work been done apart from conducting the 1^st CoC meeting on 26.02.2020. Failure to appoint valuers; not sharing the Information Memorandum; not publishing Form –G in terms of Regulation 36A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("CIRP Regulations"); and not forming any opinion if Corporate Debtor is subject to Section 43, 45, 50 or 66 of IBC within a relevant period.
6. Contravention of Sections 17, 18, 20, 25, 208(2)(a) and (e) of the IBC; Regulations 16B, 27, 35A, 36, 36A and 40A of the CIRP Regulations; Regulation 7(2)(a) and (h) of the IBBI (Insolvency Professionals) Regulations, 2016 ("IP Regulations"); and Clauses 1, 2, 10, 13 and 14 of the Code of Conduct specified in First Schedule of the IP Regulations.

The Response Of Mr. Singh To The Show Cause Notice

The response was given to SCN by Mr. Singh on 19.08.2021, and it laid out the following counter arguments:

1. No deficiency in performance of duties: Immediately upon being appointed as IRP, Mr. Singh had made a public announcement, intimated the bankers and ex-management of the commencement of CIRP of Corporate Debtor, visited the office of Corporate Debtor, appointed security service and took control of management and physical possession of assets of Corporate Debtor. Soon after receiving the claims against the Corporate Debtor and upon the verification of the same, constituted the CoC within prescribed timelines as per the IBC. He made every endeavor to protect and preserve the value of the property of the Corporate Debtor and managed the operation of the Corporate Debtor as a going concern. After the constitution of the CoC on 20.02.2020, he convened a meeting of the CoC on 26.02.2020, wherein the issues regarding the fee of IRP and appointment of RP were discussed.
2. No inaction, rather, compliance with orders of the Adjudicating Authority: The order dated 28.02.2020 restrained Mr. Singh from holding a meeting of CoC; or putting any agenda to vote physically or online till the constitution of CoC is ascertained; to not take further steps in meeting of the CoC till the voting percentage is decided. Thereafter, the said order was not vacated by the order dated 07.09.2021, rather it was modified to the extent that the IRP is allowed to proceed in the matter in accordance with the provision of the IBC, with the condition that he is restrained from declaring the status of Corporate Guarantors till further order. The said application stood sub-judice before the Adjudicating Authority. No further steps were taken by Mr. Singh in these matters so as to comply with the orders of the Adjudicating Authority.
3. No contravention of Regulation 16B of the CIRP Regulations: It was contended that a bare reading of regulation 16B states that the same can be done only when there is no Financial Creditor and in its absence, the CIRP should proceed with a class of creditor through Authorised Representative. Mr. Singh had constituted the CoC with two Financial Creditors having a voting share of approximate 88%, and the same was pending adjudication from 20.02.2020 till 18.08.2021 when it was taken on record by Adjudicating Authority. Mr. Singh was restrained from declaring the status of the Financial Creditors, and the same was subject to confirmation of Adjudicating Authority and one CoC was already in existence and there were already Financial Creditors available in the CIRP. Thus, proceeding with Regulation 16B would in itself be a violation of the provisions of the IBC.
4. Parallel proceedings against the IP: The IBBI had moved an application before the Adjudicating Authority, during the pendency of Mr. Singh's reply, seeking the latter's removal from the position of the IRP, which was unjust, illegal and violative of Article 21 of Constitution of India and against the scheme of the IBC. Mr. Singh was removed from the CIRP vide order dated 13.07.2021 by the Adjudicating Authority but the order was under challenge before the Hon'ble National Company Law Appellate Tribunal ("NCLAT").
5. Duties dispensed even during the COVID-19 pandemic: Mr. Singh had visited the Corporate Debtor's office on a regular basis even during the COVID-19 pandemic to protect and preserve the property.
6. No discrepancy in work found: The new IRP appointed by replacing Mr. Singh vide an order dated 13.07.2021, did not make any concern that there were any discrepancies in the functioning of Mr. Singh.
7. Orders modified and clarified at a later stage: The Adjudicating Authority vide order dated 13.07.2021, had further modified orders dated 28.02.2020 and 07.09.2020 whereby CoC with a class of creditor was permitted. This clarity was not given in the earlier order. However, the challenge to order dated 13.07.2021 is sub-judice before the Hon'ble NCLAT. Therefore, the allegations are denied as unfounded.
8. Pending undecided applications: The issue of constitution of CoC and appointment of Authorized Representative was sub-judice before the Adjudicating Authority in I.A. No.1448 of 2020 and I.A. No. 1449 of 2020. These applications were filed by Mr. Singh on 20.02.2020. The I.A. No. 1449 of 2020 was decided on 18.08.2021 and the CoC Constituted by Mr. Singh was provisionally accepted by the Adjudicating Authority on 18.08.2021. The I.A. No. 1448 of 2020 was kept pending for 08.09.2021. The entire process was stalled by the applicant of the I.A. No. 1610/2020, who had filed the application on 25.02.2020, which was heard on 28.02.2020 and ex-parte order was passed in favour of the applicant.

Matter Referred To The Disciplinary Committee Of Ibbi

The IBBI was of the prima facie opinion that sufficient cause exists to take action against Mr. Singh in terms of Section 220 of the IBC read with Regulations 11 and 12 of the Inspection Regulations and Regulation 11 of the IP Regulations. Therefore, the IBBI referred the SCN, the reply of Mr. Singh to the SCN and other material available on record to the Disciplinary Committee for disposal of the SCN in accordance with the IBC and Regulations made thereunder. Mr. Singh was also given the opportunity of personal hearings through virtual mode before the Disciplinary Committee on 22.12.2021, 24.01.2022 and 18.02.2022. A copy of the Final Inspection Report was made available on request to Mr. Singh, and subsequently, he filed additional submissions vide e-mail dated 01.03.2022.

Findings Of The Disciplinary Committee

1. Mr. Singh had incorrectly constituted the CoC with two Corporate Guarantors whose guarantees were yet to be invoked. He failed to conduct the CIRP as per the provisions of the IBC and its Regulations, as no further actions were taken on the ground, as submitted by him, that the issue of Corporate Guarantors to constitute the CoC was yet to be resolved, which was an issue of his own making.
2. The stay granted by Adjudicating Authority's order dated 28.02.2020 was lifted by the order dated 07.09.2020, directing that Mr. Singh is allowed to proceed in the matter in accordance with the IBC and he is restrained from declaring the status of Corporate Guarantor. However, no further actions were taken by Mr. Singh to continue the CIRP, which is in contravention of the directions of the Adjudicating Authority. No application was moved by Mr. Singh to seek clarification on the order dated 07.09.2020.
3. In terms of Regulation 16B of CIRP Regulations, a CoC could have been constituted with remaining members whose claims were verified, i.e., class of creditors. Mr. Singh wrongly included Corporate Guarantors in CoC and the entire CIRP got delayed for over 309 days.
4. The conduct of Mr. Singh displays a lack of understanding of the IBC and the Regulations, as the CIRP is a strictly time-bound mechanism, and he continued to justify the delay on the pretext awaiting the decision of the Adjudicating Authority on the issue of Corporate Guarantors to constitute the CoC. The issue of the claim of the Corporate Guarantors was a separate issue being dealt before the Adjudicating Authority, which could not be a ground to bring the entire CIRP to a halt.
5. Due to non-compliance with the directions of the Adjudicating Authority contained in order dated 07.09.2020, the Adjudicating Authority vide its order dated 13.07.2021 has held Mr. Singh liable for contempt.
6. There is a contravention of the provisions of Sections 17, 18, 20, 25, 208(2)(a) and (e) of the IBC, regulations 16B, 27, 35A, 36, 36A and 40A of CIRP Regulations, Regulation 7(2)(a) and (h) of the IP Regulations and clauses 1, 2, 10, 13 and 14 of the Code of Conduct specified in First Schedule of the IP Regulations.

Order Passed By The Disciplinary Committee

The Disciplinary Committee, vide its order dated 08.04.2022, disposed of the SCN and passed the following directions:

"(i) Mr. Manoj Kumar Singh shall not seek or accept any process or assignment or render any services under the Code for a period of two years 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 the date of this order.

(ii) This Order shall come into force on the expiry of 30 days from the date of its issue.

(iii) A copy of this order shall be forwarded to the Insolvency Professional Agency of the Institute of Cost Accountants of India, where he is enrolled as a member.

(iv) A copy of this Order shall also be forwarded to the Registrar of the Principal Bench of the National Company Law Tribunal, for information."

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