Gaurav Vinimay Private Limited vs Mr. Kanchan Dutta

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Balraj Joshi, Member (Technial)",,,

This court convened via video conferencing.,,,

This is an application filed by Gaurav Vinimay Private Limited, being an Operational creditor of the Corporate debtor, under section 60(5) of the Insolvency and Bankruptcy" Code, 2016 (Code) read with rule 11 of the NCLT Rules, 2016, praying for the following reliefs:"

(a) That the NCLT may be pleased to consider the situation and direction may be passed to appoint a new Resolution Professional in place of Respondent;

(b) That NCLT may be pleased to direct IBBI to look into the conduct of the Respondent and take necessary action if found guilty;

(c) That the NCLT may be pleased to pass an appropriate order for approval of resolution in the interest of the creditors of the corporate debtor.

It is submitted that the underlying Company Petition bearing C.P. (IB) No. 07/KB/2019 was filed by the Financial Creditor and this Adjudicating Authority vide order dated 23.01.2020, initiated Corporate Insolvency Resolution Process (CIRP) against Gujrat Metallic Coal & Coke Limited, the Corporate Debtor. Mr. Kanchan Dutta was appointed as the" Interim Resolution Professional (IRP).

Submissions of the Applicant Operational Creditor:,,,

4.1. The case of the Applicant is that the Respondent, being the Resolution Professional of the Corporate Debtor is not a fit person to carry out the CIRP and is not adhering to the" provisions and the timeline laid by the Code.

4.2. A copy of the title deed of the immovable property of the Corporate Debtor was handed over to the IRP. The Corporate Debtor had informed the IRP that the original title deed had been misplaced. The respondent has neglected to obtain a duplicate certified copy of said title deed and to take possession and control of the said immovable property as per section 25 of the Code.

4.3. Further, the Respondent has failed to invite expression of Interest within 75 days from the Insolvency Commencement Date, thus being in violation of Regulation 36A(1) of the" IBBI (Insolvency Regulation Process for Corporate Persons) Regulations, 2016. Publication of EOI is pending till date."

4.4. The IRP, in the 2nd COC meeting stated that he is required to revive the company but allowed for a resolution for liquidation to be voted upon in 3rd COC meeting itself, thereby" raising doubts about the impartiality and independence of the IRP.

4.5. The IRP is heavily dependent on the Financial Creditor for most cases being handled by him and has been appointed by the same Financial Creditor as the IP/RP and/ or Liquidator in many cases. Therefore, there is a possibility that the Respondent may be working in collusion with the Financial Creditor."

4.6.The Respondent did not allow Mr. Saurav Jain being the representative of the Suspended board of Directors to participate in the 2nd COC meeting due to provisions of section 24(4) of the Code but allowed the same representative to participate in the 3rd COC meeting. Such an act reflects the whimsical attitude of the Respondent and his ignorance of the Code.

4.7. As per Regulation 19 of the CIRP Regulations, the meeting of CoC needs to be convened by giving minimum 5 days notice in writing to every participant. The CoC meeting was" convened on 10.07.2020 for which notice was supposed to be served latest by 5.07.2020. However, the Respondent issued the notice on 6.07.2020. Such proposal of shorter notice" needs to be approved in advance in previous CoC meeting. But no such resolution was passed in the 1st or 2nd CoC meetings. Hence, the Respondent is in violation of Regulation 19" of the CIRP Regulations.

4.8. Further, under Regulation 25(5) of the CIRP Regulations, the Respondent is required to circulate the minutes of the third CoC meeting within 48 hours of conclusion of the" meeting, which the respondent failed to serve within the required time i.e by 12.07.2020. He only circulated the minutes of the said meeting on 13.07.2020 after the applicant wrote an" email to the respondent reminding him the provisions of regulation 25(5).,,, 4.9.The respondent kept the CoC in dark about his plans to seek exclusion of the lockdown period, thereby extending the CIRP period much beyond 180 days thereby increasing the" total CIRP costs payable towards his fees and remuneration disproportionately without any additional benefits to the stakeholders.

Submissions of the Respondent Resolution Professional:,,, 5.1 The case of the Respondent is that Mr. Arun Jagatramka and his wife, Mona Jagatramka, being the directors and shareholders of the Applicant company, have indirect control" over the Corporate Debtor and are deeply involved in the affairs and business of the Corporate Debtor. The Corporate Debtor has purchased from Aparna Polyflex Pvt. Ltd. (a related party of the Corporate Debtor) shares of four companies, with Mr. Arun Jagatramka and his wife, Mona Jagatramka, being the directors of the said four companies."

The Corporate Debtor then assigned the debt consisting of the purchase price to the Applicant Company.

5.2 Mr. Arun Jagatramka is also a shareholder and a personal guarantor of the Corporate Debtor. Futher, one of the promoters of the Corporate Debtor, Mr. Ramesh Chandra" Bajoria, is the father of Mrs. Mona Jagatramka nad the father-in-law of Mr. Arun Jagatramka.As such, the Applicant comes within the purview of definition of related party in terms" of the section 5(24)(h) of the Code.,,, 5.3 The Respondent during the CIRP period has un-earthed substantial fraudulent transactions undertaken by the Corporate Debtor and to that effect has filed applications IA (IB)

No. 762/KB/2020 and IA (IB) No. 715/KB/2020. Thus, to prevent the respondent from proceeding with the un-earthing of the frauds by the Corporate Debtor, the instant application" has been filed.,,, 5.4 The CoC has been constituted by the Respondent, consisting of one Financial Creditor. It is the sole prerogative of the CoC to remove the Resolution Professional. As such, the" Applicant being an Operational Creditor and not being part of the CoC, has no right to make the instant application."

5.5 The Respondent was not able to obtain the certified copy of ownership deed of the Corporate Debtor’s flat in Jaipur till August 2020 due to lockdown restrictions. That after lockdown relaxations were given, the Respondent engaged valuers who informed the Respondent that the said flat was occupied and from documents presented to then, it appeared" that the Corporate Debtor was not even the owner of the said flat. Upon enquiry regarding the same, no satisfactory clarification was given by the director of Corporate Debtor."

Further, due to non-cooperation of the directors of the Corporate Debtor, the Respondent could not take possession of the said property."

5.6 The Expression of Interest (Form G) was published in Business Standard (Kolkata edition) and Aajkal on 1st September 2020 — within the time period prescribed by the Code.

Due to non-cooperation of the directors of the Corporate Debtor, the Respondent could not publish the Form- G earlier."

5.7 According to the guidelines of ICSI- Institute of Insolvency Professionals, the suspended Board of Directors cannot authorize a representative to attend CoC meeting. As such," the Respondent did not permit the representative of the Corporate Debtor to attend the 2nd CoC meeting. However, in the subsequent meetings, the respondent was left with no" choice but to allow the said representative to attend the meetings, with hope that the representative would be able to give the answers and clarifications and the CIRP could be" proceeded with.,,, 5.8 The Code permits the Resolution Professional to convene a meeting at a shorter notice if the CoC approves and ratifies the same. In the instant case, the CoC has ratified the"

same. That the Respondent is not required to ask for approval of the Applicant for the convening of a meeting at a shorter notice since the approval has been duly received from the members of the CoC.,,, 5.9 Due to some difficulties over the weekend, the minutes of the CoC meeting held on 10.07.2020 (friday) was circulated on 13.07.2020 (Monday)" 5.10 The resolution Professional is entitled to the benefits of regulation 40C and the relaxations provided by the Hon’ble NCLAT since he could not proceed with the CIRP due to repeated non-cooperation from the errant directors of the Corporate Debtor.

5.11 The valuation report of 2019 obtained by the director is a baseless report prepared to serve his own purpose in continuing to siphon out funds of the Corporate Debtor and to carry on with further frauds on the part of the Corporate Debtor. that applications have been filed in connection with the fraud committed by the directors in connection with the Happy Mining Pvt. Ltd investment.,,, 5.12 The strict actions taken by the IRP have forced the Applicant to file the application for removal of IRP since these actions have effected the directors in control of the Corporate Debtor. The application has been filed only after strict actions have been taken against the said directors.

S.No,Violation,Explanation Given By IRP,Remarks

1.,"The IRP has neglected to obtain a duplicate certified copy of said title deed and to take possession and control of the said immovable property as per section 25 of the Code.","That the Respondent was not able to obtain the certified copy of ownership deed of the Corporate Debtor’s flat in Jaipur till August 2020 due to lockdown restrictions. That after lockdown relaxations were given, the Respondent engaged valuers who informed the Respondent that the said flat was occupied and from documents presented to them, it appeared that the Corporate Debtor was not even the owner of the said flat. Upon enquiry regarding the same, no satisfactory clarification was given by the director of Corporate Debtor. In the light of dispute regarding ownership, the Respondent has engaged advocates to search for the records in the Jaipur Registry Further, due to non- cooperation of the directors of the Corporate Debtor, the Respondent could not take possession of the said property.","The explanation given is found satisfactory considering the lockdown induced by the Covid-19 pandemic.

2.,"Respondent has failed to invite expression of Interest within 75 days from the Insolvency Commencement Date, thus being in violation of Regulation 36A(1).

Publication of EOI is pending till date.","The Expression of Interest (Form

G) was published in Business Standard (Kolkata edition) and Aajkal on 1st September 2020 — within the time period prescribed by the Code if the extension of time period is taken into consideration.","The explanation is found satisfactory, considering the lockdown induced by the Covid-19 pandemic.

3.,"That the IRP, in the 2nd COC meeting stated that he is required to revive the company but allowed for a resolution for liquidation to be voted upon in 3rd COC meeting itself, thereby raising doubts about the impartiality and independence of the IRP.",No explanation given in Reply- Affidavit.,"The CIRP itself is a CoC- driven process.

It was ultimately the CoC’s call, and the RP cannot by castigated for this purpose.

4.,"IRP is heavily dependent on the Financial Creditor for most cases being handled by him and has been appointed by the same Financial Creditor as the IP/RP and/ or Liquidator in many cases. Therefore, there is a possibility that the Respondent may be working in collusion with the Financial Creditor.","On perusal of the sections 5(24) and 5(24A) of the Code, it is clear that the Resolution Professional does not fall within the category of a ‘related party’ in respect to the Financial Creditor. Further, under the IBBI Circular No. IP/005/2018 dated 16th January 2018, an Insolvency Professional can be held to be a related party of the Financial creditor if such Insolvency Professional has derived 5% or more of his/its gross revenue in a year from professional services to the related party. In the instant case, the Applicant has failed to prove that such a relation exists between the parties in question. Hence, the Resolution Professional cannot be deemed to be a ‘related party’ of the financial creditor simply for the reason of being nominated by the said Financial Creditor on multiple occasions.","The applicant has completely misread the circular. Related Party as defined in section 5(24A) of the Code does not cover a situation as mentioned in the present application. The RP is not earning a remuneration for service to one bank, but as RP or liquidator of various corporate debtors. He cannot be termed as “related party” within the meaning of section 5(24A) or Regulation 3(1)(b) of the Insolvency And Bankruptcy Board Of India (Insolvency Resolution Process For Corporate Persons) Regulations,

2016. He is an independent professional carrying out his roles and responsibilities assigned to him under the Code and the regulations framed thereunder.

5.,"Respondent did not allow Mr. Saurav Jain being the representative of the Suspended board of Directors to participate in the 2nd COC meeting due to provisions of section 24(4) of the Code but allowed the same representative to participate in the 3rd COC meeting. Such an act reflects the whimsical attitude of the Respondent and his ignorance of the Code.","That according to the guidelines of ICSI- Institute of Insolvency Professionals, the suspended Board of Directors cannot authorize a representative to attend CoC meeting. As such, the Respondent did not permit the representative of the Corporate Debtor to attend the 2nd CoC meeting. However, in the subsequent meetings, the respondent was left with no choice but to allow the said representative to attend the meetings, with hope that the representative would be able to give the answers and clarifications and the CIRP could be proceeded with.","The explanation is found satisfactory.

6.,"As per Regulation 19 of the CIRP Regulations, the meeting of CoC needs to be convened by giving minimum 5 days notice in writing to every participant. The CoC meeting was convened on 10.07.2020 for which notice was supposed to be served latest by 5.07.2020.

However, the Respondent issued the notice on 6.07.2020. Such proposal of shorter notice needs to be approved in advance in previous CoC meeting. But no such resolution was passed in the 1st or 2nd CoC meetings.","That the Code permits the Resolution Professional to convene a meeting at a shorter notice if the CoC approves and ratifies the same. In the instant case, the CoC has ratified the same. That the Respondent is not required to ask for approval of the Applicant for the convening of a meeting at a shorter notice since the approval has been duly received from the members of the CoC.","Since the actions of the RP have been ratified at the subsequent meeting of the CoC, it should be deemed to be with CoC’s approval. The regulation does not provide for prior approval. In any case, the applicant has not shown what prejudice has been caused to him in this regard apart from technicalities.

7.,"Further, under Regulation 25(5) of the CIRP Regulations, the Respondent is required to circulate the minutes of the third CoC meeting within 48 hours of conclusion of the meeting, which the respondent failed to serve within the required time i.e by

12.07.2020. He only circulated the minutes of the said meeting on 13.07.2020 after the applicant wrote an email to the respondent reminding him the provisions of regulation 25(5).","Due to some difficulties over the weekend, the minutes of the CoC meeting held on 10.07.2020 (friday) was circulated on 13.07.2020 (Monday)","The explanation is found satisfactory.

8.,"The Respondent had filed application u/s.19(2) against Mr. Tailor ( suspended director) and pressed Mr. tailor to open his office during lockdown- while suppressing the NCLAT order dated 30/03/2020.

Thus the IRP was never effected by the covid lockdown in carrying on CIRP.

But when Mr. Sourav Jain emailed the IRP stating that CIRP period was over on 21.07.2020 and asked for an update on the status of CIRP- the IRP emailed to him the Hon’ble NCLAT order dated 30.03.2020 in response to the queries","The Code, the guidelines and the observations of the NCLT during several hearings are that the RP should try and proceed with the CIRP during the lockdown period and if he is obstructed, then he would be entitled to exclusion of time.

In the instant case, the Respondent has tried to conduct the CIRP but the errant directors have chosen not to cooperate with the RP. The Registered office of the CD is closed since 23rd March 2020 and there was only one employee i.e MD/CFO, who was not aware of the business activity of the CD, who had not attended any CoC meetings, and did not respond to the emails of the Respondent in a timely manner. The respondent is thus entitled to claim the benefit of Regulation 40C and the relaxation provided by the NCLAT since he could not effectively proceed with the CIRP","The explanation is found satisfactory.

9.,"The IRP is not entitled to exclusion Under clause 40C in IBBI (insolvency Resolution Process for Corporate Persons) Regulations, since he continued with the CIRP during the lockdown.",,"The explanation is found satisfactory.

10.,"The IRP circulated a copy of a forensic audit report dated 08.08.20. the said report was issued by the auditors without having received any explanation or information as sought by them and the same were provided only on 10.08.20 after the report had been issued. The IRP was well aware of this and yet did not ask the auditors to revisit and modify their forensic audit report in light of the response received on 10.08.20.

Therefore, the incomplete report does not serve any purpose other than to thwart a successful resolution of the CD",No explanation given in Reply- Affidavit,"No prejudice is caused to the auditor, since ultimately it will be tested before the Adjudicating Authority 11.,"Two valuation reports were received from

Mr. Sajjan Kumar Tailor. The one obtained at behest of the IRP which valued the investment of CD in Happy Mining Pvt Ltd at Rs. 5 Crores. The second valuation report was obtained from an independent IBBI registered valuer according to which value of such investment as on 30.06.2019 was around Rs.57.51 crores having gone up from Rs. 46.23 crores as on 30.06.2018.

Such highly depreciated value as obtained by the IRP could result in destroying the value of investments held by the CD.

Such meagre valuations along with allegations of fraudulent conduct being pursued without making proper enquiries might scare any potential resolution applicant.","The valuation report obtained by the director is baseless prepared to suit his purpose of siphoning funds out of CD.

The valuation report obtained by the IRP shows the correct value of investment of the CD made in Happy Mining

Pvt. Ltd and has been done by IBBI approved valuers","The valuation obtained from the IBBI-approved valuer alone will be taken into consideration. We cannot at this stage, get into the mess of the individual valuation since it is subjective and an inexact science.