In the matter of Mr. Abhijit Guhathakurta, Insolvency Professional
No. IBBI/DC/135/2022
Facts:
1.CIRP was initiated against Siva Industries and Holdings Limited (CD) by the NCLT Chennai Bench and Mr. Abhijit Guhathakurta was appointed as the IRP and subsequently as the RP. AA passed the order for liquidation and Mr. Ayyamplalayam Venkatesan Arun was appointed as the Liquidator.
2.Being dissatisfied with the common order dated 12.08.2021 passed by the AA, the promoter of the CD preferred the two Appeals before the NCLAT which in turn dismissed the same vide common judgment dated 28.01.2022. Supreme Court vide judgment dated 03.06.2022, quashed and set aside the judgment delivered by the learned NCLAT; and allowed the application filed by the RP before the AA for withdrawal of CIRP of the CD under section 12A of the Code and Regulation 30A of the CIRP regulations
3.SCN was issued to RP on account of various regulations. SCN contains the following allegation against the Mr.Abhijeet:
a. Abhijit Guhathakurta updated the CoC in its 5th meeting regarding payment of preCIRP dues to some of the vendors of CD. Under Agenda item no. 5 under the heading “BEML Update”, Mr. Abhijit Guhathakurta apprised the CoC members about the meeting which took place on October 30, 2019, between BEML, IDBI Bank and Mr. Abhijit Guhathakurta, wherein BEML inter alia requested him to resolve the issue of payment to concerned vendors.
b. Abhijeet apprised BEML that these dues were prior to insolvency commencement date (ICD) and needs to be claimed by the claimants under the provisions of the Code and Regulations made thereunder and also that payment to such operational creditors could be made only upon obtaining approval of the CoC. Minutes thereafter state that BEML further requested Mr. Abhijit Guhathakurta to seek approval from CoC to allow BEML to make the said payments, which were in the nature of pre-CIRP dues, directly to the vendors.
c. Abhijit Guhathakurta placed a separate agenda no. 9 titled “To consider, discuss and approve essential vendor payments pertaining to the period before the insolvency commencement date with respect to BEML project” for discussion and voting in the same CoC meeting, After discussion, a resolution was put for e-voting to approve essential vendor payments amounting to Rs. 463.26 lakh to six vendors pertaining to the period prior to ICD with respect to BEML project subject to due verification of the claims of these vendors and which was passed with 65.29% vote.
d. It was noted that section 14 prohibits transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets, or any legal right or beneficial interest therein during moratorium declared by the order passed by Adjudicating Authority and dues of the vendors of the CD for which BEML requested for payment pertaining to pre-CIRP period and as per Section 14(1) (b) of the Code, the same could not have been paid during moratorium.
e. Mr. Abhijeet failed to adhere to the principles of section 14 of the Code and Regulation 7(2) (a) and 7(2) (h) of IBBI (Insolvency Professional) Regulations, 2017 (‘IP Regulations’) read with Clause 1, 2, 3, 5 and 14 of the Code of Conduct as specified in the First Schedule of IP Regulations (Code of Conduct).
Issue: Whether Mr.Abhijeet contravened the provisions of the Code?
Submission of Mr.Abhijeet:
1.He submitted that he had acted bona fide, transparently and in good faith throughout his professional engagement and in the discharge of his obligations and even the Show Cause Notice does not make out any passing observation whatsoever regarding any mala fide intent of the Insolvency Professional.
2.With respect to the observations stating alleged violations of section 14 of the Code in relation to payment of dues, he stated that such payments were stated to be fully compliant with the provisions of the Code and the regulations made thereunder.
3. He submitted that the CIRP of the Corporate Debtor commenced on 5th of July 2010 (“Insolvency Commencement Date” or “ICD”) with a meagre cash balance in its accounts amounted to INR 11 Lakhs only and there were no cashflows or funds coming into the accounts of the Corporate Debtor and therefore, there was a significant dearth of monies required to maintain the going concern status of the Corporate Debtor or even to protect the assets of the Corporate Debtor.
4. He submitted that due to significant delays in the execution of the Project, in 2017, much prior to commencement of the CIR Process, on account of orders of the Hon’ble Debt Recovery Tribunal at the instance of one of the lender banks of SIHL, BEML was restrained from making any payments to SIHL. Subsequently, in a tripartite arrangement between SIHL, its lenders and BEML in 2017, it had been agreed that for the work done by vendors/ sub-contractors, their dues, which were otherwise earlier paid through and by the Corporate Debtor, would henceforth be paid directly to the vendors/subcontractors from a special lender-controlled escrow account set up for this purpose, without SIHL being entitled to the said funds. Therefore, historically, from 2017 itself, the Corporate Debtor had no entitlement to the monies to the extent that the same were payable to the vendors/sub-contractors for the work undertaken by the vendors/sub-contractors for the Project
5. It was submitted that during the meeting, BEML informed Mr. Abhijit Guhathakurta that many labourers and vendors of the Corporate Debtor had been agitating for release of their pending dues at the project site and were therefore creating a severe law and order situation leading to serious operational difficulties. Given the national importance of the Project because of public money being involved therein, BEML being a Public Sector Undertaking, requested that the historical arrangement of paying the vendors/subcontractors be continued. Therefore, it requested the IP to help confirm the outstanding dues to the vendors/contractors of the Corporate Debtor.
6. He held negotiations with BEML and suggested that the only way the IP could consider taking BEML’s proposal of paying any amounts directly to the sub-contractors/vendors for consideration and sanction/ consent, if any, of the CoC is required. He submitted that the CoC would not have permitted such payment if it was diminishing value of the Corporate Debtor in any manner or in any manner amounted to a preferential payment for an operational creditor at the expense of the secured financial creditors. Such payment was permitted only because the same resulted in inflow of significant funds into the Corporate Debtor
7. He submitted that he did not take any call on this matter on his own but left it to the wisdom of the CoC to consent to this financial arrangement for the benefit of the Corporate Debtor. He submitted that the above facts make it evident that the transaction in question by no stretch of imagination was illegal or unauthorized.
7. He submitted that in 2017 it had already been agreed by the Corporate Debtor that the amount payable to vendors would be paid directly to vendors/ sub-contractors, through an especially designated account controlled by the lenders and without any entitlement of any nature to such amounts of the Corporate Debtor. Therefore, INR 4.64 crore paid directly to the vendors/ sub-contractors in the present case was in any event never from the resources of the Corporate Debtor
8. He also relied on Section 20(2) of the Code states that the IRP/RP, as the case may be, must endeavor to maintain the Corporate Debtor as a going concern and further necessitates that the IRP/RP take all such actions required to keep the Corporate Debtor as a going concern. He submitted that all such payments were made only to small vendors, again, in relation to a project being monitored by the Government of India and to resolve the law-and-order situation. The payments to the vendors of the Corporate Debtor have not been made by the IP or by the Corporate Debtor out of its own resources
Order:
1.Mr.Abhijeet was in contraventions in terms of wrongful payment of pre-CIRP dues to the vendors in case of his dealings in respect of Siva Industries and Holdings Limited through BEML is established beyond doubt which is not consistent with section 14 of the Code.
2. Central point of debate is whether such contravention can be ignored as it stems from the actions which are firstly not taken with any mala-fide intension and secondly are taken as a requirement oozing out from commercial judgement to run the Corporate Debtor as a going concern. As DC I have no evidence which can raise doubts about intensions of Mr. Abhijit Guhathakurta not being bona-fide
3.To keep reminding the IBC ecosystem and its players that areas of explicit prohibition are no go areas and if one venturing into such territory he needs to approach AA for further direction before suo-moto taking call on the basis of wrong interpretation of the provisions, DC hereby imposes monetary penalty
Rationale:
1.DC notes that section 14 of the Code provides in express terms, prohibition of certain actions against the corporate debtor which may interrupt the resolution process except the supply of essential and critical services which includes prohibition on institution of suits by or against the CD, transfer, alienation or disposal of any of the assets or legal right or beneficial interest of the CD, action to foreclose, recover or enforce any security interest created by CD in respect of his property
2.DC notes from the minutes (Agenda item no 5) of the 5th CoC meeting dated November 13, 2019, that Mr. Abhijit Guhathakurta apprised the CoC members about the meeting which took place on October 30, 2019, between him, BEML and IDBI Bank, wherein BEML, inter alia, requested him to resolve the issue of payment to concerned vendors of the CD. It was recorded in the minutes that Mr. Abhijit Guhathakurta apprised BEML that these dues were prior to insolvency commencement date and needs to be claimed by the claimants under the provisions of the Code and Regulations made thereunder and also that payment to such operational creditors could be made only upon obtaining approval of the CoC
3. DC noted that Mr. Abhijeet never apprised CoC that it is not competent under the statute to take decision on the subject which statute otherwise explicitly provides that payment against pre-CIRP dues is not negotiable in any circumstances. It noted that the payment of pre-CIRP dues of one set of creditors tantamount to preferential treatment to certain creditors. There is no evidence on record to suggest that Mr. Abhijit Guhathakurta has approached to AA on this issue to seek directions.
4. It noted that any action approved by the CoC must strictly be in compliance of the provisions of the Code and the rules and regulations made thereunder. The CoC while exercising their commercial wisdom to arrive at a business decision must necessarily take into account the provisions of the Code and regulations made thereunder. Therefore, the decision of the CoC to ratify and approve the payment to vendors of the CD, in preference to other creditors, can by no stretch of imagination come within the purview of commercial wisdom of CoC.
5. It is the duty of the IP to take reasonable care and diligence while performing his duties and to observe the compliance of the provisions of the Code and the regulations. If a statute has conferred a power to do an act and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed. The principle behind the Rule is that if this was not so, the statutory provision might as well not have been enacted. Section 14 of the Code, therefore, by necessary implication, prohibits this power from being exercised in any manner other than the manner set out in the said provision of the Code
6. While reinforcing the rule of law, every company is to be given the same level playing field, irrespective of its size or the influence of people behind them. Under the existing laws, once CIRP is initiated against a CD and a moratorium is imposed, the provisions of IBC take precedence over all other laws of the country
Order Copy:
