As an Insolvency professional since 2018 and just requesting Adjudicating authority(one of the court judges of NCLT, New Delhi, in simpleton’s language) to relieve me of the duties as Interim Resolution Professional, after completion of task assigned, I am left with the thinking to analyze who is an interim resolution professional(IRP), what role he/she plays and what are the stumbling-blocks he/she faces within a short span of announcing the arrival in the newspaper, collation of claims, their verification and calling Committee of Creditors meeting. The rosy picture of I&B Code, 2016 (Code) as the denouement of industrial sickness of the nation has proved highly correct and has drawn the nation to a battle of unequal partners. Fortunately, an IRP is the cardinal point of the whole operation of CIRP (Corporate Insolvency Resolution Process).
Let us deal with IRP in a detailed way.
Appointment of an Interim Resolution Professional
Let me make it clear that this article will deal, discuss and create acrimony about our experience among many who take the Code seriously and do justice either as an advocate, Insolvency Professional, Corporate debtor, Financial Creditor, Operating creditor or even a clerk who comes every day to NCLT and opt for sunrise in the crowded but promising corridor of justice.
An IRP is appointed by NCLT within 14 days from insolvency commencement date in terms of section 16(1) of the Code. Section 16(2) used in case of application for corporate insolvency resolution process is made by a financial creditor or the corporate debtor (I could hear the murmur that all by their advocates at a cost, no doubt) in terms of section 7 or 10 as the case may be.
Yes, some one said an operational creditor under section 9(4) initiating CIRP may propose an Insolvency Professional to act as an IRP. Section 16(5) unambiguously states that the term of interim resolution professional will continue till the appointment of resolution professional under section 22. Other assumptions like disclosing proper disclosures to concerned authorities, eligible to be appointed as an IRP in terms of regulation of 3 of the Code, giving written communication along with CIRP application in Form2 agreeable to accept the offer etc. are naturally acceptable for our discussion. Also, a written consent to be appointed as RP in form AA by a committee of creditors has also been the norm.
As part of code of conduct for insolvency professionals, objectivity, integrity, independence, impartiality, professional competence, representing correct facts and correcting misapprehensions, timeliness, information management, confidentiality, non-engagement in employment, obtaining proper and just remuneration and non-acceptance of gift are taken for granted. In India, we presume that the more we write of honesty or integrity, the better results would follow. Unfortunately, my 40 years of professional life in banking/consultancy in taxation/now in IP, the situation has become bad to worse. Let us write simple English and make it clean that honesty is a must in this profession.
One of the key stone of CIRP is the provision relating to Public Announcement contained in Section 13 and Section 15 of the Code and in Chapter III of the IBBI(CIRP) Regulations, 2016. Section 13(2) mandates that public announcement will be done, one in English newspaper, and one in a regional newspaper with wide circulation at the location of the registered office and principal office, if any of the corporate debtor and any other location where in the opinion of the IRP, the corporate debtor had been doing material business operations. Efforts have to be made to enclose the advertisement in the web site of CD, or IBBI web site which is easily available. IRP will send form A in pdf format by mail from his e-mail address registered with Insolvency and Bankruptcy Board of India to public.ann@ibbi.gov.in.
Regulation 6, enables public announcement to invite creditors for submission of claim with proofs and give them 14 days to submit the same from the date of appointment of the IRP.
Public announcement mentions choice of 3 insolvency professionals for class of creditors to act as representative under regulation 4A. The three choice is to be made with respect to each class of creditors.
The expenses of public announcement are to be borne by the applicant which will be reimbursed by the Committee of Creditors (COC).
Intimation of initiation of CIRP and appointment of Interim Resolution Professional
Who else other than IRP will intimate all concerned authorities like banks, stock exchange, regulatory authorities like income tax, SEBI if applicable, depositories of securities, ROC, GST authorities, police station his appointment and that CIRP have started?
The intimation will be done by IRP in the official letter head of CD. Section 17 rightfully enables suspension of the powers of the Board of Directors and vests it with IRP. The moratorium under Section 14 further prohibits institution of suits, disposal of properties by CD and stoppage of SARFASI acts for foreclose, recover or enforce any security interest created by CD. Detailed coverage of these sections has been done in many other articles published in Tax Guru. Reference may be done for detailed knowledge.
Let us presume that after the start of CIRP, claims have been lodged by the following claimants:
- Financial creditor
- Operational creditor
- Claims by creditors in a class
- Claims by workmen and employees
- Claims by other creditors.
Due to predominant nature of banks being the most emerging financial creditors (it has been noticed that unless the situation changes drastically, nationalized banks corner major chunk of financial credit and others invariably just surrender their rights by strictly adhering to the terms of banks in COC) and with the most reliable procedure evolved over nearly 100 years of Indian banking , not many have raised doubts about the claims of banks. The author being an ex-banker will not dare to question their papers unless some young and inexperienced bankers having kept the banking documents blank or improperly prepared. History reveals mostly non-occurrence of this event.
Let us concentrate on claims by others.
An imaginary situation emerges out of discussion with various IRP/RP in many forums. IBBI/IPA/Chambers of commerce or other platforms offer opportunities to all stake holders to view, discuss, ask or get guidance from experts in all fields. I have seen many leading judges from various courts venture to give their views but those at personal level with no legal or quote value in courts. I&B Code has levelled the ground among lawyers, IPs, CDs or other claimants. Since it is just 2+ years old, any day is a new day to learn many things.
Case study
This is my story of an imaginary case from one of the leading courts. Please read it for fun, intellectual curiosity, apply all your knowledge over the obstacles described thereon or score over your fellow professionals by sheer argument. Please do not quote it as a legal case for follow up. I am not responsible.
An IRP is appointed and advertisement is released in Delhi. The Corporate Debtor with a registered office is found out to be in a DDA flat. The house owner claims total ignorance since the house has been used as a camouflage for a legal business. When the IRP wants to take a photo, he is advised to avoid.
The IRP takes pains to find out a couple of directors and tries to contact them, almost all except one respond. His availability becomes a bone of contention.
Anyhow, repeated trials and errors enable IRP to meet the CD’s most after sought director.
He claims ignorance of the growth of the unit since he being foreign educated and son of a successful father who built the unit from scrap hardly had any interaction with the unit. His father has left for heavenly bode.
He claims further ignorance about accounts of the unit. How does he know about balance sheet, financial statements, list of creditors/debtors etc. It is learnt that he tried his best to demolish the industrial empire
Some how from the web site of Corporate debtor or from the bank which financed the loans, one can get some information.
IRP has every right to contact the concerned bank who might have submitted the claims under financial creditors category.
If it is possible that the unit has stopped functioning since the last one year, how can the IRP act?
What is the legal assistance available to the IRP from the I&B Code 2016?
Section 19 aptly explains that the personnel of the CD, its promotors, or any one associated with the management shall extend full cooperation in managing the affairs of the corporate debtor.
Section 19(2) much more vehemently states that in case of non- cooperation, IRP may make an application to the Adjudicating Authority for necessary directions. I have heard from some of my fellow IPs that even many private sector banks refuse to assist. I have also come across in NCLT, some judge enquiring whether the banks do extend any cooperation whatever asked.
Section 19(3) further goes ahead to assert that AA shall by an order, direct such personnel or other persons to comply with the instructions of the IRP and to cooperate with him in collection of information and management of the corporate debtor.
History recalls that many CDs when faced with the wrath of the judges of the courts just surrender and give required financial statements and books of accounts.
But recently, I was informed of an instance where the CD just threw 50 registers into the office of IRP but not the software of accounting package.
Though the IRP has a right to request the CD to extend the help with software of the accounting package, still he can get the help of professional accountants to prepare the statements from available records. When I attended a recent seminar organized by IBBI and enquired about above situation, if any, the authorities concurred with my solution to engage the experts and solve the issues. Obviously, IRP can get the expenses ratified in COC.
Why does the IRP need the data for the past two years?
Section 18(1) enforces among the duties of an IRP to collect all information relating to assets, finances and other information related to:
- Business operations for the last two years
- Financial and operating payments for the previous two years
- List of assets and liabilities as on the initiation date
- Monitor the assets and manage its operations until a RP is appointed
Situation Number 2
How does the IRP work in the absence of noncooperation from bank/CD or any one connected to the unit which was running a couple of months ago but stopped functioning?
IRP to undertake the following steps urgently:
- Get the assets revalued by valuers approved by IBBI since banks have lost their rights to have their own valuers who are related parties and virtually dance to the tune of their masters who would pay them. (Yes, the charges quoted by them vary drastically from the ones from IBBI list.) IBBI has imposed this new condition.
- Engage experts to update the financial data with whatever information available.
- In terms of Section 43&44 under the head “Preferential transactions and relevant time” IRP can take necessary action to move AA to avoid preferential transactions, if any indulged by CD.
- Also, the IRP to study whether any undervalued transactions emerge during the last one year or two years involving related parties.
- Incidentally, Sections 47, 48 and 49 do speak of actions by creditors to procure their rights under the law through NCLT or action that may be taken by AA.
Technically, the banks who finance maximum financial needs of the CD invariably bring their own RP to replace the current IRP. In some cases, in their first COC meeting, due to ignorance or aversion of the banks(they virtually dislike operational creditors or even workmen of the CD), the banks refuse to ratify the expenses incurred by IRP with the explanation that whatever happened including NPA of the CD had already sunk the fortune of the banks and lesser one incurs further financial expenses, the better.
You are right if you presumed that IRP would move NCLT to ratify the expenses which would be given with justifications
Also, it reverberates with delay invariably by court due to abundance of cases with multifarious issues. One hears even cases outstanding for months together. Then the following doubts raise.
Will IRP be technically called as deemed RP after 40 days and deemed liquidator after 180 days?
Is an IRP to prepare an information memorandum even if proper financial statements were not provided by CD and utilize the services of accountants to update the records and prepare financial statements?
Is the IRP to verify the claims of creditors with the stock statements provided by banks, audit reports of Chartered Accountants, internal memos of banks, statutory audit reports of concerned authorities or concurrent audit reports of internal auditors engaged by banks in case proper accounts of books were not sufficient to arrive at some conclusion. Every one knows various claims of creditors, employees or other creditors have to be collated, verified with records available and put up to COC.
History narrates instances where the courts asked IRPs who moved their papers with expenses for confirmation to justify them. In most of the cases, they have been kind enough to allow the claims and ask the banks to ratify in COC. I understand that when cornered before judges of NCLT, the banks bow down before the diktats of judges.
Conclusion
After a successful stint of any assignment, a professional would naturally cogitate over the matter and put up issues before professionals for heated discussions. I&B Code, 2016 with its distinguishable upgradations to meet various requirements of its stake holders is a rare law which ushered in a new horizon for industrial resurrection, if I am allowed to call it that way.
If you had been a lawyer, corporate debtor, insolvency professional, professor dealing with law or effervescent students from law, how do you react to various situations narrated by me in my article. It is an intentional act not to quote any court cases for an informal and heated discussion. Why don’t you narrate your own story without any full stop?
References
- Insolvency and Bankruptcy Code 2016 (updated up to March 2019, by Institute of Insolvency professionals, New Delhi
- Interim Resolution Professional, a hand book, second edition by ICSI, Institute of Insolvency professionals, New Delhi.
- Various forums organized by IBBI, New Delhi.
Author Bio
