Mr. Sumat Kumar Gupta Resolution ... vs M/S Vardhman Industries Limited

NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI Company Appeal (AT)(Insolvency) No. 762 of 2022 [Arising out of order dated 24th May, 2022 passed by the Adjudicating Authority, National Company Law Tribunal, Chandigarh Bench, Chandigarh in CA No. 568 of 2019, IA No. 548/2020, 550/2020 & 194/2022 in CP(IB) No. 391/Chd/Pb/2018 (admitted)]

IN THE MATTER OF:

Sumat Kumar Gupta, Resolution Professional, M/s Vallabh Textiles Company Limited, Resident of c/o 2581/3, B-1, Near Zoom Hotel Building, Industrial Area-A, Transport Nagar, Ludhiana- 141 003. ... Appellant

Vs.

M/s Vardhman Industries Limited Through Mr. Rajiv Negandhi JSW Centre, 5th Floor Bandra Kurla Complex, Bandra (East) Mumbai Mumbai City MH 400 051. ... Respondent

Present:

For Appellant: Dr. Rajansh Thukral and Ms. Surekha Thukral, Advocates

For Respondents: None

JUDGMENT

{Per: Barun Mitra, Member (Technical)}

The present appeal, filed under Section 61 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as 'IBC') by the

Appellant/Resolution Professional, arises out of order dated Company Appeal (AT)(Ins) No. 762 of 2022 Page 1 of 16 24.05.2022 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Chandigarh) in

IA 568/2019 in CP (IB) No.391/Chd/Pb/2018. By the Impugned Order,

the Adjudicating Authority directed the Appellant/Resolution Professional

to reconsider and evaluate the claims of the Financial Creditor afresh;

reconstitute the Committee of Creditors ('CoC' in short) for fresh Corporate

Insolvency Resolution Process ('CIRP' in short) and, inter-alia, made

certain observations against the Appellant/Resolution Professional on the

manner in which he conducted the CIRP proceedings. The instant Appeal

has been filed by the Appellant/Resolution Professional, in his personal

capacity, with a prayer to expunge the said observations on the

ground, that being adverse, it has the effect of damaging the reputation

and dignity of the Appellant as Insolvency Professional.

2. The brief facts of the case, as stated and argued by the Appellant, is

that he was appointed initially as Interim Resolution Professional ('IRP' in

short) and later confirmed as Resolution Professional of the Corporate

Debtor, M/s Vallabh Textiles Company Limited which was admitted for

CIRP. It is further stated that the Appellant/Resolution Professional made

public announcement inviting claims on 13.04.2019 with the last date of

filing claims fixed as 26.04.2019. Following the public announcement,

M/s Vardhman Industries Ltd. filed claim as Financial Creditor for Rs.

10,77,47,444/-(Rupees Ten crores seventy-seven lakhs forty-seven

thousand and four hundred forty-four only) on 26.04.2019 in Form C. The

Appellant/Resolution Professional thereafter, sent an email to the

Company Appeal (AT)(Ins) No. 762 of 2022 Page 2 of 16 Financial Creditor on 01.05.2019 seeking certain additional details and

documentation by way of account statement of the Corporate Debtor in

the books of the Financial Creditor for the period 2007 to 2019. The

Appellant/Resolution Professional has further submitted that as he was

required to decide the claims within seven days from the last date of the

receipt of claims as stipulated by Regulation 13 of Insolvency and

Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016 (hereinafter referred to as CIRP Regulations),

and as the additional details sought for were not received from the

Financial Creditor, he rejected the claim of the Financial Creditor on

02.05.2019. The Appellant/Resolution Professional submitted that the

claim was rejected on three grounds viz. (i) that the claim was filed on the

basis of old authorization; (ii) that the claim should have been filed through

the Resolution Professional; and (iii) that the account statement attached

with the claim was not sufficient to authenticate the claim amount.

3. It has also been admitted by the Appellant/Resolution Professional

that the Financial Creditor thereafter re-submitted the claim on

24.05.2019 in Form C under Regulation 8 of CIRP Regulations. However,

the said claim was not entertained by him and the same was duly

communicated to the Financial Creditor on 04.06.2019 stating that since

the earlier claim, submitted on 26.04.2019, within the period prescribed

by the public announcement had already been rejected on 02.05.2019,

no belated claim can be filed.

Company Appeal (AT)(Ins) No. 762 of 2022 Page 3 of 16

4. Aggrieved by the rejection of their claim, the Financial Creditor filed

an application before the Adjudicating Authority seeking for directions to

be issued to the Resolution Professional to admit his claim and/or to verify

his claim. The Adjudicating Authority after hearing both the parties

directed the Resolution Professional to reconsider the claims including

evaluating the claim to be classified as Financial Creditor and to

reconstitute the CoC and in the process had made certain observations

against the Resolution Professional in the discharge of his duties.

Aggrieved by the Impugned Order, the Learned Counsel for the

Appellant/Resolution Professional, however, submits that he is

challenging the Impugned Order only in respect of certain adverse remarks

made against him by the Adjudicating Authority which deserve to be

expunged.

5. The two paragraphs of the Impugned Order to which the

Appellant/Resolution Professional has drawn the attention to, is

reproduced below and the relevant portion prayed for being expunged is

as emboldened hereunder :-

"10. In the present case, the issue that falls for our

consideration is whether the claims of the applicant have

been properly verified before the rejection of the same by the

Resolution Professional. To reiterate, the applicant has

submitted the relevant copies of the audited accounts of

Vardhman Industries Limited (Applicant) in respect of

Vallabh Textiles Company Limited (Respondent). We have

Company Appeal (AT)(Ins) No. 762 of 2022 Page 4 of 16 closely perused the financial statement annexed as

Annexure A-8 and A-9 with the application. From the

correspondence between the parties, it is clear that

no serious effort was made by the Resolution

Professional to classify the debts into financial and

operational debts of the applicant. There is no denying

the fact that the Resolution Professional needs documents

and supporting evidence to decide on the nature of a claim

for the purpose of admission of the same. The documents

brought on record have not shown any kind of non-

compliance by the applicant to any query raised by the

Resolution professional in this regard".

xxx xxx xxx xxx

"12. In the result of the aforementioned

discussion, this Bench is of the view that the

Resolution Professional has failed in his duty to

analyze the evidence placed before him regarding the

nature of transactions of the applicant reflected in

the books of the corporate debtor and present the

complete facts regarding the admissibility of the

claims made by the applicant before the CoC. The

Resolution Professional in the present case was duty-bound

to verify these transactions and put the same before the CoC

with the complete factual and legal position rather than Company Appeal (AT)(Ins) No. 762 of 2022 Page 5 of 16 reject it summarily. In view of the foregoing, this Bench

directs the Resolution Professional to reconsider the claims

made by the applicant with reference to the evidence

already before him. He may call for additional evidence if

required and decide in the light of the discussions in the

foregoing paragraphs. Based on the evidence before him, he

is directed to also evaluate the claim of the applicant to be

classified as a financial creditor and to reconstitute the CoC

with the applicant as a member. With the above said

observations, CA No. 568/2019 is allowed and disposed of

accordingly".

6. We have duly considered the detailed arguments advanced by the

Learned Counsel for the Appellant and perused the records carefully.

Respondent did not file any counter-affidavit.

7. We find that the general purport of the remarks contained in

paragraphs 10 and 12 of the Impugned Order are broadly intertwined. Put

in a nutshell, the two observations contained in the Impugned Order as

brought before us for our consideration are summed up hereunder: -

(i) Whether serious efforts were made by the

Appellant/Resolution Professional in properly verifying the

claim submitted before him by the Financial Creditor

Company Appeal (AT)(Ins) No. 762 of 2022 Page 6 of 16 including classifying the debts into financial and

operational debts.

(ii) Whether the Appellant/Resolution Professional

had failed in his duty to analyse the evidence placed before

him regarding the nature of transactions made by the

Financial Creditor reflected in the books of Corporate Debtor

and presenting the complete facts before the CoC on the

admissibility of the claims of the Financial Creditor.

8. The tenability of the above observations made by the Adjudicating

authority about the Appellant/Resolution Professional can be best

appreciated if we put in perspective the objectives of the IBC and the role

and responsibilities of Interim Resolution Professional/Resolution

Professional in furthering these objectives. The objective of the IBC is,

inter-alia, to promote entrepreneurship, maximize value of assets, make

available credit, and balance the interest of all stakeholders, in a time

bound manner. As a natural corollary thereto, the statutory framework

governing CIRP seeks to put in place an arrangement which can resolve

insolvency in a timely, efficient, transparent, predictable manner.

9. The Bankruptcy Law Reforms Committee Volume I (November 2015)

in Chapter 4 under the title 'Institutional Infrastructure' has focused on

the role and responsibilities of Resolution Professional and the relevant

excerpts are as under: -

Company Appeal (AT)(Ins) No. 762 of 2022 Page 7 of 16

"Insolvency professionals form a crucial pillar upon which

rests the effective, timely functioning as well as credibility

of the entire edifice of the insolvency and bankruptcy

resolution process."

xxx xxx xxx xxx

"In performing these tasks, an IP acts as an agent of the

adjudicator. In a way the adjudicator depends on the

specialized skills and expertise of the IPs to carry out these

tasks in an efficient and professional manner. The role of

the IPs is thus vital to the efficient operation of the

Insolvency and Bankruptcy Resolution Process."

xxx xxx xxx

"In the case of Insolvency Resolution, a failure of the

process may result from two main sources: collusion

between the parties and poor quality of the execution of the

process itself. Hence, it is important that the professionals

responsible for implementing the insolvency resolution

process adhere to certain minimum standards so as to

prevent failures of the process and enhance credibility of

the systems as a whole."

10. Coming to the factual matrix, we find that it is an undisputed fact

that the Financial Creditor submitted his claims under Rule 8 of CIRP

Regulations in Form C well within the prescribed time limit in terms of the

public announcement made by Appellant/Resolution Professional on

Company Appeal (AT)(Ins) No. 762 of 2022 Page 8 of 16 13.04.2019. The last date of submission of claims, as provided in the

public announcement was 26.04.2019 and the Financial Creditor had

submitted on 26.04.2019 his claim details along with supporting

documents as also found in the Appeal Paper Book.

11. It is also an undisputed fact, that the Resolution Professional is

entitled to seek substantiation of claims under Regulation 10 of CIRP

Regulations which reads as follows:

"10. "Substantiation of claims - The interim

resolution professional or the resolution professional, as the

case may be, may call for such other evidence or

clarification as he deems fit from a creditor for

substantiating the whole or part of its claim."

Invoking CIRP Regulation 10, the Appellant/Resolution Professional sent

an email on 01.05.2019 seeking additional information with respect to

account statements spanning over a period of 12 years from 2007 to 2019

from the Financial Creditor. We entirely agree that the

Appellant/Resolution Professional was well within his rights to exercise

the discretion of seeking additional information from the Financial

Creditor. What, however, merits consideration is the reasonability on the

part of the Appellant/Resolution Professional to have allowed only just

twenty-four hours to the Financial Creditor to submit additional

information spanning order a period of 12 years (2007-2019) and the

propriety of his action of rejecting the claim of the Financial Creditor soon

thereafter on 02.05.2019 after having allowed only one day's time to Company Appeal (AT)(Ins) No. 762 of 2022 Page 9 of 16 furnish such additional information which entailed voluminous

documentation.

12. The Learned Counsel for Appellant/Resolution Professional while

making his arguments pointed out that the Financial Creditor while filing

the claims on 26.04.2019 should have filed separate claims for financial

and operational debt and that it was incumbent on the part of Financial

Creditor to have separated and bifurcated the transactions on account of

supply of goods and services from the loan related transactions. He also

argued that there was a difference between the closing balance as on

31.03.2009 and the opening balance as on 01.04.2009 of nearly Rs.6

crores and that the transactions were not properly verified.

13. As to whether serious efforts were made by the Appellant/Resolution

Professional to verify the claims submitted by the Financial Creditor, from

the documents available on record, we are inclined to agree with the

Adjudicating Authority that there is not much evidence to validate that the

Appellant/ Resolution Professional undertook adequate and credible effort

on his part to deep-dive into the account statements to distinguish

between the operational and financial transactions but for sending a bald

and bare four-line mail requisitioning additional information pertaining to

12-year period. The conduct of the Appellant/ Resolution Professional

stands out in sharp contrast to that of the Financial Creditor whose bona-

fide in providing information at every stage to substantiate his claim

cannot be doubted. The Adjudicating Authority after making an in-depth

Company Appeal (AT)(Ins) No. 762 of 2022 Page 10 of 16 examination was justified in holding that Appellant/ Resolution

Professional made no serious efforts to verify the claims of the Financial

Creditor.

14.We have further noted that consequent upon rejection of his claim on

02.05.2019, the Financial Creditor again refiled his claims on 24.05.2019

with requisite supporting documents which included:

I. Form C - the Financial Creditor Claim of Vardhman Industries

Limited.

II. Authority Letter authorizing Anil Kumar Surya (CFO -

Vardhman Industries Limited) to file the claim on behalf of

Resolution Professional for Vardhman Industries Limited.

III. Order of Hon'ble NCLT New Delhi dated January 17, 2018

appointing the undersigned as the Resolution Professional.

IV. Account Statement of Vallabh Textiles Co. Ltd in the books of

Vardhman Industries limited since the inception of transaction.

V. Certificate of Incorporation and PAN Number of Vardhman

Industries Limited.

15.We therefore take cognizance of the fact that, prima-facie, there is

no negligence, or inaction or lack of bona-fide on the part of the

Financial Creditor to submit claim with proof to the Resolution

Professional both on 26.04.2019 and 24.05.2019. The Adjudicating

Authority therefore cannot be faulted for coming to the conclusion that

Company Appeal (AT)(Ins) No. 762 of 2022 Page 11 of 16 there is no evidence of non-compliance on the part of the Financial

Creditor on both occasions when he submitted his claims.

16. The refiled claim dated 24.05.2019 was again rejected by

Appellant/Resolution Professional on 04.06.2019 on the ground that since

the claim submitted by Financial Creditor was already rejected earlier, he

cannot file a belated claim again. The Appellant/Resolution Professional

took the stand that Regulation 12(2) of CIRP Regulations can be availed

for submission of claims only by such creditors who fail to submit claim

with proof within the time stipulated in the public announcement. This

brings before us the question whether the Appellant/Resolution

Professional was correct in holding that Regulation 12(2) of CIRP

Regulations places an embargo on resubmission of claims by such

Financial Creditors who have earlier submitted their claims under CIRP

Regulation 12(1) before last date mentioned in the public announcement

but their claim was rejected for want of authentication or substantiation.

17. For better understanding, it would be desirable to examine CIRP

Regulation 12 which is as reproduced below:

"12. Submission of proof of claims-

(1) Subject to sub-regulation (2), (emphasis added) a

creditor shall submit claim with proof on or before the

last date mentioned in the public announcement.

(2) A creditor, who fails to submit claim with proof within

the time stipulated in the public announcement may Company Appeal (AT)(Ins) No. 762 of 2022 Page 12 of 16 submit the claim with proof to the interim resolution

professional or the resolution professional, as the

case may be, on or before the ninetieth day of the

insolvency commencement date.

(3) Where the creditor in sub-regulation (2) is [a financial

creditor under regulation 8], it shall be included in the

committee from the date of admission of such claim:

Provided that such inclusion shall not affect the

validity of any decision taken by the committee prior

to such inclusion."

18. It is amply clear from a plain reading of the above CIRP Regulations

that Regulation 12(1) is subject to Regulation 12(2) as expressed in the

opening sentence of Rule 12(1). Furthermore, Regulation 12(2) clearly

permits a creditor who has failed to submit his claim with proof within the

stipulated time of the public announcement to avail extended time period

to submit such claims on or before the ninetieth day of the insolvency

commencement date. It therefore does not stand to reason why any

Financial Creditor who submits his claim under Regulation 12(1) within

the stipulated time line but fails to satisfy the Resolution Professional can

be denied the benefit of availing the extended time period available under

Regulation 12(2) to substantiate his claim. If this benefit is denied, it will

disincentivize creditors from submitting claims under Regulations 12(1) as

it gives them a shorter window of time to substantiate their claims thereby

running the risk of their claim being disregarded for want of time. Company Appeal (AT)(Ins) No. 762 of 2022 Page 13 of 16

19. Be that as it may, CIRP Regulation 12 does not lay down any specific

embargo on a creditor who on having failed to satisfy the Resolution

Professional with respect to the claims submitted by him under Regulation

12(1) from refiling his claim under Regulation 12(2) as long as it is done

on or before the ninetieth day of the insolvency commencement date. CIRP

is a largely creditor driven process and therefore a claim submitted by a

creditor deserves to be handled with due care and seriousness to ensure

successful resolution of insolvency. Thus, CIRP Regulations need to be

viewed in a purposive manner so as to advance the cause of insolvency

resolution while safeguarding the interest of all the stakeholders. The

Appellant/Resolution Professional, therefore, ought not to have summarily

rejected the claim refiled by the Financial Creditor on the stand-alone

ground that his earlier claim under Regulation 12(1) having been rejected,

he cannot file a belated claim. This narrow and pedantic interpretation of

the CIRP Regulations 12 by the Appellant/Resolution Professional has

stymied the bona-fide efforts on the part of the Financial Creditor to

substantiate his claims.

20. Section 18 of the IBC lays down the various duties of the IRP in

respect of handling claim proposals. Section 18(1)(b) lays down that IRP

shall "receive and collate all the claims submitted by creditors to

him, pursuant to the public announcement made under Sections 13

and 15." As regards the role of the Resolution Professional in this regard,

Section 25(e) of the IBC lays down that he shall "maintain an updated Company Appeal (AT)(Ins) No. 762 of 2022 Page 14 of 16 list of claims." The Resolution Professional while examining claims is

therefore expected to act in a manner which inspires confidence in the

Financial Creditor so as to ensure the credibility of the insolvency process.

In the present matter, therefore, the question before us is therefore

whether a Resolution Professional is competent to decide or reject the

claims of the Financial Creditor by himself without presenting the

complete facts before the CoC on the admissibility of the claims. This

aspect has already been settled by the Hon'ble Supreme Court in 'Swiss

Ribbons Pvt. Ltd. & Anr.' Vs. Union of India & Ors. - Writ Petition

(Civil) No. 99 of 2018 wherein it held that Resolution Professional has no

adjudicatory power and that he is "really a facilitator of the resolution

process, whose administrative functions are overseen by the CoC and

by the Adjudicating Authority." The Resolution Professional has been

vested with administrative as opposed to quasi-judicial power. In view of

the above, the Appellant/Resolution Professional by summarily rejecting

the belated claims at his own level without presenting the complete facts

to the CoC has misconstrued his role, duties, and responsibilities.

21. The Resolution Professional is an important instrumentality in the

insolvency resolution process and his role is crucial and critical to fulfill

the objective of the IBC. It is therefore incumbent upon him to discharge

his responsibilities with the highest standards of professional excellence,

dexterity, integrity, rectitude, and good faith. The Adjudicating Authority

based on the facts and documents presented before it, found lack of

Company Appeal (AT)(Ins) No. 762 of 2022 Page 15 of 16 professionalism on part of the Appellant/Resolution Professional in

analyzing the admissibility of claims before him. We find no reasons to

disagree with the Adjudicating Authority and affirm the findings that there

has been failure of duties on the part of the Appellant/Resolution

Professional.

22. In view of the above discussions, facts, and circumstances, we are

of the considered opinion that there are no convincing reasons to interfere

with the Impugned Order. We are, therefore, unable to accept the

contention of the Appellant that the adverse remarks made by the

Adjudicating Authority in Paragraphs 10 and 12 of the Impugned Order

be expunged. In the result, the appeal having no merit is dismissed.

(Justice Ashok Bhushan) Chairperson

(Justice M. Satyanarayana Murthy) Member(Judicial)

(Barun Mitra) Member(Technical)

Place: New Delhi

Date: 27.07.2022

shashi Company Appeal (AT)(Ins) No. 762 of 2022 Page 16 of 16