IBBI: Varrsana Ispat Liquidator Found in Gross Violation of Provisions of Code

IBBI:  Varrsana Ispat Liquidator Found  in Gross Violation of Provisions of Code

The Insolvency and Bankruptcy Board of India (IBBI), on 29th October, 2020 by its order observed, "the provisions of the Code and the Regulations thereof are abundantly clear in its intent that distribution is to be made from the, proceeds from the sale of the liquidation assets/ proceeds from realization and interim distribution prior to the sale of the CD as a going concern is in contravention of the Code.

Distribution under Section 53 of the Code cannot take place prior to realization. As per Regulation 42 of the Liquidation Regulations, the Liquidator can only commence distribution once the list of stakeholders and asset memorandum has been finalized.

However, the DC notes the observation of Hon'ble NCLT in para 15 of its order dated 26.06.2020 indicating the required conditions not fulfilled by the Liquidator."

In the present case, IBBI referred to the Disciplinary Committee (DC) the Interim Inspection Report (IIR) under sub-regulation (3) of regulation 5 of the Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017 (I&I Regulations) for gross violation of the provisions of the Code, Regulations made thereunder and directions of the Hon‟ble National Company Law Tribunal, Kolkata Bench Adjudicating Authority (AA) by the Insolvency Professional (IP), Mr. Anil Goel.

The IBBI relying on materials on record had all the reasonable grounds to believe that there was a gross violation of the provisions of the Code by Mr. Goel in the matter of VarrsanaIspat Limited appointed the Inspecting Authority(IA) to conduct an inspection of IP, Mr. Anil Goel. It was alleged Mr. Goel illegally distributed funds despite the following directions of the AA given to the Liquidator, vide order dated 20th November, 2019.

The 'amount realised' and 'amount distributed', as claimed by the Liquidator while calculating his fee, was not covered under the meaning of the terms 'amount realised' and 'amount distributed' under Regulation (4)(2)(b) of the Liquidation Regulation. This would vitiate the whole objective of keeping the Corporate Debtor (CD) as a going concern and the difference between other modes of sale and sale of CD as a going concern 'will be diluted.'

Therefore, as the distribution was itself illegal, any fee charged on the basis of such distribution will also be illegal. The Liquidator in such case was entitled to Rs.8 lakh as per Regulation 4(2)(a) but nothing under Regulation 4(2)(b).

Further, the liquidator allegedly had not complied with the Hon'ble NCLT order passed on 26th June, 2020. The aforementioned order of the NCLT was very clear and binding on the Liquidator.

Therefore, Mr. Goel was found to be negligent in performing his duties under the Code and there is violation of aforesaid provisions of Sections 208(2)(a) and (e) of the Code and Regulation 7(2)(h) read with clause 14 of Code of Conduct for Insolvency Professionals under IBBI (Insolvency Professionals) Regulations, 2016.

As per Regulation 42 of the Liquidation Regulations, the Liquidator can only commence distribution once the list of stakeholders and asset memorandum has been finalized.

The board stated, "that Mr. Goel has taken a very casual and lax approach in his conduct of liquidation proceedings. Mr. Goel rushed to comply with the Order and paid the employees on the same day but only to the extent of paying the employees their deducted portion not the interest.

Then Mr. Goel conveniently puts the blame on the employees for not having claimed their salaries with interest, when Mr. Goel was duty bound to follow the direction of AA and only when the IBBI sought clarification on the conduct, Mr. Goel directed his team to make the calculation for interest payments.

The DC finds that the IP has been negligent in performing his duties under the Code and is in violation of Sections 208(2)(a) and (e) of the Code and Regulation 7(2)(h) read with clause 14 of Code of Conduct under IP Regulations."

The DC was of the view that the Liquidator contravened the AA order dated 12th July, 2018 and instead of recovering the amounts taken out by Central Bank of India, the Liquidator proceeded to reconcile and adjust the same while accepting claims and adjusting payments in the process of liquidation.

It is the duty of the IP to preserve and protect the assets of the CD during the Corporate Insolvency Resolution Process. However, the IP was found complicit in allowing Central Bank of India recovering their debt during the moratorium and even adjusted payments during distribution in the Liquidation period. This was held in contravention of Section 25(1) of the Code.

The board passed an order, that Mr. Anil Goel, IP was debarred from undertaking any new assignment, either as an Interim Resolution Professional, Resolution Professional, Liquidator or otherwise under the code.