NCLAT busted Resolution Professional and Management of Companies Wrong-Doing and Set Aside Ricoh India Resolution Plan
The Hon’ble NCLAT has set aside the order, passed by Hon’ble NCLT approving the Resolution Plan, in the matter of Ricoh India Limited. The three bench Member team passed a very stringent order in the above matter stating:
‘In the circumstances as stated above, we are of the considered opinion that the Resolution Professional committed a grave error in accepting the Resolution Plan of the Resolution Applicant Kalpraj Dharmshi & Rekha Jhunjhunwala after the expiry of the deadline for submission of the Bid/Resolution Plan without notifying/publishing the extension of the timeline for submission of EOI, as per provision of the I&B Code and Regulations thereof. The Adjudicating Authority has also failed to appreciate the illegalities and irregularities pointed out by the Appellant. We also noticed that the Order on MA 1039 of 2019 is passed by Member Judicial and Member Technical, but the argument was heard by only one Member Bench consisting of Judicial Member. Thus, the Appeals succeed and the impugned Orders both dated 28.11.2019 are set aside.’
‘The CoC is directed to take a decision afresh in the light of the directions given above for consideration on the Resolution Plans already submitted within the stipulated timeline within ten days from the date of this Order. If no decision is communicated to the Adjudicating Authority and the timeline for completion of CIRP has already expired, then the Adjudicating Authority is to pass an order for liquidation of the corporate debtor. There shall be no order as to costs.’
It is evident from the above order that the Resolution Plan by the consortium of Mr. Kalpraj Dharmashi and Ms. Rekha Jhunjhunwala, which was submitted after the expiry of the deadline of submission of the Resolution Plan has been set aside and now the CoC is to consider and decide within next 10 days of the date of the said order on the Resolution Plans already submitted within the stipulated deadline. Accordingly the consortium of Mr. Kalpraj Dharmashi and Ms. Rekha Jhunjhunwala is now out of the way to acquire Ricoh India Limited, as their bid was submitted way beyond the stipulated deadline for submission of prospective Resolution bids.
Another point relevant, although completely ignored for unknown reasons, in the overall sequence of submission and approval of resolution bids by the Resolution Professional, Mr. Krishna Chamadia, relates to the claim of Rs. 511 crores submitted by one of the major creditor, M/s Fourth Dimension Solution Limited. The Resolution professional, Mr. Krishna Chamadia, while scrutinising the claims of the Operational Creditors, had neither approved nor rejected their claim while issuing the final list of creditors to the Proposed Resolution Applicants. As per the provisions of the IBC, the RP has to either approve or reject the claims of all the creditors which have been received by him. In this case however since the matter was under arbitration, a provision for the same should have been made while considering the approval of the Resolution Plan. But in the resolution plan, as approved by the CoC, no such provision has been made and is a complete fraud on the creditor, M/s Fourth Dimension Solutions Limited and on the provisions of the IBC, which is clear regarding claims for all creditor claims. An appeal by Fourth Dimension Solution Limited is pending at NCLAT against its claim of Rs. 511 crores.
While, Mr. Krishna Chamadia, was the Resolution Professional during the CIRP of Ricoh India Limited, a fraud of Rs. 4 crores was detected by the company officials. An employee of the team of the Resolution professional was involved in an illegal transfer of this amount to his own consultancy firm while all the control over the banking transactions was with the RP. Even a complaint at that time was filed with IBBI by a shareholder of the company. This incident was also reported by the company in their Annual Report. So it is evident that he had been involved in illegal and irregular activities during the CIRP.
The above matter was heard by Hon’ble NCLAT against an appeal filed by M/s Kotak Investment Advisors Limited against the Resolution Professional Mr. Krishna Chamadia and the successful Resolution Applicants, namely Mr. Kalpraj Dharmashi and Ms. Rekha Jhunjhunwala, raising alleged irregularities committed by the RP, Mr. Krishna Chamadia in the conduct of CIRP.
According to the facts mentioned in the said order of the Hon’ble NCLAT, the RP Mr. Krishna Chamadia had issued an advertisement on 09th July 2018 calling for Expression of Interest (from now on referred to as EOI). Pursuant to it, Phoenix Asset Reconstruction Company Limited, an Associate of Kotak Advisors, submitted EOI on 07th August 2018. On receiving EOI, the Resolution Professional had issued "Process Memorandum" on 17th & 27th August 2018 calling for submission of Resolution Plan. In the invitation for Resolution Plan, the last date for submission of Resolution Plan was 08th January 2019. Accordingly, Phoenix Asset Reconstruction Company Limited submitted a Resolution Plan on 08th January 2019. Two Resolution Applicants filed their Resolution Plans within the deadline for submission of Resolution Plan. However, the Resolution Applicant Karvy Group, tendered its Resolution Plan without furnishing guarantee of Rs.10 Crore. On 10th January 2019, the Committee the Creditors ('CoC') had opened both the Resolution Plans. After that, on 15th January 2019, the Resolution Plans were discussed. In addition to the above mentioned Resolution Plans, two more Resolution Plans were accepted by the Resolution Professional, Mr. Krishna Chamadia, after expiry of the deadline for submission of the Resolution Plans, one from "WeP" Peripherals on 13th January 2019 and another on 28th January 2019 from a consortium of Mr. Kalpraj Dharamshi & Ms. Rekha Jhunjhunwala.
In their appeal Kotak Advisors questioned the Resolution Professional, Mr. Krishna Chamadia, over acceptance of two Resolution Plans that had been submitted after the expiry of deadline for submission of Resolution Plan, without obtaining any CoC resolution to extend the deadline and issuing notice for inviting EOI from other potential resolution applicants.
The CoC and the Resolution Professional, Mr. Krishna Chamadia, subsequently permitted Kotak Advisors to submit a revised Resolution Plan on or before 12th February 2019. The grievance of the Kotak Advisors is that the Successful Resolution Applicant, consortium of Mr. Kalpraj Dharmashi and Ms. Rekha Jhunjhunwala was allowed to submit its Bid even after the expiry of the deadline for submission of Resolution Plan when the Bids by other Resolution Applicants had already been opened and deliberated upon by the CoC.
The Appeal is filed mainly on the ground that impugned Order of Hon’ble NCLT has been passed in violation of Principles of Natural Justice, as one of the Members of the Bench, which passed the impugned Order, was not a Member of the Bench that had heard the arguments on the application filed by Kotak Advisors before the bench while hearing to pass the Resolution plan.
Kotak Advisors has also contended that the Hon’ble NCLT has failed to appreciate that the Resolution Professional, Mr. Krishna Chamadia, had accepted two other Resolution Plans, one from "WeP" Peripherals and another from a consortium of Kalpraj Dharamshi & Rekha Jhunjhunwala on 13th January 2019 and 28th January 2019 respectively. The Resolution Professional, Mr. Krishna Chamadia, has not only accepted the Resolution Plan after the expiry of the deadline/cut-off date but also gave a go by to the deadline for submission of Expression of interest, in contravention of the provision of IBC and Regulation thereof. Hon’ble NCLT has failed to appreciate that the successful Resolution Applicant, Mr. Kalpraj Dharamshi and Ms. Rekha Junjhunwala had been allowed to take part in the Corporate Insolvency Resolution Process (for short 'CIRP') even after expiry of the deadline for submitting Expression of interest and Resolution Plan, which is in contravention of Clause 2.4 of the Process Memorandum issued by the Resolution Professional.
Kotak Advisors has further contended that the Resolution Plan submitted by them was opened on 09th January 2019 and the fundamentals of the plan and financials of the plan and offers made by them were disclosed to all the participants, including the Resolution Professional, Mr. Krishna Chamadia. After this, no further fresh bid or offer could have been accepted or considered. But the RP illegally and unlawfully received EOI from consortium of Mr. Kalpraj Dharamshi & Ms. Rekha Jhunjhunwala on 27th January 2019. Kotak Advisors further pleaded that the alleged action of the RP is unlawful under the teeth of the provision of IBC and Regulation 36A of the CIRP Regulations.
The Resolution Professional, Mr. Krishna Chamadia, belatedly accepted Resolution Plans of 'WeP' and from a consortium of Mr. Kalpraj Dharamshi & Ms. Rekha Jhunjhunwala on 13th January 2019 and 28th January 2019, respectively. Such acceptance of Resolution Plan was well beyond the stated cut-off date/deadline of 08th January 2019. The delayed submission of these two Resolution Plans is evidenced from the letters dated 14th January 2019 and 29th January 2019, written by Resolution Professional, Mr. Krishna Chamadia, to the Bombay Stock Exchange, to intimate about the receipt of the two Resolution Plans.
The Hon’ble NCLAT also observed regarding remarkable similarities between the belated Resolution Plan submitted by a consortium of Mr. Kalpraj Dharamshi and Ms. Rekha Jhunjhunwala with the Resolution Plan submitted by Kotak Advisors and was opened for discussion and deliberated upon within the timeline.
Now the big question is how can two plans submitted by two different entities, one after the other, can be similar, unless the plan of the first party has been shared with the second party.
It is further alleged by Kotak Advisors that the Adjudicating Authority has failed to appreciate that the CoC had approved a Resolution Plan submitted by a consortium of minority shareholders of the Corporate Debtor, which provides for significant, if not wholly unjustified, payouts to be made to the minority shareholders at exorbitant rates for their holding from Ricoh India. This blatant conflict of interest is ignored by the Resolution Professional, Mr. Krishna Chamadia. Mr. Kalpraj Dharmashi is a minority shareholder of Ricoh India Limited.
Regulation 38(3) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation 2016 mandates to include complete details and particulars of the Resolution Applicants, to enable the CoC to assess the credibility of the Applicant and connected persons to take a prudent decision. The role of minority shareholders as Resolution Applicant cannot be considered and credible, especially, because they first initiated a legal proceeding against Ricoh India. Kotak Advisors has raised several other objections regarding the decision of CoC in accepting the Resolution Plan of consortium of Mr. Kalpraj Dharamshi and Ms. Rekha Jhunjhunwala .
The Hon’ble NCLAT also observed that:
‘We fail to understand as to why the Resolution Professional had deviated from the earlier procedure of publication of notice for the invitation of EOI. Per contra, the Resolution Professional has accepted the Resolution Plan of the successful Resolution Applicant Kalpraj Dharamshi & Rekha Jhunjhunwala after the expiry of the deadline for submission of Resolution Plan without following the due process, under the guise of maximization of value. The act of the Resolution Professional to accept the Resolution Plan after opening the other bids, which were all submitted within the deadline for submission of Resolution Plan cannot be justified by any means and is a blatant misuse of the authority invested in the Resolution Professional to conduct CIRP.’
The order of the Hon’ble NCLAT is a benchmark judgement in the history of IBC in India. The order is a big blow on the nexus of Resolution Professional and Resolution Applicant while illegally using the provisions of the IBC for their personal benefits. It is a clear indication to such scrupulous Resolution Professional, who try to hoodwink the Hon’ble Courts by mis-using the provisions of the IBC to be beware of being involved and carrying out such illegal and irregular acts while performing their professional duties while they are representatives of the Hon’ble Courts.
The big questions that arise are:
Was this CIRP managed by Ricoh Company Ltd. Japan to cover up its wrong doings and got all things covered through the RP.
Was this CIRP used to defraud the creditors of the company like Fourth Dimension so that they do not have to pay a claim of Rs. 511 crores to them.
If the management and Ricoh Japan knew of the illegal activities of RP, like fraud of Rs. 4 crores while reporting the same in the Annual Report, then why they didn’t raise any concern to the IBBI or the Hon’ble NCLT. This indicates involvement of the management and Ricoh Japan in siphoning of funds from the company in the garb of the CIRP.
How can a company submit for a self-insolvency, U/s 9 of the IBC when the statutory auditors of the company has refrained from giving an opinion on the true and fair view of the financial statements of the company. In such case any company can cook up their financial statements showing losses and file for self-insolvency for defrauding its creditors when the financial statements remain unaudited.
Some questions need to be answered.
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