Instances where IP’s should be acquainted about the non-compliances of IBC provision

S.no.

Issues

Applicable Provisions

Analysis and Opinion

1.

Circulation of Incorrect Minutes:

At the time of meeting, the Sole COC member didn’t vote, and sought 2 days time for voting. However, the Sole COC member failed to vote within 2 days. After that, the RP has circulated the minutes approving all the resolutions, as it is mandatory to circulate within 48 hours under the law.

Later, the Sole COC member dissented from the said resolution. And after that, the RP circulated the revised Minutes.

U/s 208(2)(a) and (e) of IB Code.

Regulation 25(3) and 25(5)(b) of CIRP Regulation.

Regulation 7(2)(a) and (h) of IP Regulation

Clauses 1,2,5,12, 14 and 16 of the Code of Conduct

If there was no confirmation on the resolution of agenda item(s) from the CoC, IRP/RP should not have treated the said resolutions as passed. The Code and Regulations framed thereunder do not authorize IRP/RP to treat the resolutions passed if no confirmation on voting is received from members of CoC

Though regulations 24(7) of the CIRP regulations mandate that the IRP/RP shall circulate the minutes of the meeting to all participants by electronic means within forty-eight hours of the said meeting, it does not mean that the IRP/RP shall exercise the power vested with the CoC and declare the agenda approved if no confirmation from CoC is received with respect to resolutions placed in the CoC meeting.

In such a scenario, the IRP/RP should have mentioned the correct facts in the minutes circulated instead of recording and circulating the minutes as resolutions passed.

2.

Non-filing of Extension Application:

In this case, after granting extension of time by the NCLT, the Liquidation Period was extended upto 01.04.2022.

However, an application for seeking further extension beyond 01.04.2022 was filed on 30.09.2022, after delay of almost 6 months.

And no condonation of delay prayer sought or application was filed.

U/s 208(2)(a) of IB Code.

Reg 44(2) of Liquidation Regulation.

Reg 7(2)(h) of IP Regulation

Clause 13 & 14 of Code of Conduct

The defense taken by the RP for delayed filing was that the documents was handed over to the Advocate and the Advocate did not file it and the RP failed to follow up with the Advocate.

Merely handing over the requisite document for filing the extension application to the Advocate cannot be said a mere bona-fide omission on the part of the Liquidator.

Therefore, in our opinion, always when there is delay in filing application, either mention one prayer in the application for condonation of delay or file separate application for condonation of delay. And always follow up with the Professionals.

3.

Inclusion of Claims of Promoters without Verification:

Promoters filed their claim in Form CA along with Letter of Allotment, promissory note, wherein, payment of interest @ 24% p.a. on the consideration amount of the flats in case of delay of possession.

The RP admitted claims from landowners on the basis of allotment of constructed area and not on the basis of any financial debt raised from them and not even checked any books of accounts. Further, the RP sought some legal opinion and based on that legal opinion, the RP treated the promoters as Home Buyer and granted voting %.

Accordingly, reduced the voting % of Bank in the CoC from 98.37% to 19.9%.

Section 21(2) and 25(2)(3) of IB Code.

Reg. 13(1) of CIRP Regulation

Clause 1, 3 and 5 of Code of Conduct.

The duties of an IRP/RP have been laid down in Sections 18 and 25 of the Code, w,r,t receipt & collate of Claims, and maintain an updated list of all the claims of the creditors.

Further, landowners, who have entered into a joint development agreement with a CD, should not be considered as FC due to the collaborative nature of their relationship and the intent of maintaining an independent composition of the Committee of Creditors.

The relationship between the landowner and the CD, in the context of a joint development agreement, is fundamentally different from a typical debtor-creditor relationship. It is more of a partnership or collaboration, where the landowner brings the land as a resource and the CD brings construction expertise. There is no financial loan or credit extended from the landowner to the CD, hence, labelling them as 'financial creditors' is fundamentally inconsistent with the nature of their relationship and the specific terminology of the IBC.

As per section 5(8) of the Code, a debt is deemed to be a financial debt if it involves the disbursement against the time value of money. In this case, the landowner does not disburse any amount to the CD against the time value of money.

In CIRP of real estate project, as a part of ordinary prudence, IRP/RP must examine RERA registration details and all the relevant documents in this regard. after being appointed as IRP/RP. IRP/RP has to check Form B, this is an important document with respect to RERA registration of Real Estate Project, which is declaration by promoter. The landowners on affidavit stated that they are co-promoters and accordingly the same are uploaded in RERA website.

4.

Reduction in Notice Period for the CoC Meeting:

In this case, the NCLT vide its order directed the RP to hold a COC meeting within 7 days from the date of Order. During the hearing, the RP was appeared and therefore, did not aware about that.

The bank, who has filed that application for seeking direction, intentionally informed the RP on the last day, for convening of COC meeting.

In this interesting scenario, the RP took a view that

1. If he calls a meeting after minimum 48 hours of the notice, then its violation of NCLT order;
2. If he calls a meeting within 7 days as per NCLT order by giving less than 48 hours’ notice.

Therefore, he chooses second option, and sent notice with an agenda/option to the CoC to ratify the short notice or to allow him to call a meeting again, with proper notice of a minimum of 48 hours.

The CoC then chose to ratify the short notice, instead of convening the meeting again.

Reg. 19 of CIRP Regulation.

Clause 13, 14 and 15 of Code of Conduct.

In this case, the Discipline Committee held liable the RP for contravention of IB provisions.

In our Opinion, the IRP/RP should be present when such direction is passed or matter is listed before the NCLT. Or send authorized person to watch the matter.

Further, even when the IRP/RP is not aware about the outcome of NCLT order, same as in this case, the IRP/RP should comply the IB laws and immediately or at the time of filing progress report, file one application for condonation of delay for late holding of COC meeting.

In this case, the reason was genuine, and therefore, IRP/RP should approach the NCLT for condonation instead of violation of IB laws.

5.

Delay or Non-submission of Relationship Disclosure or CIRP-4 Form:

In this case, the portal of IBBI was not available or was not working due to technical reason. Therefore, the IRP/RP did not file the requite disclosure to IBBI online. Because of that, the IBBI issued show cause notice to the IRP/RP.

U/s 208(2)(e) of IB Code.

Reg. 7(2)(h) of IP Regulation.

Clause 8B and 19 of Code of Conduct.

In such type of case, the IRP/RP should be vigilant.

In this case, the IRP/RP, due to technical glitches of IBBI website, duly emailed the requited disclosures and return to the Director of IBBI as well as other concerned person within the stipulated time period.

Therefore, the Disciplinary Committee couldn’t take any action against the IRP/RP.

6.

Non-verification of Claim of Home Buyers, with the Bank Agreement:

In this case, as per the agreement executed between the lender bank and the Company, it was mentioned that the consideration of Home Buyers amount should be routed through the escrow account. But the amount of the Home Buyer was not routed through the escrow account, but received through other banking channel.

The IRP/RP didn’t checked that agreement and admitted the claim amount on the basis of online payment proves.

U/s 25(2)(e) of IB Code.

Reg. 13(1) of CIRP Regulation

Clause 1 and 14 of the Code of Conduct.

The IRP/RP has cross verified the claim amount with the book of account of the Company, but did not check the loan agreement, wherein, the clause was mentioned that amount was routed through escrow account.

IRP/RP took a view that he is not been required to check whether or not the proceeds received from Home Buyers are routed through the escrow account.

The Disciplinary Committee not agreed with the view of RP and held liable for contravention of IB provisions.

In my personal opinion, the stand of IBBI Disciplinary Committee was not correct. Because, the Home Buyer are not aware about the legal agreement executed between the Company and the Bank, also not aware about the legal terminology, therefore, the online payment made to the Company should be considered at the time of verification of claim.