CBI arrests Insolvency Resolution Professional appointed by NCLT By FCS Shweta Gupta


RP’s Arrest Creates Ripples

The arrest of Arun Mohan, an Insolvency Resolution Professional (IRP), appointed by the National Company Law Tribunal (NCLT), was covered widely in the Indian media and created ripples in the business world.

It was so widely reported because it is the first of its kind of a case which is related to graft by any NCLT appointed IRP, since the implementation of the Insolvency and Bankruptcy Code, 2016.

The Case

The premier investigating agency of India, Central Bureau of Investigation (CBI) on January 13, 2020, took into custody Arun Mohan, the IRP, and his friend Paresh Kumar.

Arun Mohan was appointed as the IRP of FRTech, Hyderabad, on November 14, 2019, by the NCLT Mumbai, after the company became insolvent under IBC, 2016. Whereas, Paresh Kumar is Arun Mohan’s friend and also the CEO of New Delhi-based Multimax Asset Reconstruction Pvt Ltd.

The complainants, Nishant Bulgaria and his wife have filed an FIR in which it is alleged that the duo has taken a bribe of Rs 3.5 lakh from them.

In their complaint to the CBI, Nishant Bugalia said that he and his wife were appointed as consultants by FRTech, Hyderabad. In between March and November 2017, primarily through emails, they had raised an invoice of Rs 18 lakh towards the company.

The FIR further explains that the couple received Rs 15.20 lakh against the invoice from the said company but a sum of Rs 2.8 lakh remained outstanding. And thus, in order to recover the outstanding amount they raised the issue with Arun Mohan, the IRP of FRTech.

The FIR says that the IRP, Mohan asked for more details connected to Nishant Bugalia’s wife’s appointment, work accomplished, details of payments, etc. from the complainant, which he clarifies were provided by him on time. 

The complainant further alleges in his FIR that on December 30, Arun Mohan called him and said a criminal case will be filed against his wife. Mohan then asked him to meet at Paresh Kumar's office in Laxmi Nagar area.

The FIR reads, "During the meeting, Mohan allegedly told the complainant that in order to hush up the criminal proceedings he will have to pay Rs 5 lakh as a bribe. Mohan's friend Kumar, who was present during the meeting, said he would be in touch regarding the alleged payment."

Elaborating on the same incident, the FIR alleges, "He (Mohan) assured the complainant that he would hush up the case in the court if the payment is made to him. He said that he will send notice to the complainant in this regard, but he will also help in getting a suitable reply prepared."

In this meeting Mohan's friend, Kumar was also present and he told the complainant that he would be in touch regarding the alleged payment.

Nishant Bugalia, the complainant, who had recorded all conversations and phone calls exchanged between Mohan, Kumar and him, submitted all of them as evidence.

After verifying the claims of the plaintiff the CBI conducted a clandestine operation where negotiation with Kumar on the amount was being done. Kumar finally agreed to bring down the amount of bribe to Rs 4 lakh.

After the FIR was registered the investigating agency swung to action and arrested both Kumar and Mohan.

"Such blatant misuse of power by an Insolvency Resolution Professional is unheard of and most astonishing! Maintaining integrity is of utmost importance for an IRP because on his shoulder lies the responsibility of the entire insolvency procedure!"
- Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.)

Insolvency Resolution Professional & IBC, 2016

With this incident once again the role of an Insolvency Resolution Professional (IRP) has come to the fore. The Insolvency and Bankruptcy Code (IBC), 2016 has been enforced with the objective of time-bound insolvency resolution and maximization of assets. In order to ensure that the process is streamlined and made smoother for an effective and quick resolution, IBC has provision for appointment of an Insolvency Resolution Professional (IRP).

#1. Who is a Resolution Professional (IRP)?

Insolvency resolution professionals are licensed professionals, who are registered with the Insolvency and Bankruptcy Board of India and are enrolled with an insolvency professional agency.

This professional i.e. IRP has been granted a very pivotal role to play in the entire insolvency process. He/she is appointed to manage the resolution process and as a liquidator to conduct liquidation of a corporate debtor.

Appointed by the Adjudicating Authority (NCLT) he or she is bestowed with the power to effectively run and manage the assets and working of the insolvent entity at all times during the process of resolution.

#2. How is Interim Resolution Professional appointed?

The IBC, 2016 lays down that the Adjudicating Authority shall appoint an IRP within fourteen days from the insolvency commencement date.

The Code also has provides that the Committee of Creditors (CoC) can avail one of the 2 options:

  • Reappoint the Interim Resolution Professional as the Resolution Professional for the corporate debtor or

  • Choose a different Insolvency Professional to be appointed as the Resolution Professional.

In case the CoC decides in favour of the interim resolution professional and wants him to continue as the resolution professional, then it shall have to communicate its decision to the National Company Law Tribunal (NCLT) which is the Adjudicating Authority.

#3. What disclosures need to be made by the IRP?

As a lot of rides on the Resolution Professional, IBC has mandated some stringent conditions that they have to fulfil.

The Board vide its Circular No. IP/005/2018 dated 16th January 2018 has made it mandatory for the IRP or the RP, to disclose the following to the agency with which he is enrolled:

  1. Relationship with the corporate debtor (after appointment)

  2. Relationship with the Committee of creditors (within a period of three days from the constitution of the CoC)

  3. Relationship with any professional(s) appointed by him (within a period of three days from the date of the appointment)

  4. Relationship with the interim finance provider (within three days of the agreement with the interim finance provider)

  5. Relationship with the prospective resolution applicant (s) (within three days of supply of the information memorandum to the prospective resolution applicant) 

#4. What is the role of an Insolvency Resolution Professional?

The IBC bestows massive responsibility on the IRP and it would not be an exaggeration to say that he is the most important pillar in the entire process.

His responsibilities are many and few important ones among them are:

(1) Appointment of Valuers – He shall appoint two valuers to determine the fair value and the liquidation value of the corporate debtor within seven days of his appointment.

(2) Preparation of Information Memorandum: He is liable to submit the information memorandum in the electronic form to every member of the committee. For this he has two weeks from the date of his appointment, but not later than fifty-fourth day from the insolvency commencement date, whichever is earlier.

(3) Invite prospective Resolution Applicant: A crucial responsibility of IRP is to invite the prospective resolution applicants to submit the resolution plan. He shall publish brief particulars of the invitation for expression of interest in Form G of the Schedule at the earliest and not later than seventy-fifth day from the insolvency commencement date.

(4) Due Diligence: To satisfy that the prospective resolution applicant fulfils all criteria, the RP shall conduct due diligence based on the material on record.

(5) Preparation of Provisional List of Resolution Applicants: Within ten days of the last date for submission of expression of interest to the committee, the RP shall issue a provisional list of eligible prospective resolution applicants.

(6) Request for Resolution Plan: Within five days of the date of issue of the provisional list the RP shall issue the information memorandum, evaluation matrix and a request for resolution plans.

(7) Submission to the Committee of Creditors: The RP shall submit to the CoC all the resolution plans which comply with the requirements and regulations of the Code.

(8) Submission of approved Resolution Plan: At least fifteen days before the maximum period for completion of the corporate insolvency resolution process, the RP must submit the resolution plan approved by the committee to the Adjudicating Authority.

Conclusion

Insolvency Resolution Professional with so many responsibilities has to be a person who is not only knowledgeable but also honest, upright, ethical, righteous and impartial. If the integrity of the Insolvency Resolution Professional is questionable then it will adversely impact the entire process and hurt the stakeholders.

The recent bribery case which saw the arrest of Arun Mohan, is the first such case and hopefully, there will not be many; but if this becomes a common occurrence, then the Board will have to work out a stringent screening procedure for selection of Resolution Professionals.

-Shweta Gupta, Founder and CEO, MUDS

Click here to read the disclaimer


Write a Comment