Union Bank Of India And Ors vs Pks Limited And Ors

Harish Chander Suri, Member (T)

This unnumbered application of 2020 has been filed by the Applicant herein Mr. Narayan Chandra Saha, suspended Director of Corporate Debtor M/s. PKS Limited praying for removal of the Respondent Mr. Kanakabha Ray as Resolution Professional of the Corporate Debtor M/s. PKS Limited for having failed to conduct himself in an independent manner being an erstwhile employee of the Financial Creditor and for taking biased decisions at the behest of the Financial Creditor. Having been satisfied with the grounds of the appeal and the urgency, the application is admitted and listed for hearing today.

The applicant states that an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 being C.P. No. 980 of 2018 had been instituted by the Financial Creditor being Union Bank of India and the said Petition was allowed by an order dated August 8, 2019 of this NCLT Bench and one Mr. Pinaki Sircar was appointed as an Interim Resolution Professional. However, the said Pinaki Sircar didn't wish to continue and the Respondent Mr. Kanakabha Ray was appointed as the Resolution Professional by the Committee of Creditors through a voting percentage of about 68% obviously having regard to his past loyalty and long services rendered to the Financial Creditor. The Respondent/RP, however never mentioned that he was an employee of the Financial Creditor who had voted in favour of his appointment as Resolution Professional of the Corporate Debtor. The Resolution Professional or the Financial Creditor were under an obligation but never disclosed that the Resolution Professional had personal knowledge about the transactions between the Financial Creditor and the Corporate Debtor, which fact got revealed in course of conduct of proceedings subsequently.

It is stated that the said Resolution Professional was an employee of the Financial Creditor for more than 30 years and though retired recently but is still enjoying benefits from the Financial Creditor and at all material time has shown a positive affiliation towards the Financial Creditor and has been acting as a Recovery Agent of the Financial Creditor rather than a Resolution Professional and since his appointment has been apprised of the fact that the Corporate Debtor had faced SARFAESI proceedings from the Financial Creditors and all the secured assets have been attached and sold pursuant to orders passed in such proceedings from time to time and sale proceed appropriated.

It is stated that the Resolution Professional is aware and has also been expressly made aware of the fact that at the time of attachment and taking over possession of the registered office of the Corporate Debtor, the records and documents have been lost and/or misplaced. In spite of the same, and obviously at the instance and directions of the financial creditor, the Resolution Professional has been continuously questioning transactions of the company which are a decade old. On being questioned on his power to question such transactions after a span of eight to ten years, not only has such objection been ignored but the directors of the Corporate Debtor were threatened with legal consequences. In spite thereof documents more than 38 years are being summoned. Failure to produce such documents, for reasons stated above, have prompted an application under 19(2) of the Act, alleging non-cooperation by Corporate Debtor. It is thus clear that the financial creditor alongwith others, is using the office of the Resolution Professional to harass the Corporate Debtor. These coercive orders and/or steps go to show that the Resolution Professional is abusing its powers and/or is doing so at the instance of the creditors. Such apprehensions are substantiated further by the fact that in accordance with the provisions of the Code, the initial Corporate Insolvency Resolution Proceeding period (being 180 days) got over on February 4, 2020 from 8th August, 2019. However, the Resolution Professional having knowledge of the same never took any initiative to propose for extension as if there was no requirement for extension as the Financial Creditor had already taken and sold all the assets and/or properties including the registered office of the Corporate Debtor.

It is further submitted that an application was taken out for seeking exclusion of 70 days period from the Corporate Insolvency Resolution Proceeding period being I. A. No. 330 of 2020 which was dismissed by this Hon'ble Tribunal inter alia directing the Resolution Professional to take out necessary application under Section 12(2) of the Code with the concurrence of the COC. It is stated that if no resolution for extension of the Corporate Insolvency Resolution Proceeding was passed by the Committee of Creditors within the period of the said 180 days, it ought to be deemed that the Corporate Insolvency Resolution Processes period of the Corporate Debtor is over and the said Corporate Debtor is into liquidation. Being aware of the above legal position and the direction of the Tribunal in its order dated February 25, 2020, the Committee of Creditors of the Corporate Debtor is alleged to have held a meeting on March 13, 2020 duly convened by the Resolution Professional and had resolved to file application under Section 12(2) of the Code, 2016 by the Resolution Professional. Surprisingly the order passed by this Tribunal dated February 25, 2020 has been purposely misinterpreted by the Respondent. No reasons for extension of the Corporate Insolvency Resolution Process period of the Corporate Debtor was stated nor decided. It is a relevant consideration in the facts of the present case.

It is stated that on May 19, 2020 a Committee of Creditors meeting was held by the Respondent herein, the applicant by an electronic mail dated 19th May 2020 had inter alia opposed holding of the said meeting as there was no extension of the Corporate Insolvency Resolution Process period of the Corporate Debtor which had expired on February 4, 2020 has been done by this Hon'ble Tribunal as required under Section 12 of the Code, 2016 and therefore the meeting is illegal and/or bad and the Resolution Professional loses his jurisdiction without the Corporate Insolvency Resolution Processes period being extended. The said Resolution Professional in order to harass the Members of Board of Directors (suspended) of the Corporate Debtor is seeking documents which are 12-13 years old and some documents which are about 38 years old and the same is outside the scope of the said Corporate Insolvency Regulation Process or the Code, 2016. All the properties and/or assets of the Corporate Debtor including the registered office of the Corporate Debtor have been sold by the Financial Creditor under SARFAESI proceedings.

It is stated that at all material times, the said Resolution Professional had been intimated and/or had knowledge about Balance-Sheet and the Books of Account of the Corporate Debtor and he had at all material times knew that there are the old stocks of Iron Ore Fines which are lying at Jharkhand are under the custody of the Receiver appointed by the Hon'ble High Court at Calcutta. In spite of having such knowledge, the Resolution Professional has alleged that the Members of Board of Directors (suspended) of the Corporate Debtor are not co-operating with the Resolution Professional.

The Resolution Professional by electronic mail dated February 18, 2020 had ordered the Members of Board of Directors (suspended) of the Corporate Debtor to submit all the audited Balance Sheets and Books of Account of the Corporate Debtor since its inception. It is relevant to mention that the Corporate Debtor was incorporated on July 12, 1982 and therefore seeking for documents for the last 38 years is neither permissible under the Code, nor is viable for the Applicant to give such documents. It is relevant to mention herein that the Resolution Professional in collusion and connivance with the COC member has refused to let in the representative of the Members of Board of Directors (suspended) of the Corporate Debtor to participate in the Committee of Creditors meetings inter alia alleging that the representatives are not allowed to participate.

It is stated that the Corporate Debtor is not doing any business for the last 9 (nine) years. The Financial Creditor in spite of having knowledge is seeking to harass the Members of Board of Directors (suspended) of the Corporate Debtor by appointing his own men and agents as Process Advisors. The Resolution Professional has appointed one Sunil Mohan Acharya and one Tapan Chakraborty as his Process Advisor who are also ex-employees of the Financial Creditor and also are running a Company under the name and style of Intelligent IP Management Solution Private Limited with one Mr. Jainaryan Gupta. The said Resolution Professional and the aforesaid persons being ex- employees of the Financial Creditor have sought to serve for the Financial Creditor than the Corporate Debtor.

Furthermore, it is stated that the Resolution Professional has taken out two applications under Section 19 of the Code of 2016 (filing dated March 11, 2020) and another under section 66 of the Code, 2016 (filing dated March 12, 2020) inter alia making baseless allegations of non- cooperation and siphoning against the Members of Board of Directors (suspended) of the Corporate Debtor. It is quite shocking that there was no report of any auditor when such purported application under section 66 of the Code, 2016 was filed. Moreover, the said purported application was based on some alleged transaction about 7/8 years old and outside the relevant CIRP period which also shows that the Resolution Professional is acting in a biased manner.

During the course of hearing, Ld. Counsel Mr. Jishnu Chaudhary, appearing for the applicant submitted that the R.P. has served the Financial Creditor/Union Bank of India for more than 30 years. He gets pension and got retirement benefits from the said Bank. It is stated that after his retirement, the RP had started an IPE Company with four directors two of whom are also ex-employees of the same bank. According to the learned counsel, the appointment of the RP in this matter is bad merely on this ground, in support whereof, he has filed a recent judgment of Hon'ble Appellate Tribunal.

The learned counsel submitted that the Corporate debtor has no asset, save stock of iron ore which is lying under custody of Receiver appointed by the High Court from 2011 and is now scrap. The stock is fully inventorized by the Receiver. Apart from this, there is no asset of the corporate debtor and corporate debtor has no business for the last nine years. CIRP will have no benefit but RP wants to continue. RP is not even taking active steps in the matter and he has only published Notice Inviting Expression of Interest in February, 2020. The whole exercise of CIRP [contrary to the object of IBC, 2016] is to persecute the suspended board by asking documents spanning over 38 years.

It is argued by the counsel that the RP is ineligible to be appointed since he worked with Union Bank of India for 30 years prior to retirement. RP has appointed three advisors who are de facto RP and do all the work. Two persons, Tapan Chakraborty and Sudhir Mohan Acharya are also ex employees for a substantial time. RP and his two partners are the directors of IPE company. Union Bank of India has appointed the RP using its then 68% stake despite dissent from PNB. RP and his two partners draw substantial retirement benefits and pension form Union Bank of India. Even CA, Jai Narayan Gupta who is filing a power of attorney on behalf of RP is the 4th director of IPE company and another partner of RP. As per the judgment of the Hon'ble NCLAT in State Bank of India Vs. Metanere Limited dated 22nd May, 2020 (supra), it has been held that the RP having long service with the financial creditor and receiving pension benefits from it, would raise a presumption of bias and RP should be removed.

It is finally submitted by the learned counsel that the RP is justifying not taking steps and stating that "however, as per past experience the National Company Law Tribunal's order u/s 19(3) has not been effective since National Company Law Tribunal is, usually, shy in issuing the related punitive order u/s 70 of IBC 2016." Further justification by making scurrilous allegation against the Bench by saying that "Some legal professionals appear before the benches regularly and they earn a face value before the benches. The benches tend to hear them calmly and also rely on their arguments .". It is stated that these are the part of the minutes recorded in note accompanying notice of 7th CoC meeting. It is also prayed that the RP did not approach this Tribunal for extension of the CIRP period, and rather himself extended the time till 18th July, 2020. The learned counsel has thus prayed that the RP should be removed.

The learned counsel for the Financial Creditor submitted that this point raised by the learned counsel for the applicant, has never been raised by him in the past. The learned counsel for the financial creditor candidly admitted that the RP has been an employee of the Financial Creditor/Union Bank of India and has been drawing his pension from the Bank. It is submitted that the RP has been performing his statutory duties very effectively but the suspended board of directors have not been cooperating with him. The learned counsel argued that the Judgment of the NCLAT, referred to above by the learned counsel for the applicant came later and was not in existence when the RP had been appointed in the present matter and thus cannot be made applicable in the present set of circumstances. The learned counsel further submitted that the Applicant has not come with clean hands and is not entitled to be heard in the case on merits.

While hearing the Resolution Professional, the learned RP Mr. Kanakabha Ray opted to make his submissions, himself and not through his Adviser/CA. He was heard at length. In his submissions, the learned RP admitted that he had served the Financial creditor for more than 34 years and was drawing his pension from the Bank. We do not have anything against the RP on this count that he has worked with the bank and has been drawing his pension, which is his right earned by him, as part of his service conditions. What is serious is the admission of the RP that while being in the service of the Financial Creditor/Bank, he had been dealing with the accounts of the Corporate Debtor as a part of his official duties with the Bank. He also admitted that in the 7th COC held on 19th June, 2020, the aforesaid remarks were written by him in a casual way just to convince the members of the COC. But he denied having extended the period of CIRP.

Ld. Counsel Mr. Jishnu Chaudhary argued that since he has handled the accounts of the Corporate Debtor while being in the service of the Bank, he could not be allowed to be appointed as R.P. It is submitted that when a person himself admits that he was in the employment of the Financial Creditor, and the CD has raised an objection and is levelling allegations of bias against him, he should have immediately resigned but since the RP has not done so, we shall consider the point in issue on the basis of the judicial pronouncements placed on record. The learned counsel for the applicant submits that all acts done by the RP being illegal and bad in law, might not be relied upon and be set aside.

During the course of arguments, the RP, when confronted with the unwarranted remarks made in the note accompanying the Minutes of the 7th COC meeting, he admitted and realized his mistake, but submitted that that it was not intentional. We, however, informed him that this Bench did not like the casual way he has been drawing the official notes and it may create trouble for him, as this Bench had taken the said views/comments of the RP in a very serious manner and this may entail further proceedings against him. As he agreed to submit an affidavit within two days, tendering unqualified apologies for these injudicious and unwarranted remarks in the minutes of the 7th CoC meeting we are not extending any further action against him in this regards. At this juncture, Ld. Mr. Jai Narayan Gupta, Pr. C.A. also requested to argue for and on behalf of RP which had to be declined by the Bench since RP, as per his own option had argued for himself and was heard at length. Similarly, the Ld. Counsel for CoC. was also heard at length.

Having heard the parties and having gone through their pleadings placed on record and after considering the Judgments placed on record, we are of the considered view that since admittedly the RP had been in the gainful employment of the Financial Creditor/Union Bank of India for 34 years, and had been dealing with the accounts of the Corporate Debtor which facts were not known to the Corporate Debtor till recently, the bias attributed to the RP need not be proved in so many words. If the Corporate Debtor has noticed it from the actions of the RP, it can be presumed that the Corporate Debtor has suffered it at the hands of the RP. So this is a fit case, for replacement of RP as prayed for and deserve consideration. However we make it clear that the replaced RP is no way disqualified nor found ineligible for appointment as an insolvency professional.

In these circumstances, and on the strength of the observations of the Hon'ble Appellate Tribunal in the above cited decision, we have no hesitation in granting the prayer of the applicant, upon the following directions:-

i) The CoC is hereby directed to replace the Resolution Professional Mr. Kanakabha Ray, with a new Insolvency Professional who is eligible for appointment as per Regulation 3(1) of the CIRP Regulations, 2016 within one week of the receipt of the email copy of this order.

ii) The CoC is directed to submit e copies of written consent of the proposed resolution professional and the newly proposed RP shall continue the CIRP in continuation of the process continued by the outgoing RP subject to the approval of the Adjudicating Authority.

iii) The outgoing RP is directed to handover all the records to the incoming RP within one week of the proposal of the new RP by the CoC.

iv) The CoC is directed to clear all the dues inclusive of fees and cost if any spent by the RP towards resolution cost within two weeks.

v) The unnumbered I.A. of 2020 in C.P.(IB) No. 980/KB/2018 is disposed of accordingly. No order as to costs.

Registry is directed to serve copies of the order forthwith to all the parties as well as to the IBBI, by way of e.mail.