Clipped from: https://economictimes.indiatimes.com/prime/corporate-governance/tale-of-misconduct-indifference-why-aggrieved-homebuyers-went-against-one-resolution-professional/primearticleshow/92685605.cms
SynopsisAfter due investigation, Insolvency and Bankruptcy Board of India (IBBI) suspended resolution professional Yogesh Kumar Gupta for three years. Already waiting to get their homes, thousands of homebuyers filed a complaint against Gupta alleging misconduct, indicating that he was not working at the behest of the homebuyers. IBBI took action but Gupta says he did his job fine. Who’s wrong?
Yogesh Kumar Gupta, a resolution professional (RP), was suspended for three years on July 1, 2022.
The investigation had concluded that Gupta was in contravention of the insolvency and bankruptcy law and violated many provisions of the code while discharging his duties as an RP of the Noida-based real estate developer’s housing project.
Interestingly, this is not a one-off incident. There have been other complaints against him, too. In two of his other assignments, homebuyers of other projects have also raised issues about him intimidating them and turning a deaf ear to their concerns.
This is an addition to homebuyers’ bag of worries. For many unlucky homebuyers, getting a dream home on time, despite giving 90% payment, has become a cumbersome task. More and more real-estate developers from NCR and other areas in India are filing for bankruptcies. This has slowed down the growth of real estate in India, once a sunshine sector. If dealing with long insolvency processes and tribunals wasn’t enough, misconduct by resolution professional — a key official in the process — doesn’t translate into any solution for homebuyers’ problems.
Nevertheless, homebuyers of Kamrup Housing Projects feel that the IBBI order is a welcome move and will give them some respite. On the other hand, Gupta feels that the disciplinary action against him is very harsh and inappropriate.
So, who’s right and who’s wrong?
The problem at Kamrup Housing Projects
Kamrup Housing Projects, a Noida-based real estate company, had launched a residential project named Durva Greens in Greater Noida and started taking the bookings from July 2012.
The project was supposed to be completed in June 2016. However, the construction of the housing project was nowhere near completion by 2019.
This resulted in multiple homebuyers referring the company to the insolvency court in February 2019 and their plea was admitted by the NCLT.
Gupta was appointed the RP on June 13, 2019.
In September 2021, homebuyers of Kamrup Housing Projects filed a complaint with the IBBI, levelling multiple allegations against Gupta and accusing him of professional misconduct.
The IBBI, taking cognisance of the complaint, appointed an inspecting authority to look at the complaints against Gupta. The draft inspection report was then shared with him in February 2022, to which he responded.
Thereafter, the inspecting authority submitted the final inspection report and on the basis of that IBBI issued a show-cause notice to Gupta on May 9, 2022. Gupta made his submissions in response to the show-cause notice on June 8, 2022. He was then granted another opportunity for a personal hearing on June 22, 2022.
The contraventions and submissions
The first and foremost violation highlighted in the order is that Gupta tried to update the list of creditors by removing those homebuyers who have not contributed towards the insolvency resolution process costs.
Gupta, in his submission to IBBI’s inspecting authority, said that the insolvency resolution process costs play a very significant role in the whole process of corporate insolvency resolution process (CIRP) to keep the corporate debtor as a going concern and thus, the members of Committee of Creditors (CoC) are required to contribute towards the cost for the effective implementation of the proceedings.
“My intention was to keep the best interest of all stakeholders by maximising the value of the corporate debtor. The removal of the names of the defaulting creditors was done so that the homebuyers could make payment of the CIRP cost,” Gupta tells ET Prime, adding, “I have cited an NCLT case in my submission, which specifies that if creditors fail to contribute to the CIRP cost, then RP can remove such creditors.”
However, the disciplinary committee headed by Ravi Mittal, the chairman of IBBI, found it a blatant violation of the provisions of the Insolvency and Bankruptcy Code (IBC), as it does not envisage removal of any CoC member on non-payment of CIRP costs.
Gupta was also accused of poor inventory management. It was observed that during the tenure of the erstwhile RP, construction material worth INR1.58 crore was lying at the project site. However, Gupta didn’t create a record of the quantum of construction material available at the site.
Gupta submitted that the erstwhile RP did not provide any physical handover of the inventory, nor did he provide any record with respect to the exact quantity and value of the inventory lying at the construction site.
The committee accepted the submission of Gupta and did not find any violation in this regard.
It was also observed that Gupta delayed making mandatory disclosures regarding appointment of advocates and a forensic auditor. As per the IBBI regulations, the disclosures are to be made within three days of the appointment of that professional.
As per Gupta’s submission, there were technical issues and there were delays from the appointed professionals in sending relevant details, which resulted in the delay. He further stated that the delay has not caused any loss to any person.
The committee accepted his submissions.
“The current order against Gupta has come as a breather to us. As per the order, the CoCs of corporate debtors where Gupta has been appointed, can decide to replace him. If this had not been the case, it would have been a long wait for us to get some action against him. Like we have seen in the case of Kamrup Housing Projects.”
— Indrani Chaudhuri, homebuyer, Logix City Developers
Further, Gupta allegedly didn’t take any steps to recover monies advanced by the corporate debtor. It was observed that as per the financial statement for 2016-17, Kamrup Housing Projects had advanced long-term loans and advances worth INR2.13 crore and short-term loans and advances of INR5.21 crore.
In his submission, Gupta highlighted the valuation report submitted by the registered valuer, Pradeep Kumar, which states that the information regarding the short-term loans and advances were sought from the corporate debtor but no details of the same have been made available.
Thus, in the absence of any data, it is assumed that the loans and advances made are not recoverable and hence, its value is taken as zero.
He further highlighted that during the forensic audit, the entries relating to such loans and advances were found to be fictitious. The committee found his submissions acceptable.
In another violation, Gupta was accused of incurring some expenses on construction work at the Greater Noida site, without the approval of the CoC.
Further, when the CoC questioned him about the increased expenditure on construction, Gupta stated that he is not required to obtain approval of CoC as it is a going concern.
Gupta submitted that the RP is duty-bound to make all possible efforts to run the corporate debtor as a going concern as per Section 20 of IBC. All the expenses were incurred in ordinary course of business and any such expenses do not require any approval of the members of the CoC.
However, the said information was placed before the CoC members during the meeting on several occasions and the same was in the knowledge of the members of CoC.
The committee observed that Gupta’s contention cannot be sustained. If his stand is to be accepted, it would lead to RPs spending arbitrary amounts in the name of going-concern expenses. The stand taken by him is not only against the provision of regulation 34 of the CIRP regulations, but also against the spirit of the code.
The disciplinary committee found Gupta guilty of violating CIRP regulations in two out of five counts and thus suspended his registration for three years. It further stated that Gupta is not allowed to take any new assignments during the suspension period, however, the CoCs of all the corporate debtors in which Gupta is providing his services, if any, may decide whether to continue his services or not.
The order also mentioned that the CoC of Kamrup Housing Projects may consider getting an audit of the increased construction cost during Gupta’s tenure.
Gupta feels that the order passed against him is unjust and he will be appealing against it by filing a writ petition with the high court.
Magan Aggarwal, president of the homebuyers’ association, Kamrup Housing Projects says, “We are happy with this order as our concerns were heard and disciplinary action has been taken against the professional misconduct of the RP. However, there were many more glaring violations which did not find a mention in the order passed by the committee.”
More than what meets the eye
Apart from the violations considered by the disciplinary committee, the homebuyers of Kamrup Housing Projects feel there are many more incidents where Gupta tried to mislead the homebuyers and manipulate the CIRP proceedings. Several homebuyers ET Prime spoke with pointed out many such instances.
Gupta published a list of cancelled units in the case of Kamrup Housing Projects. As per the Rera Act, if a buyer wishes to terminate or cancel the flat, the developer is required to return the monies paid by the buyer.
But neither their names were removed from the list of creditors nor the monies refunded to them. Thus, these units cannot be legally treated as cancelled and allotted to another homebuyer.
The list of creditors on September 24, 2019, revealed that some flats in the housing project have been allotted to two homebuyers. The complaint highlighted four such instances and in all such cases, both sets of homebuyers are shown as creditors in the list. Gupta has not taken any appropriate action on this.
One of the grieving homebuyers has now filed an application before the NCLT court in this regard, which has created scope for complexities and consequential delays in the resolution process.
Moreover, in the resolution plan approval proceedings, currently before the NCLT court, the Greater Noida Development Authority (GNDA) had filed an application. Till the time of filing of the complaint letter, Gupta had not submitted his reply to this application even though more than 11 months had passed.
This fact was also pointed out to the court by the advocate representing the GNDA and incurred serious observations by the court. Such a serious lapse has delayed the approval proceedings.
Gupta also allegedly left the construction work, which was duly approved by the CoC, in the middle and cancelled the work orders without assigning any reason to the homebuyers or the project-management consultant.
He never reported the status of the construction to the project-management consultant appointed by the CoC. No explanation was given to the CoC. This has led to further delays in the resolution process as well as the completion of the project.
“Since Gupta took over as the RP, there were several letters sent to him by the homebuyers regarding their grievances. Not even a single letter received a response,” Aggarwal says, adding, “There were letters of request submitted to Gupta by 42 members of the CoC carrying a voting share of 45.70% to hold a CoC meeting within one week to discuss an agenda mentioned in the letter, but he did not pay heed to our requests.”
The law mandates holding a CoC meeting if a request for such a meeting is put forth to the RP by CoC members holding at least 33% voting rights, Aggarwal says.
Aggarwal also highlights a very peculiar incident, a fairly recent one. On June 3, 2022, a physical hearing was scheduled at the principal bench, NCLT, Delhi. At the time of the hearing, Gupta placed two advocates to represent him at the same time in the tribunal.
Advocate Vinod Khanna, who was appearing regularly on behalf of Gupta, whose appointment was approved by the CoC, appeared through video conferencing and asked for a passover due to his inability to reach the court personally. While at the same time, another advocate named GP Madaan appeared personally before the tribunal.
Due to this confusion regarding who is actually representing Gupta, the court asked for him to clarify, but he was not there in the courtroom to clarify the confusion. However, he was present at the court campus. The matter was adjourned to a later date but could have been easily heard on the same date.
More allegations in other assignments
Gupta is also an interim professional for the insolvency proceedings against Logix City Developers, another Noida-based realtor that was admitted for insolvency on March 22, 2022.
There too, Gupta has been facing several allegations of misconduct and the homebuyers feel that he is not acting in the best interest of the homebuyers.
Some of the homebuyers lodged an official complaint to the IBBI against Gupta on April 29, 2022.
“I am aware that there has been an official complaint in the case of Logix City Developers for which I have given the reply to IBBI, and I haven’t heard from them on this, as on date,” Gupta tells ET Prime.
Gupta, as the interim resolution professional (IRP), issued a notice along with the agenda for convening the first CoC meeting on April 21, 2022. Immediately on the receipt of the notice, around 496 homebuyers, with a voting share of over 34%, sent e-mails to Gupta to place an agenda to replace the existing IRP.
The homebuyers also submitted a draft resolution with particulars of the proposed resolution. However, Gupta ignored homebuyers’ requests on frivolous grounds. He alleged that the homebuyers’ association has influenced homebuyers and such e-mails are manipulated.
“Such action by Gupta as the IRP of not placing an agenda is a brazen violation of Regulation 18(3) of CIRP Regulations,” Rakesh Jain, a homebuyer at Logix City Developers tells ET Prime.
The homebuyers of Logix City Developers also alleged that Gupta has not properly verified the claims and there is improper collation of claims by him, which is compromising the interest of homebuyers.
Jain highlights that the summary of claim lists dated April 5, 2022, published by Gupta shows different figures at different portals.
“The current order against Gupta has come as a breather to us. As per the order, the CoCs of corporate debtors where Gupta has been appointed, can decide to replace him. If this had not been the case, it would have been a long wait for us to get some action against him. Like we have seen in the case of Kamrup Housing Projects,” Indrani Chaudhuri, a homebuyer of Logix City Developers says.
Similar to the Kamrup Housing Projects and Logix City Developers, the homebuyers of Earth Iconic Infrastructures also had similar issues with Gupta.
Gupta was appointed the IRP of Earth Iconic on April 20, 2018, and later appointed as the RP of the corporate debtor. Gupta was replaced by a new RP a year later, with almost 80% votes in favour of his replacement.
Three homebuyers of Earth Iconic Infrastructures tell ET Prime that there were several issues of misconduct by Gupta which indicated that he was not working at the behest of the homebuyers.
“In the resolution process of Earth Iconic Infrastructures, there was only one resolution applicant. We were getting a feeling that Gupta was putting extra efforts to get that resolution plan passed. He called for an informal meeting of CoC members and invited the promoters of the resolution applicant to convince us to vote in the favour of the plan. We were also not given enough time to study the plan. It seemed like he had some ulterior motive in getting this plan passed,” says Shashank Raghav, a homebuyer in Earth Iconic Infrastructures.
The CoC members, however, went with their gut feeling and voted against the plan. And later also replaced Gupta with a new resolution professional.
“In a separate case, there was a land parcel owned by Earth Iconic Infrastructures. Gupta got a valuation done of the said land parcel and it was valued at INR70 crore. However, when the new RP came in, a fresh valuation was initiated, and the same land got a valuation of INR260 crore, over 3x more than the previous valuation figure,” Raghav says.
Gupta denies any wrongdoing on his part in the case of Earth Iconic Infrastructures.
Responding to ET Prime on this, Gupta says, “I was trying hard to get a resolution for the homebuyers, but they didn’t let that happen. It is difficult to please everyone. You can see it yourself, the corporate debtor is now under liquidation, which is the last resort for the creditors. The informal meeting was organised for the CoC members to explain the resolution plan. If they would have accepted the resolution plan, they would have been sitting in their homes today.”
“Regarding the land valuation, there was a valuation gap, but I do believe that valuation of INR70 crore was something which can be fetched by that land. You can see it yourself that with a valuation of INR260 crore, nothing could have been recovered in the auction,” he adds.
The charges against Gupta are serious. He has already been proven guilty for two violations in one of his assignments and ended up losing his registration for three years. Looking at the other two cases and the allegations against him. Does it call for a deeper investigation?
Malafide intention or an honest mistake?
In case of any violation by any resolution professional, the disciplinary committee of IBBI can issue a warning, impose a penalty or suspend or cancel the registration of an RP.
“The quantum of penalty can be decided by the disciplinary committee. The committee can either impose a monetary penalty of three times the amount of losses incurred or three times the amount of unlawful gains made by the RP (whichever is higher). In the event, where such loss or unlawful gain is not quantifiable, the penalty cannot exceed a crore. Alternatively, the committee can suspend or cancel the licence of the RP, the number of years of suspension is decided by the committee,” says Shivek Sharma, associate at Pioneer Legal, a Mumbai-based law firm.
Like the homebuyers, Gupta too felt grief and blamed the system. He feels that the order against him is too harsh for unintentional and minor violations if any.
Gupta also highlights the fact that there is a lack of an appellate authority to challenge IBBI’s issued orders. There is no recourse in the existing system of IBBI. Only option left is to go through the writ mechanism of the high court.
He further thinks that the entire procedure of taking disciplinary action needs an overhaul.
“In my case, there was only one person from the disciplinary committee in the hearing. At any regulatory authority, there are more people in the committee to hear the submissions and make a sound judgement,” Gupta says.
“There have been no losses incurred to any stakeholder and there was no malafide intention from my side and violations in my case are very minor. There can’t be any case where these kinds of small violations won’t be there. Unless any malafide intention is established, there should not be such harsh actions against the RPs,” he adds.
Gupta also refutes all allegations made against him by the homebuyers of Logix City Developers as well as Earth Iconic Infrastructures.
“These are the cases of homebuyers. You will always find a few unhappy homebuyers. You cannot please everybody,” Gupta reiterates.
The homebuyers, on the other hand, think there needs to be a deeper investigation into the matter.
Rakesh Jain, a Logix City homebuyer says, “Gupta’s conduct calls for a deeper investigation. Kamrup Housing Projects is not the only case. We at Logic City Developers have also filed a complaint against him. There were issues against him even in other assignment of his. All are blatant violations done with malicious intent. If you look at his track record, there hasn’t been any successful resolution so far.”
Aggarwal feels the order passed by IBBI is very mild, “Violations made by him and his misconduct needed a stronger judgement. It’s like, charging someone for a theft when he has convicted a murder.”
“The homebuyer community is already suffering a lot and such instances of RP manipulating the proceedings makes it even worse,” says Choudhuri.
(Graphic by Sadhana Saxena)
(Originally published on Jul 6, 2022, 12:22 AM IST)
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