Resolution Professional acted in Good faith as per the Decision approved by CoC: IBBI Disciplinary Committee quashes Notice for Misconduct [Read Order]

Resolution Professional - Good faith - CoC - IBBI Disciplinary Committee - Notice - Misconduct - Taxscan

The Insolvency And Bankruptcy Board of India (IBBI) Disciplinary Committee (DC) has held that Resolution Professional acted in good faith as per the decision approved by CoC and quashes notice for misconduct.

In the matter of Orchid Pharma Ltd., the corporate Debtor (CD), Mr. Rajasekaran was appointed as an interim resolution professional (IRP) for the corporate insolvency resolution process (CIRP), which admitted an application for CIRP under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code). Pursuant to the order Mr. Sripatham Venkatasubramainan Ramkumar was appointed as the Resolution Professional (RP).

The minutes of the 8th CoC meeting shows that Mr. Sripatham Venkatasubramainan Ramkumar received approval from the CoC for insurance cover for himself. Thereafter, the minutes of the 9th CoC meeting reflect that the terms and conditions of insurance policy for sum assured USD 5 mn presented by Mr. Ramkumar before the CoC stated the beneficiaries to be insolvency professional and the insolvency professional entity. However, the extract of the insurance policy from ICICI Lombard General Insurance states that insurance was obtained for Ernst & Young LLP, Ernst & Young Restructuring LLP and the IP. It was seen that Mr. Ramkumar presented to CoC that the beneficiaries of the insurance will be insolvency professional entity i.e. Ernst & Young Restructuring LLP and he himself. However, by obtaining insurance for Ernst & Young LLP in addition to himself and the insolvency professional entity i.e. Ernst & Young Restructuring LLP, Mr. Ramkumar mispresented / concealed the facts to unduly benefit the said entity. The Board was of prima facie view that Mr. Sripatham Venkatasubramainan Ramkumar contravened section 208(2)(a) and (e) of the Code, regulation 7(2)(a) and (h) of the IP Regulations, clauses 1, 2 and 12 of the Code of Conduct.

The IBBI, in exercise of its powers under section 218 of the Code, on having reasonable grounds to believe that, Mr. Sripatham Venkatasubramainan Ramkumar contravened provisions of the Code, Regulations and Circulars issued SCN and referred the SCN, response of Mr. Sripatham Venkatasubramainan Ramkumar to the SCN and other material available on record to the Disciplinary Committee (DC) for disposal of the SCN in accordance with the Code and Regulations made thereunder.

Mr. Ramkumar submitted that CD was engaged in the pharmaceutical business. The products were exported to regulated markets i.e., US, Europe, Japan, etc. and the laws related to compliance are stringent in these countries. He submitted that he was reliant on the systems and processes set in by the CD and any inadvertent error in manufacturing would have led to claims that would have been substantial in nature as the products supplied were life savings drugs and would have threatened the going concern status of the CD. Therefore, the risk involved was substantial due to the inherent nature of the claims, which could arise upon him/ his support team and the CD. Therefore, it was imperative that he and his support system had insurance protection. Mr. Ramkumar also submitted that at the time of admission of CIRP, the CD did not have any marketing and procurement heads (vital positions for the smooth functioning of CD) and the CoC did not approve new recruitments to fill these positions. Therefore, he and his team had to take up the responsibility of these positions as well.

The disciplinary committee observed that since the RP and his team were involved in the day to day working of the CD and also filing documents on behalf of the CD, the liability and possibility of being involved in litigation would increase especially, with the stringent regulatory regime that existed in USA, Europe, Japan etc. with whom the CD was doing business. It was in this backdrop that the RP placed the proposal before the CoC to obtain the insurance policy for protection from litigation that may arise from the duties discharged by the RP and his team on behalf of the CD.

The disciplinary committee further observed that the submission of Mr. Ramkumar that during his tenure, the financial status of the CD improved. The CD was able to give two increments to its employees and created fixed deposit, to the tune of Rs. 660 crores, when prior to insolvency proceedings the CD was making losses. The DC also notes that the insurance cover given by the insurance provider was based on the risk factor and not the beneficiary of the cover. The DC observes that Mr. Sripatham Venkatasubramainan Ramkumar acted in good faith and for the benefit of the CD, since if any legal issue arose, then it would have affected the financial status as well as the goodwill of the CD, having a ripple effect on its reputation in the market. Therefore, the act of the RP was for the greater good of the CD also. It was a business decision for the protection of the interest of CD as well as that of the RP who was acting on behalf of the CD.

The Coram of Sri Dr. Mukulita Vijayawargiya, Whole Time Member, IBBI has held that Mr. Sripatham Venkatasubramainan Ramkumar did not contravene any of the provisions as alleged in the SCN and the DC disposes of the SCN without any directions.

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