RESOLUTION PROFESSIONAL WAS TRYING TO LIQUIDATE HOSPITAL, NCLAT ORDERS PROBE

While setting aside the NCLT order, the NCLAT bench directed an inquiry against the Resolution Professional.

Setting aside a liquidation order of the National Company Law Tribunal (NCLT), which was based on the information provided by the Resolution Professional (RP), the principal bench of National Company Law Appellate Tribunal (NCLAT) has asked an inquiry to be conducted against the RP, registration of an FIR in case a cognizable offence is discovered to have been committed by him and also directed the NCLT to consider changing the RP.

The Resolution Professional (RP) in Indian laws is the person who is responsible to coordinate the insolvency process. The Insolvency and Bankruptcy Board of India (IBBI), which is the regulator for overseeing insolvency proceedings, is probing several resolution professionals (RPS) for allegedly violating the code of conduct and not acting in the best interest of creditors.

According to people having first-hand information, some of the RPS were allegedly found to be indulging in carrying out actions that would bring them higher fees and “extra-income”. On 9 December, the NCLAT New Delhi bench comprising Justice Rakesh Kumar (Member-judicial) and Dr Ashok Kumar Mishra (Member-technical) gave the order while deciding on the appeal that was filed by an ex-director of Durha Vitrak Pvt Limited who was running a full operational hospital namely Febris Multispecialty Hospital of 150 beds that is situated in Narela which later came under Corporate Insolvency Resolution Process after which a RP was appointed.

The NCLT on 31 May 2021, allowing the application filed by RP Aishwarya Mohan Gahrana, ordered the liquidation of the company. According to the appeal filed by the owners of the hospital, Febris Multispecialty Hospital has been fully operational since July 2017. Later, on an application filed by one of the Financial Creditor, on an allegation of default in payment despite the account being declared as Non-performing

Asset, insolvency proceeding was initiated and by order dated 8 November 2019, the NCLT appointed Aishwarya Mohan Gahrana as Interim Resolution Professional (IRP) and then Resolution Professional (RP) in due course of time.

As per the appellant (the owners of the hospital), when the Resolution Professional took over the management of the hospital, it was generating a revenue of Rs 87 lakh in the month of November 2019. The appellant offered unconditional support to RP to continue the operation of the Hospital to maximise the value of the hospital. At the time the hospital had a strength of approximately 100 employees and doctors.

The appellant further found that the RP instead of taking steps to continue the hospital as “going concern”, he was taking all steps to create a situation for its liquidation. The RP even did not take any steps to get certain dues of the Corporate Debtor (the hospital) recovered from the government departments and agencies concerned.

The appellant further stated that the RP in “connivance with the financial creditors mainly LIC Housing Finance Ltd”, which was having about 93% voting shares in the Committee of Creditors (Coc-which is a collective body consisting solely of financial creditors) filed an application for initiating liquidation proceeding. According to the company, the NCLT, without examining the viability of going concern of the hospital, mechanically allowed the petition filed by the RP.

The RP even did not accept offers made by other people to buy the hospital. Even during the pandemic, when there was complete scarcity of beds in hospitals, despite direction issued by the Delhi High Court on 18 May 2021, the RP did not take steps even to apply for renewal of the licence of the hospital and frustrated the direction of the Delhi High Court. The RP, in his defence, had alleged non-cooperation from the hospital owners at various times.

However, the NCLAT bench led by Justice Rakesh, while setting aside the order of the NCLT to liquidate the hospital, made stringent remarks against the RP. “The provision for inviting interest for selecting competent persons to take over the company to clear the outstanding of the creditors. In any event liquidation of the company under the rules is considered as the last nail in a coffin. The object to keep a company as ‘going concern’ is a rule whereas calling for its liquidation is an exception. On minute examination of proceedings of all the Cocs Meeting which have been brought on record we are really dissatisfied by the approach of RP. The RP who was expected to proceed independently, in the present proceeding has proceeded as if he was one of the partners of the main financial creditor i.e. LIC Housing Finance Ltd. Once IRP/RP is appointed by the Adjudicating Authority, he acts as a public servant and as a public servant it is expected that he will proceed in a fair and independent manner. However, after going through the entire proceeding of the COC we are completely dissatisfied with the conduct of the RP. The present appeal has also been filed jointly by RP and Financial Creditor. This act of the RP is itself a glaring example of biasness,” Justice Rakesh wrote.

“Besides the conduct of the RP regarding visiting the place of one of the main financial creditors, for COC Meeting, on examination of the proceeding of 6th COC Meeting it is evident that right from the very inception he has not taken even any step to see CD (Corporate Debtor-the hospital) as going concern rather the conduct of the RP shows that he was predetermined for liquidation of the CD. However, to cover up his intention, he was creating documents and filing petitions against the suspended directors of the CD,” said the judge. The judgment has mentioned various instances in which the RP met one creditor in absence of any other creditors or the debtor.

“The RP on the one hand without the approval of the COC was taking major decision but on the other hand before the COC he was giving a picture that he was not getting any information,” the judgment says, as it notes how the RP rejected offers received from various quarters to take over the hospital’s business.

In a series of strong words, Justice Rakesh also castigated the RP for the role he played during the pandemic.

“We can take judicial notice of the fact that during the peak period of Corona when such offers were made to run the hospital, all the citizens were crying for medical help and running for getting bed in hospitals. Number of Covid patients died due to non-availability of beds in the hospital. However, even during such a situation. the behaviour of RP was detrimental to the entire society. It is common knowledge that during the Covid period, a number of hospitals, besides rendering service to society, generated huge funds; however, even in such a situation in the present case, for reasons best known to him, the RP did not allow anyone to run the hospital as a going concern,” he said.

While setting aside the NCLT order, the NCLAT bench directed an inquiry against the RP, Aishwarya Mohan. “Before parting with the order since we have noticed many infirmities and illegalities committed by the RP, it is desirable to direct IBBI (Insolvency and Bankruptcy Board of India (IBBI) to conduct an enquiry regarding conduct of the RP and other circumstances which led to filing of petition before the NCLT. During the enquiry, IBBI is also required to examine whether in the entire episode any cognisable offence had come to fore or not. It goes without saying that the RP was proceeding as a public servant and as such it was expected that he will act independently. If during enquiry by the IBBI any material comes showing prima facie commission of cognisable offence, in that event, it would be appropriate for the IBBI to lodge FIR for its statutory invention to its logical end. The Registry is directed to communicate the order to IBBI through its Chairman forthwith for its compliance.”