IBBI Suspends Registration of Insolvency Professional Sanjay Kumar Singh for 2 Years for Contravening Provisions of Auction
Moneylife Digital Team 20 February 2024
The Insolvency and Bankruptcy Board of India (IBBI) has suspended for two years the registration of insolvency professional (IP) Sanjay Kumar Singh for contravening the applicable provisions of the Insolvency and Bankruptcy Code (IBC) and regulations on conducting an auction for the sale of assets during the liquidation process of Monica Electronics Ltd (corporate debtor). Mr Singh was appointed interim resolution professional (IRP), later confirmed as resolution professional (RP), and further appointed as liquidator for Monica Electronics.
In an order last week , Jayanti Prasad, whole-time member of IBBI says, "When the liquidator finds that the auction suffers from collusion and thereby there was limited competition in the auction process, he can approach the adjudicating authority (National Company Law Tribunal, NCLT, New Delhi) (AA) for appropriate orders to ensure fair auction process and maximum price discovery for the assets of the corporate debtor, through healthy competition. However, in the instant matter, Mr Singh has done the reverse of what is being intended by the sub-regulation." 
"There were nine prospective bidders, out of which four were disqualified on the grounds of collusion, one withdrew and two were disqualified on the grounds of the application being defective without giving them the opportunity to cure the defect thereby limiting the auction process to only two bidders instead of more bidders and thereby limiting the competition in the auction process. By this conduct, Mr Singh has, in fact, aided the collusion between parties as there is greater possibility of collusion between two bidders rather than seven bidders," the WTM says.
The case is related to the e-auction of the assets of Monica Electronics by Mr Singh, the IRP and liquidator. The e-auction was to be conducted on 8 September 2021. However, it was adjourned twice on 8 September 2021 and 25 September 2021, respectively. 
Out of nine bid applications, Mr Singh, at his assessment, found four to be part of a cartel and, therefore ineligible to participate in the e-auction bidding process. Out of the remaining five, three were found to be ineligible by Mr Singh, the liquidator, for other reasons. After that, he proceeded with the bidding process with the remaining two applicants who were found to be eligible by him. Subsequently, Mr Singh concluded the e-auction on 1 October 2021 by declaring one of them as the highest bidder, and the sale deed was executed on 21 February 2022.
IBBI observed that Mr Singh proceeded with the e-auction without even communicating the ineligibility for participation in the bidding process to the concerned four applicants or bidders and refunded the earnest money deposit (EMD) of the ineligible applicant or bidders on 1 October 2021, i.e., on the day of the auction, without any communication of their ineligibility. The next day, Mr Singh communicated the ineligibility to the applicants. 
"In addition, the liquidator also failed to submit a report to the AA with regard to the collusion among the applicant, bidders or prospective buyers and seek any appropriate order against such colluding parties in accordance with regulation 33(3) of Liquidation Regulations," the Board says.
Mr Singh submitted that in an order dated 4 July 2023, the NCLT observed that it was not open to the liquidator under regulation 33(3) of the Liquidation Regulations to proceed with the sale of the property when he found that the buyers were in collusion and should submit a report to the NCLT. 
He told IBBI that he had submitted a report to NCLT. He argued that "Regulation 33(3) does not anywhere refer to the bid applicant or bidder. It talks about the purchaser. The purchaser is declared only after completion of the bidding process. So, the observation of NCLT towards rights of the liquidator is not as per law."
IBBI observed that Mr Singh has drawn a parallel to the CIRP proceedings where an RP is required to place only such resolution plans for consideration of the committee of creditors (CoC) which comply with the requirements of law.  
The Board also referred to findings submitted by the disciplinary committee (DC). The DC observed that Mr Singh has incorrectly tried to draw a parallel between the submission process of resolution plans in the insolvency resolution process and the e-auction process during the liquidation process. 
Mr Singh contended that there was a possibility of collusion amongst four applicants on the basis that they had common directors, the RTGS details and account number were in the same handwriting, the same notary attested them and were consecutively numbered, and the envelopes of two applications were also identical with the address written in the same handwriting and the same ink.
However, the DC says the alleged evidence of the same handwriting and ink is a matter of forensic examination and may not be superficially determined by Mr Singh on a preliminary basis. "Also, if Mr Singh was so confident of the collusion amongst the buyers, he had the right to forfeit the EMD amount of such buyers, in terms of the e-auction notice, which he chose not to do. Therefore, there is inconsistency in the submissions and conduct of Mr Singh."
The DC says it could not decipher what benefit has accrued to the e-auction process by limiting the e-auction to only two bidders. It says, "If the other bidders were given a fair chance to participate in the auction process, there were only more chance of getting a better price and not lower price. In a situation where the alleged colluding bidders were allowed in the auction process and they were actually colluding, even then effectively, there would have been three bidders for the auction process, which in any case ensures more participation leading to better value maximisation than given by two bidders. At worst, the same result which has been achieved through these two bidders would have been achieved."
While suspending the registration of Mr Singh for two years, IBBI asked for copies of its order to be sent to the ICSI Institute of Insolvency Professionals, CoC or the stakeholders consultation committee (SCC) of all the corporate debtors in which Mr Singh is providing his services, and to the NCLT bench at New Delhi.
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