Koteswara Rao Karuchola vs Asset Reconstruction Company/India/Limited/Arcil/ & Ors.

Court: National Company Law Appellate Tribunal
Case type: Company Appeal(AT)(Ins)
Decided on: 06-04-2026

<div> NATIONAL COMPANY LAW APPELLATE TRIBUNAL AT CHENNAI (APPELLATE JURISDICTION) Company Appeal (AT) (CH) (Ins) No. 330/2021 In the matter of: Mr. Koteswara Rao Karuchola, In the capacity as Resolution Professional of M/s. Viceroy Hotels Limited R/o Flat No.101, Pavithra Residency, Plot No.36, Pragathi Nagar, Hyderabad-500 090, Telangana State. …Appellant V M/s. Asset Reconstruction Company (India) Ltd, th The Ruby, 10 Floor 29, Senapati Bapat Marg, Dadar (W), Mumbai – 400 028. M/s. Viceroy Hotels Limited th Plot No.20, Sector 1, Survey No.64, 4 Floor, HUDA Techno Enclave, Madhapur, Hyderabad-500 081, Telangana State. M/s. CFM Asset Reconstruction Private Limited, th Registered office at A/3, 5 Floor Safal Profitaire, Near Prahlad Nagar Garden, Ahmedabad – 380 015. ...Respondents Present : For Appellant : Mr. Ravi Rajagopalan, Advocate Judgment (Hybrid Mode) Per: Justice Sharad Kumar Sharma, Member (Judicial) The Appellant, is a registered Resolution Professional, and the services thus rendered by him in the capacity of being the registered Resolution Professional is being exclusively governed by the provisions contained under the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Comp App (AT) (CH) (Ins) No.330/2021 Page 1 of 10 Regulations, 2016. It is upon the consideration of the eligibility as contemplated under Regulation 4 of IBBI (Insolvency Professionals) Regulations, 2016, and upon being satisfied with the qualifications and experience as contemplated under Regulation 5, an individual is directed to be enrolled with the IBBI and is issued with a Certificate of Registration under Regulation 7, to act as an Insolvency Professional, after having been registered thus in accordance with the provisions of the aforesaid Regulations of 2016. 2. Upon issuance of the Certificate of Registration of under Regulation 7 as an Insolvency professional, he has to abide by the conditions given under Regulation 7(2) and particularly Regulation 7(2)(h) which is the Code of Conduct as specified under the first schedule of the Regulations 2016. The said Code of Conduct requires maintenance of utmost integrity and fair functioning of the Insolvency Professional, since being the representative of the Tribunal for conducting of the CIRP or such other responsibilities, which is vested upon the Insolvency Professional, upon being registered under Regulations of 2016. It requires that, a person thus registered as a Insolvency Professional, shall have professional competence and acumen, that he is expected to maintain utmost confidentiality over the proceedings which are being conducted by him upon being appointed as a Resolution Professional, and that besides various other stipulations for discharging the duties as contained therein, he will be guided by the restrictions contained in Clause 28 & 29 of first schedule of the Regulations of 2016. Comp App (AT) (CH) (Ins) No.330/2021 Page 2 of 10 3. In case of failure of the IP to discharge the assigned duties in the manner prescribed, IBBI has been authorised to initiate and conduct investigations and disciplinary proceedings against the said IP in accordance with the provisions contained under sections 217-220 of the Code read with Regulation 11 of IBBI (IP) Regulations, in a manner as prescribed under the provisions of Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017. 4. The Appellant herein, being an Insolvency Professional, has been referred to by Ld. NCLT, Hyderabad to IBBI for investigation into the entire process of CIRP of M/s Viceroy Hotels and the acts of the Appellant therein by virtue of the directions given in para-53 of the impugned order dated 01.09.2021 passed on IA No.281/2019, as it was preferred in CP(IB) No.219/7/HDB/2017. 5. The instant Company Appeal at hand has been preferred by Appellant / Resolution Professional in his personal capacity, questioning the part of the impugned order which has been rendered against him by the Learned NCLT. The challenge given by the Appellant is restricted to the finding which has been recorded by the Learned Tribunal as against his alleged professional misconduct, which has been recorded in para 53 of the impugned order, which is extracted hereunder: - “53. We feel that the successful resolution applicant has tried to circumvent the provisions of the Code, by purportedly including M/s Tolaram Inc, Singapore as a co-applicant when there was no such mention in the original resolution plan submitted by the Resolution Professional. It was only mentioned that M/s Tolaram Inc was an Comp App (AT) (CH) (Ins) No.330/2021 Page 3 of 10 investor in M/s CFM only. They were never a co-applicant as per the resolution plan. Our view was reinforced after verifying the record before us, wherein the Hon'ble NCLAT vide order dated 18.11.2019 was just short of taking action against the Resolution Professional. Despite that, in the instant case, there was no change in the attitude and the acts of the Resolution Professional and we are not hesitant in recommending to the IBBI to investigate into the entire process and the acts of the Resolution Professional in the matter . At the same time, we are also taking strong exception to the acts of the members of the CoC. We recommend to the management of the financial institutions to look into the acts of their members, who apparently acted in a partisan manner to support the successful resolution applicant which are detrimental to the interests of other resolution applicants. Prima facie, it 22 looks like the entire CoC and Resolution Professional have bulldozed the entire resolution process to favour one resolution applicant who is apparently not eligible to submit the resolution plan under IBC and CIRP Regulations as stated supra. We also feel the resolution plan submitted by the CoC before the Adjudicating Authority has become a conditional resolution plan subject to the approval of RBI as Regulator of ARCs. As such, we are not inclined to consider such conditional resolution plan for resolution of the Corporate Debtor.” 6. The grievance of the Appellant is that the findings, which have been recorded against the him in para-53 of the impugned order as above, regarding the alleged professional misconduct on his part, would be bad for the reason that the Tribunal has not given him an opportunity to refute such allegations, that the remarks have been made without any basis, and that the remarks made in the Judgement of NCLAT dated 18.11.2019 in CA(AT)(Ins) No. 633/2018 ought not to have been relied on to make adverse remarks against him, especially when the Comp App (AT) (CH) (Ins) No.330/2021 Page 4 of 10 said judgement has been challenged before Hon’ble Apex Court in Civil Appeal No. 345/2020 and has been reversed by its order dated 24.01.2020. 7. From the records submitted, it is seen that this Appellate Tribunal in its judgement dated 18.11.2019 in CA(AT)(Ins) No.633/2018, M/s. Asset Reconstruction Company (India) Limited Vs Mr. Koteswara Rao Karuchola, RP of Viceroy Hotels Ltd., & 2 Ors. had recorded that the RP was not competent to entertain more applications after expiry of 3 months without the permission of Committee of Creditors, which already stood constituted and that while the status of M/s. Mahal Hotels Private Limited as that of a Financial Creditor was yet to be decided, he got it included in the CoC as a Financial Creditor at the stage when the CoC had decided to call for a meeting to decide on his removal as RP and that the very constitution of the Committee of Creditors (where M/s. Mahal Hotel Private Limited was made as member) was altered by the RP without permission and that the CoC may bring this fact to the notice of IBBI for appropriate orders. When the said judgement was challenged before Hon’ble Apex Court, it modified the order to the effect that CoC will hear the RP before bringing the matter to the notice of IBBI. 8. The Appellant, while challenging the impugned order, has argued that the observations made by NCLAT in its order of 18.11.2019 in CA (AT) (Ins) No.633/2018 should not have been made the basis for referring his case to IBBI for investigation on the grounds that the said order of 18.11.2019 has already been Comp App (AT) (CH) (Ins) No.330/2021 Page 5 of 10 challenged in Civil Appeal No.345/2020 before the Hon’ble Apex Court and has been reversed, by the order dated 24.01.2020. 9. Apart from it, he has made various other contentions, stating that Ld. Tribunal has made the allegations without referring to any documents, that M/s Tolaram could not be included in the resolution plan of the SRA as a co-applicant because the said plan was already submitted, that in many previous occasions ARCs have participated as Resolution Applicants and he cannot be faulted for overlooking the fact that prior permission of RBI was not obtained, that he had conducted verification of M/s Tolaram as per provisions of section 29A and that he had not committed any intentional error and that, the Tribunal had rather targeted the Appellant by making him as a scapegoat, and the decision taken was vindictive in nature. 10. On the other hand, if we read the observations made in the impugned order and in para-53 in particular, it reveals that the Appellant submitted the resolution plan of M/s.CFM ARC for approval, indicating that M/s. Tolaram Inc. will only be an investor, whereas M/s. CFM ARC had proposed to induct the latter as a co-applicant by filing IA No.537/2020 in the shape of the Addendum to the original Resolution Plan without the knowledge of CoC, which was not permissible. The Learned Tribunal, has further held that the RP has failed to ensure that the selected plan satisfied the conditions laid down by Section 29A of the Code, as well as Section 30(2) of the Code to be read with Regulation 38(3)(e) of the CIRP Regulations, 2016. It further observed that, in the case at hand, M/s. Comp App (AT) (CH) (Ins) No.330/2021 Page 6 of 10 CFM Asset Reconstruction Private Limited was permitted to submit its plan without the prior approval of the RBI in contravention of the provisions contained under Section 10(2) of the SARFAESI Act and was given a backdoor entry by the doubtful actions taken by the Resolution Professional and that, the H3 bidder was selected as the Successful Resolution Applicant by the CoC, ignoring the H1 bidder which is unprecedented and against the objectives of the code. It further observed that this particular lapse of the Appellant is not an isolated incident, but a continuation of a series of acts which had been adversely commented upon by NCLAT in its judgement of 18.11.2019. 11. It is further noted that a proceeding under Regulation 11 of IBBI(IP) Regulations, 2016, was drawn against the present Appellant by the Insolvency and Bankruptcy Board of India, by its disciplinary committee and final orders have been passed in the said proceedings No.IBBI/DC/21/2020 on 20.04.2020, where the allegations levelled in context of the order of 18.11.2019, have been apparently made out against the Appellant. The findings of the disciplinary committee is extracted as under: - “4.4 In this matter, the DC observes that (a) The RP had outsourced his duty and engaged IPE for verification of claims. He further included the payment made for the same in the IRPC thereby burdening the ailing Corporate Debtor with additional costs. (b) The fee of Rs.3,00,000/- plus GST has been paid to the IPE for verification of claims, which was the primary duty of the RP himself. Comp App (AT) (CH) (Ins) No.330/2021 Page 7 of 10 4.5 Thus, Mr. Koteswara Rao Karuchola, has displayed a casual attitude towards his duties under the provisions of the Code and Regulations made thereunder. He has, therefore, contravened provisions of: a) Sections 208(2)(a) of the Code. b) Regulation 13(1) of the CIRP Regulations. c) Regulation 7(2)(a), 7(2)(h) and 7(2)(i) of the IP Regulations read with clauses 2,3,10 and 14 of the Code of Conduct given in the First Schedule under the said Regulations”. 12. Based upon the aforesaid conclusion drawn by the disciplinary committee in its order of 20.04.2020, the following punishment was imposed upon the Appellant: - “5.2.1 The DC hereby imposes of Mr. Koteswara Rao Karuchola, a monetary penalty of Rs.1,00,000/- (Rs. One Lakh only) and directs him to deposit the penalty amount by a crossed demand draft payable in favour of the ‘Insolvency and Bankruptcy Board of India’. The Board in turn shall deposit the penalty amount in the Consolidated Fund of India. 5.2.2 Mr. Koteswara Rao Karuchola shall not accept any new assignment as an IP till he deposits the monetary penalty of Rs.1,00,000/- (Rs. One Lakh only) with the Board and produces evidence to the Board of such deposit.” 13. Owing to the fact that the set of allegations that were levelled flowing from the order of 18.11.2019, and as reiterated in the impugned order of 01.09.2021, does not make the finding recorded in para 53 of the impugned order in any way to be malicious perverse or contrary to the records and since, in the in- house disciplinary proceedings under the Regulations, the allegations of misconduct have been proved to have been made out against the Appellant, and Comp App (AT) (CH) (Ins) No.330/2021 Page 8 of 10 the penalty has been imposed, it cannot be ventured into by this Appellate Tribunal at this stage, particularly when the disciplinary committee has recorded a finding of fact of establishing the misconduct against the Appellant. 14. There could be yet another reason not to interfere in the matter, for the reason being that the foundation of the proceedings had been by the order passed on 18.11.2019, as referred to above. This order was challenged by the Appellant before the Hon’ble Apex Court in CA No.345/2020, and the same has been affirmed with the dismissal of the Civil Appeal by the Hon’ble Apex Court, in that eventuality, where the order of 18.11.2019, which is the basis of the order has been affirmed with the dismissal of the Company Appeal by the Hon’ble Apex Court by the order dated 24.01.2020. It will not be proper for us to sit over the order dated 18.11.2019 passed by the coordinate bench, which has been affirmed by the Hon’ble Apex Court on 24.01.2020 and taking a contrary view to the allegations levelled and established against the Appellant qua his professional misconduct and leading to the consequential imposition of punishment. 15. Hence, we do not find any plausible reason to interfere in the matter, particularly qua the findings recorded, which are based upon the order passed on 18.11.2019, which has been affirmed by the Hon’ble Apex Court by order dated 24.01.2020. Since the action taken against the Appellant is based upon the order of 18.11.2019, passed by the coordinate bench which has been affirmed by the Hon’ble Apex Court, we don’t feel that it will be apt for us to interfere more particularly once the allegations stand established in the proceedings held by the Comp App (AT) (CH) (Ins) No.330/2021 Page 9 of 10 disciplinary committee concluded on 20.04.2020. Thus, the Company Appeal lacks merit and the same is accordingly dismissed. All pending Interlocutory Applications, if any, will stand closed. [Justice Sharad Kumar Sharma] Member (Judicial) [Jatindranath Swain] Member (Technical) 06/04/2026 VG/MS/AK Comp App (AT) (CH) (Ins) No.330/2021 Page 10 of 10 </div>