Delhi HC reduces Suspension Period Imposed by IBBI Disciplinary Committee on Insolvency Professional [Read Order]

The Delhi High Court reduced the Appellant/Resolution Professional's suspension period, pointing out that the IBBI Disciplinary Committee used inaccurate data and failed to consider important factors when determining the penalty. The suspension was lowered to the previously completed time.

On August 3, 2017, the NCLT accepted an application against GTHS Retails Pvt. Ltd. under Section 9 of the IBC and designated Sandeep Kumar Bhatt, the appellant, as the Interim Resolution Professional (IRP). On December 20, 2017, the appellant was subsequently verified as the Resolution Professional (RP).

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On July 4, 2019, the Resolution Applicant retracted his offer once the Adjudicating Authority observed that the CIRP time had ended. The liquidation process had started. On October 16, 2019, the appellant was released from the case. The liquidator was designated as Mr. Ramit Rastogi. A dissolution application was submitted by the liquidator. The liquidator was instructed by the NCLT to document the valuation report.

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In accordance with Inspection Regulation 8(1), IBBI sent out an investigation notice on April 25, 2023. By submitting the application for dissolution, the appellant responded to the notification by claiming that the liquidator had recorded the incorrect liquidation value.

The appellant breached Sections 25(1), 25(2)(a), 25(2)(b), and 208(2)(e) of the IBC and the IBBI Code of Conduct, according to the investigative report dated August 8, 2023. On August 25, 2023, a Show Cause Notice (SCN) was sent out in accordance with IBC Sections 2(1)(a) and 220(2). In accordance with Section 220 of the IBC, the appellant's registration as an insolvency professional was suspended for two years by the IBBI Disciplinary Committee on November 1, 2023.

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The suspension was contested by the appellant in a writ petition. On August 27, 2024, the writ petition was dismissed by the single judge. The decision of the Single Judge was challenged by the appellant in the appeal. The Counsel argued that the DC's statistics for security deposit recovery differed from those in the Auditor's Report and the Investigation Report. These disparities resulted in unfair punishment and skewed factual conclusions.

Ms. Amrita Singh, the Respondent's counsel, filed a preliminary objection, arguing that as it is widely established that writ courts only consider the decision-making process and not the outcome itself, the appellant cannot be allowed to contest the merits of the factual findings in an appeal. According to the counsel, the appellant did not point out any violations of any Section, Rule, or Regulation to the Single Judge, and since they did not, the appellant is not permitted to bring up these points in the appellate stage.

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The Court noted that a writ court typically stays out of matters involving administrative decisions or disciplinary actions, unless there is a clear and obvious violation of a statute, statutory rule, or regulation, or the proceeding shows a disregard for natural justice principles. It noted that under Article 226 of the Constitution, the decision-making process—rather than the judgment itself—is often open to judicial scrutiny.

The bench of Chief Justice Devendra Kumar Upadhyaya and Justice Tushar Rao Gedela  held that “unless the penalty imposed is such which shocks the conscience of the Court, or that which no prudent man would reach, no interference by Courts is warranted, ordinarily.”

The Court concluded that the Disciplinary Committee (DC) used data from the SCN instead of the Investigating Authority's Report to assess charge (a). Reliance on inaccurate data might have affected the imposition of a larger penalty, even though the report supported the appellant's argument.

The appellant presented an Auditor's Report to substantiate his claim of fund realization in connection with allegation (b). The DC dismissed the report as a "afterthought" without even looking at it. Before dismissing it, the DC ought to have taken into account its veracity or asked for clarifications, the Court noted.

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Regarding charge (c), the Court observed that the appellant had promptly notified the banks of his appointment as IRP, despite the fact that he had failed to assume control of the Corporate Debtor's bank accounts. Regarding the charge of violating CIRP procedures (such as collecting value reports), the Court pointed out that the penalty should be proportionate even in cases where there were procedural errors.

The Court drawn the conclusion that when assessing the sentence, the DC might have missed important details. It lowered the sentence to the time previously spent because the appellant had already been suspended for more than a year and four months.

To Read the full text of the Order CLICK HERE

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