In dismissing the writ petition, the Delhi High Court underscored the significance of scrutinising past actions when appointing an insolvency professional.
A Single Bench of Justice Subramonium Prasad has observed that “Discretion has been given to the Board to ensure that the corporate insolvency process is clean and free. Good reputation and character of a person is very important for appointment as an Insolvency Professional. The decision to determine as to whether a person is fit and proper to be appointed as Insolvency Professional is based on the subjective satisfaction of the Board. While judging as to whether a person is fit and proper to be appointed as an Insolvency Professional his past actions and conduct cannot be ignored and the fact that immediate past was clean does not give a clean chit to the person that his candidature will be considered.”
The petitioner, a banker, applied to be a registered Insolvency Professional under the Insolvency and Bankruptcy Code, 2016 (IBC) with the Board. Her application was rejected due to being deemed unfit for the role. The rejection was based on allegations of violating SEBI regulations related to fraudulent and unfair trade practices in the securities market.
An inquiry found that the petitioner engaged in front running by trading large volumes of shares in certain scrips with prior knowledge of buy orders, leading to a penalty of Rs. 1 Crore imposed under the SEBI Act, which was upheld by the Securities Appellate Tribunal.
The petitioner, failing to deposit the penalty amount imposed by SEBI, faced recovery proceedings. The Recovery Officer, through an order on 28.12.2018, directed the petitioner to pay Rs.1,77,83,047/- in 36 equated monthly instalments.
The petitioner’s failure to make payments resulted in criminal proceedings initiated by the Sessions Court of Kolkata under Section 24 of the SEBI Act. Despite challenging arrest warrants in the Calcutta High Court, the petitioner’s plea was dismissed. Subsequently, the Apex Court disposed of the petitioner’s challenge.
Due to these circumstances, the Board rejected the petitioner’s application for registration as an Insolvency Professional, citing the petitioner’s lack of fitness and eligibility. The order was challenged before the high court.
The petitioner’s counsel argued that the petitioner should not face a lifelong condemnation for events in 2015. Emphasising that the petitioner has already paid the penalty and suffered considerably, the counsel points out that, per the Apex Court’s order, there is no stain on the petitioner’s career, having earned a good reputation in the banking sector.
The counsel asserted that SEBI‘s recovery proceedings are civil obligations, not criminal offences, citing a Supreme Court judgment. Stressing that the imposed civil obligation, closed 11 years ago, should not hinder the petitioner’s application for registration as an Insolvency Professional, the counsel contended that having served the penalty, the petitioner deserved a chance for reform.
On the contrary, the Board’s counsel argued that the role of an Insolvency Professional is crucial, involving significant responsibilities under the IBC. Stressing that an Insolvency Professional manages a company’s affairs once insolvency proceedings are initiated, the counsel emphasised the need for individuals with an untarnished reputation in this role.
Despite the petitioner’s past violation of regulations, the counsel asserted that the Board’s decision to deem the petitioner unfit for the position of an Insolvency Resolution Professional should not be interfered with, despite the passage of 11 years.
The bench noted that the Board has the authority to decide that a person involved in financial irregularities cannot be appointed as an Insolvency Professional, even if the irregularity occurred 11 years ago and the petitioner has paid the penalty. While the petitioner may be eligible for consideration, the Board’s decision is not arbitrary, considering the seriousness of the allegations.
The bench emphasised that suitability for a job cannot be determined by a rigid formula and should be left to the appointing authority, especially when composed of experts, who can assess qualifications and antecedents to determine the best fit for the role.
“Even though the Petitioner can be registered as an Insolvency Resolution Professional but for determining as to whether the Petitioner is fit and proper candidate it is for the Board to take account of any consideration as it deems fit, including but not limited to the criteria of integrity, reputation and character. The Petitioner has been found guilty of fraudulent practices of violating market integrity and the decision of the Respondent Board to refuse the registration of the Petitioner as an Insolvency Professional on the basis of the decision of the Apex Court cannot be said to be so perverse or irrational warranting interference under Article 226 of the Constitution of India”, the court observed.
In this case, the Court concluded that the Board’s decision is free from irregularities that would warrant intervention under Article 226 of the Constitution of India. Consequently, the Writ Petition is dismissed, and any pending applications are also dismissed.
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