2024 (1) TMI 93 - HC - Insolvency and Bankruptcy

Disciplinary enquiry / proceedings against Resolution Professional (RP) - Automatic suspension of Authorization For Assignment (AFA) of the Resolution Professional - Regulation 23A of the Model Bye-Laws and Governing Board of Insolvency Professional Agencies Regulations, 2016 - liquidator-petitioner shared the details of the valuation report of the assets of the company with all the scheme proponents, as a result of which all of them quoted the same price. The petitioner does not deny that he shared the valuation report, but defends it on the ground that he was under an order of the NCLT to try for a compromise under Sec.230 of the Companies Act and backs it up with the ratio of the Hon'ble Supreme Court in Vijay Kumar Vs Standard Chartered Bank 2019 (2) TMI 97 - SUPREME COURT and that of the NCLT in Hemant Shantilal Shah another Vs Care Office Lt., 2022 (4) TMI 522 - NATIONAL COMPANY LAW TRIBUNAL , AHMEDABAD BENCH . Whether the show cause notice which the IBBI has served on the petitioner is legally sustainable? Whether this petition is entertainable when only a show cause notice of a statutory body is in challenge? HELD THAT - Inasmuch as the petitioner has admitted that he had shared the valuation report of the CD, this Court considers that a prima facie ground is available for the IBBI to issue the show cause notice. The prima facie view of this Court is that when the petitioner ceases to be a Resolution Professional, and starts wearing the cap of a liquidator, the role of IIIP of ICAI vis-a-vis its member ceases. Hence, this Court considers, that at the best the decision of the IIIP of ICAI can be a piece of evidence in the proposed disciplinary proceedings but may not be adequate to affect the jurisdiction of the IBBI to initiate a disciplinary action against the petitioner. Turning to suspension of the petitioner is concerned, this is an automatic process on commencement of a disciplinary proceedings under Regulation 23A of the IBBI (Model Bye-laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. This cannot be interfered with since this Court finds that the IBBI has the jurisdiction to initiate a disciplinary proceedings, and in the instant case it is not established to be a malafide exercise of statutory power. The petitioner will have all the liberty to put forth his entire line of defence disciplinary enquiry, which needless to say includes all that the grounds on the basis of which he has now challenged the show cause notice - Petition dismissed.

Summary

Issues Involved:
1. Jurisdiction of IBBI to issue a show-cause notice.
2. Validity of the show-cause notice issued by IBBI.
3. Suspension of the Authorization For Assignment (AFA).

Summary:

Issue 1: Jurisdiction of IBBI to Issue a Show-Cause Notice
The petitioner argued that the IBBI lacks jurisdiction to issue a show-cause notice since he was functioning as a liquidator under the Companies Act, 2013, and not under the Insolvency and Bankruptcy Code (IBC). The petitioner contended that the IBBI cannot invoke IBC provisions against a liquidator appointed by the NCLT. However, the court found that the liquidation of a Corporate Debtor (CD) is not exclusive to the Companies Act but is also contemplated within the IBC. Therefore, the IBBI has jurisdiction under Section 218 of the IBC to initiate disciplinary action.

Issue 2: Validity of the Show-Cause Notice Issued by IBBI
The petitioner challenged the show-cause notice on the grounds that he was under an order from the NCLT to explore a compromise under Section 230 of the Companies Act, 2013, and that sharing the valuation report was part of his responsibilities. The court noted that the IBC and its regulations are designed to protect the information leak on the valuation of corporate assets. Since the petitioner admitted to sharing the valuation report, the court found a prima facie ground for the IBBI to issue the show-cause notice. The court also dismissed the argument that the IBBI cannot proceed due to the rejection of a similar complaint by the IIIP of ICAI, as the IBBI operates independently under Section 218 of the IBC.

Issue 3: Suspension of the Authorization For Assignment (AFA)
The petitioner argued that the suspension of his AFA was done without giving him an opportunity of hearing. The court clarified that the suspension of AFA is an automatic process upon the commencement of disciplinary proceedings under Regulation 23A of the IBBI (Model Bye-laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. Since the IBBI has jurisdiction to initiate disciplinary proceedings, the suspension of AFA cannot be interfered with.

Conclusion:
The court dismissed the petition, affirming that the IBBI has the jurisdiction to issue the show-cause notice and initiate disciplinary proceedings. The petitioner is allowed to present his defense in the disciplinary enquiry. No costs were awarded, and the connected miscellaneous petition was closed.