2024 (10) TMI 730 - HC - Companies Law

Wilful misconduct - Scope of judicial review - seeking removal of the Respondent No. 2 as a Resolution professional - providing documents and other information to enable the applicant to file objections to the Resolution plan - seeking disqualification of the proposed Resolution applicant - seeking action against the petitioner for alleged fraudulent transactions - HELD THAT - The scope of judicial review in present proceedings wherein petitioners seek setting aside of order dated 22.08.2022 passed by IBBI, taking a lenient view qua shortcomings on the part of RP besides declaring all CIRP proceedings before learned NCLT to be illegal and non-est, is limited. Primary argument raised before us was that once RP was found guilty of the breach in question there was no occasion for the Board to have taken a lenient view especially as the violations go to the root of the matter - Merely because in the opinion of the Court another alternate punishment would be more appropriate, cannot be a ground to interfere with the discretion of Disciplinary Authorities. There should be no reappraisal of the facts of the matter as if sitting in appeal. Respondent no.2 was accordingly cautioned and warned to be more careful in future while handling process under the Code and that in case such repetitive instances are noticed in future, the matter would be treated as willful negligence and action would be taken accordingly. It is succinctly explained in the reply filed on behalf of the Board, that in order to plan effective implementation of provisions of IBC, Ministry of Corporate Affairs constituted four working groups in July 2016. First working group was entrusted with the task to 'Recommend the design of the IBBI'. As per its recommendation in respect to constitution of the 'Committee', it is duly observed that once IBC neither explicitly permits nor prohibits the possibility of one member Disciplinary Committee, the word 'Committee' used in Section 220(1) IBC can be interpreted to be inclusive of one member Committee. There are no infirmity or irregularity in the constitution of a single member Disciplinary Committee. It is to be noted that no malafide is alleged qua Disciplinary Committee. There are no merit in the argument raised on behalf of petitioners that they should have been afforded an opportunity of personal hearing/hearing by Disciplinary Committee prior to its decision on the complaint filed by it. Petition disposed off.

Issues Involved:

1. Validity of the appointment of the Resolution Professional (RP).
2. Allegations of misconduct and procedural irregularities by the RP.
3. Constitution and authority of the Disciplinary Committee (DC) of the Insolvency and Bankruptcy Board of India (IBBI).
4. Alleged violation of principles of natural justice.
5. Judicial review of the leniency in punishment imposed by the DC.
6. Impact of ongoing appeals on current proceedings.

Detailed Analysis:

1. Validity of the Appointment of the Resolution Professional (RP):

The petitioners challenged the appointment of the RP, arguing that the RP secured only 65.89% of the votes, failing to meet the statutory requirement of 66% as per Section 22 of the Insolvency and Bankruptcy Code (IBC). The petitioners contended that the subsequent post facto approval by Punjab National Bank was illegal. The Disciplinary Committee (DC) observed that the RP's appointment was a technical mistake, but since no objections were raised in subsequent meetings and the Resolution Plan was approved, a lenient view was taken.

2. Allegations of Misconduct and Procedural Irregularities by the RP:

The petitioners alleged various instances of misconduct by the RP, including non-disclosure of relationships and procedural irregularities in the appointment process. The DC found the deficiencies to be technical and not causing prejudice to stakeholders. The RP was cautioned to be more careful in future assignments. The court noted that the IBBI's findings did not indicate any harm to stakeholders, and the CoC had not objected to the RP's actions.

3. Constitution and Authority of the Disciplinary Committee (DC) of the IBBI:

The petitioners argued that the DC was not properly constituted as it comprised only one member. The court, however, found no infirmity in the constitution of a single-member DC, citing that the IBC does not explicitly prohibit such a composition. The court referred to precedents supporting the interpretation that a 'Committee' can include a single member.

4. Alleged Violation of Principles of Natural Justice:

The petitioners claimed that they were not afforded an opportunity to be heard by the DC, violating principles of natural justice. The court held that the complaint handling mechanism under the IBC does not necessitate a hearing for the complainant, aligning with similar rulings in other regulatory contexts. The court found no violation of natural justice principles in the DC's proceedings.

5. Judicial Review of the Leniency in Punishment Imposed by the DC:

The petitioners argued that the lenient view taken by the DC was unwarranted. The court emphasized that judicial review of the proportionality of punishment is limited and interference is warranted only if the punishment is disproportionate or irrational. The court found no basis to interfere with the DC's discretion, noting that the DC's decision was based on a thorough consideration of the facts.

6. Impact of Ongoing Appeals on Current Proceedings:

The court noted that an appeal challenging the NCLT's order dated 25.04.2023 was pending before the NCLAT. The court refrained from expressing an opinion on the merits of the allegations pending in the appeal, emphasizing that parallel adjudication was not appropriate. The court disposed of CWP-19562-2022 as infructuous due to subsequent developments and dismissed CWP-8750-2023 for lack of merit, allowing the petitioners to pursue their appeal before the NCLAT.

Conclusion:

The court concluded that the petitioners' challenges to the RP's appointment and the DC's proceedings lacked merit. The court upheld the DC's decision to take a lenient view of the RP's actions, finding no procedural irregularities or violations of natural justice. The court disposed of the petitions, allowing the petitioners to continue their appeal before the NCLAT.

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