INSOLVENCY PROFESSIONAL IS NOT A PUBLIC SERVANT UNDER THE PREVENTION OF CORRUPTION ACT, 1988

[Mr. M. GOVINDARAJAN]

Introduction

On the admission of the corporate insolvency resolution process (‘CIRP’ for short), filed either by the financial creditor or operational creditor or the corporate applicant, the Adjudicating Authority appoints an Insolvency Professional as Interim Resolution Professional (‘IRP’ for short) who later on replaced by Resolution Professional (‘RP’ for short).  If the corporate insolvency resolution process cannot be completed within the time stipulated in the Insolvency and Bankruptcy Code (‘Code’ for short) the same ends in liquidation that may be handling by a liquidator.

Status of Insolvency Professional

The IRP/RP is to report to the Committee of Creditors and to get orders for further activities of IRP/RP and is subject to the overall supervision of the Adjudicating Authority.  What is the role of IRP/RP under the Code?  Whether they are public servant within the meaning of Indian Penal Code (‘IPC’ for short) and Prevention of Corruption Act (‘Act’ for short)?

The Delhi High Court in DR. ARUN MOHAN VERSUS CENTRAL BUREAU OF INVESTIGATION - 2023 (12) TMI 858 - DELHI HIGH COURT  held that the insolvency processional does not fall under the definition of ‘public servant’ under Indian Penal Code as well as Prevention of Corruption Act,

In the above said case, one Shri Karan Lalwani, a financial creditor initiated corporate insolvency resolution process against FR Tech Innovations Private Limited (‘Corporate Debtor’ for short) under Section 7 of the Code before Adjudicating Authority, Mumbai.  The petitioner was appointed as IRP.  The IRP caused public announcement calling for claims from the creditors of the Corporate Debtor.  The IRP received 8 claims.  The IRP verified the claims and constituted the Committee of Creditors.  The Committee of Creditors consisted only one financial creditor, Karan Lalwani with 100% voting rights.  In the first meeting of Committee of Creditors the IRP was appointed as RP. 

The RP phoned the complainant and informed that the Committee of Creditors had decided to recover Rs.15.20 lakhs from the wife of the complainant along with interest as she had received these amounts on the forged and fabricated documents.  The RP also issued demand notice to the wife of the complainant.  In the meantime the complainant filed a complaint against the RP with SP, CBI, Delhi under the Act.  CBI registered FIR against the RP and Paresh Kumar under Section 7 and 7A of the Act read with Section 120B of IPC.  CBI arrested Paresh Kumar on the ground that he had received Rs.3.5 lakhs from the complainant. 

The petitioner was brought before the Judge.  The petitioner questioned the jurisdiction of CBI on the ground that he is not a public servant as defined under the Act and therefore CBI does not have jurisdiction investigate the case and any action taken by them is void ab initio. 

The RP filed the present petition before the High Court.  The RP submitted the following before the High Court-

• The duties of IRP are limited to those enumerated under the Code.
• The IRP/RP is to act according to the directions of Committee of Creditors and not dealing with any issue of judicial administration.
• Section 2 of the Act does not include the ‘insolvency professional’ (‘IP’ for short) under the definition of ‘public servant’.
• The insolvency professional is not a public servant within the meaning of Section 21 of IPC and Section 2(c) of the Act.
• The Parliament did not consider any person under the Code as a public servant but has created a legal fiction that persons under section 232 would be public servants, which does not include the insolvency professional.
• The Code is the special law and it overrides the Act which is a general law. 
• The FIR filed against the RP is on the basis of apparent mala fide on behalf of CBI.
• The very veracity of the complaint is in question and thus indicates the questionable truthfulness and mala fide and therefore such investigation cannot stand the scrutiny of law.
• The present complaint is purely to harass the petitioner.

The CBI submitted the following before the High Court-

• The duties of IRP under the Code are necessarily to be read as ‘public duties’ in consonance with the definition of ‘public servant’ under the Act.
• The amended Section 2(c) of the Act has a very wide amplitude, encompassing the duties performed by the individuals to be termed as a public servant though had not specifically provided the word IRP/RP in its definition.
• Even though the IRP is proposed by the financial creditor the appointment is made by the Adjudicating Authority.  The duties performed by IRP/RP in accordance with the provisions of the Code amount to public duty having a public character. 
• The duties and responsibilities bestowed on IRP/RP reflect that he is a part of judicial delivery system, working in furtherance of the judicial dispensation.  Thus IRP/RP is squarely covered under the definition of ‘public servant’ under the IPC and the Act.
• The allegations of demanding money and having recorded certain phone call gave sufficient cause for the CBI to initiate the present criminal proceedings against the said person.
• The Act of demanding bribe was actually done in pursuance of public duty.
• The Jharkhand High Court in SANJAY KUMAR AGARWAL VERSUS CENTRAL BUREAU OF INVESTIGATION, ANTI CORRUPTION BUREAU, DHANBAD - 2023 (4) TMI 1139 - JHARKHAND HIGH COURT held that the RPs are public servants.

The complainant No.1 submitted the following before the High Court-

• The petitioner in the capacity of IRP/RP is discharging duties under the Code and the regulations made there under of public character in public interest as he was holding a public officer of IRP/RP in the public interest on the day of crime i.e. 10.01.2020.
• The IRP/RP falls under the ambit of ‘public servant’ by virtue of holding an office of IRP/RP in trust and good faith and good faith under the Code and its regulations.
• The plain reading and understanding of the words ‘appointed by government or not’ makes it explicitly clear that the person appointed by other than the Government is also covered in the ambit of public servant, as such, the petitioner appointed by the Committee of Creditors is a public servant as per explanation - 1 to section 2(c) of the Act.
• The Adjudicating Authority appoints or replaces the IRP of RP after seeking report from the Board.  Therefore the office of IRP/RP is statutorily perpetual in nature and attached to public authority.
• An IRP/RP is mandatorily bound to report his actions and decisions to the Committee of Creditors to the Adjudicating Authority for its approval.  In case of any dispute in resolution process the RP is bound to get orders from the Adjudicating Authority regarding his proposed action.
• The IRP/RP is subjected to disciplinary proceedings under Regulation 11.  The Board may take action or punish the IRP/RP under section 220 of the Code.
• The duty of IRP/RP is statutorily perpetual in nature and attached to the public authority i.e., Adjudicating Authority and the Board.
• It appears to be unintended omission of the legislature but implication by nature of duties, responsibilities, accountability and an office IRP/RP under the Code is a public servant.
• The act and commission of extortion of money during CIRP under threat, duress and coercion by taking undue advantage of office of IRP/RP is beyond the scope of the Code and falls under the Act.

The complainant No.2 submitted the following before the High Court-

• Both the complainants were appointed by the corporate debtor as consultants from March 2017 to November 2017.  They received Rs.15.20 lakhs for their services excluding the TDS recovered to the tune of Rs.2.8 lakhs.
• The documents and information in support of the claim of the wife of complainant which were already in possession of the petitioner.
• The petitioner found an irregularity in recording the date of confidentiality agreement and for the said reason the petitioner termed as fraudulent and he threatened to take criminal action against them.
• The petitioner in connivance with Paresh Kumar hatched conspiracy to extort money from them and demand Rs.5 lakhs to hush up the case.  In case the bribe is not paid action will taken against them for the recovery of Rs.15.20 lakhs from them.
• Paresh Kumar was got red handed when getting Rs.3.5 lakhs as bribe.  The said bribe was got by Paresh Kumar at the instance of the petitioner.

The Board submitted that the Board will abide the law as on date and as per the directions of the High Court.

The High Court considered the submissions by all the parties to the present petition and also the facts of the case and documents on record and also perused the various provisions of applicable law.  The High Court formulated the question for its consideration is as to whether the petitioner, ‘RP’ is a public servant and not and thus would be liable for the offence punishable under the Act.

The High Court observed that the controversy involved in this case is a pure question of law and required to interpret section 232 and 233 of the Code.  The High Court analyzed the said provisions.  The High Court also analyzed the necessity for the enactment of the Code and objectives of the Code. 

The High Court analyzed the provisions of the Code in detail on the various roles, responsibilities and duties of the IP which would aid and assist the Adjudicating Authority in corporate insolvency resolution process.  Then the High Court considered the issue on ‘public duty’, ‘public character’ and ‘public servant’.  The complainants contended that the insolvency professionals are public servants.  The High Court went through the Supreme Court judgments in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. - 2019 (1) TMI 1508 - SUPREME COURT and ARCELORMITTAL INDIA PRIVATE LIMITED VERSUS SATISH KUMAR GUPTA & ORS. - 2018 (10) TMI 312 - SUPREME COURT in which the Supreme Court held that the insolvency professionals are ‘facilitators’ to the process of corporate insolvency resolution process.

There is no reference of IPC and Act in the Code.  On considering the roles, responsibilities and duties of the IPs it did not appear to the Court that any such role  would assume the nature of ‘pubic duties’ and ‘public character’. It is trite that every duty, even if has a color of ‘public duty’ may necessarily not be a character which is public in nature.  There could be many instances where a role of responsibility of an individual in a particular statute would assume the nature of ‘public duty’ but sans the ‘public character’.  Therefore it is not necessary that all duties which are broadly defined as ‘public duty’ would encompass within itself ‘public character’.  It is not a necessary conclusion that the same are being discharged in the nature of ‘public character’.

Even if the roles and responsibilities of the IP under the Code may be bordering or falling with the ambit of ‘public duties’ the same would not assume ‘public character’.  The responsibilities of the individuals in some cases may have overlapping nature and may be intertwined  with ‘public duty’ but that by itself would not be a legally determined bench mark to categorize all such individuals or institutions as ‘public servants’ for the purposes of Section 21 IPC and Section 2(c) of the Act.

The High Court then considered section 232 and 233 of the Code. Section 232 provides that the Chairperson, Members, Officers and employees of the Board are considered as public servants within the meaning of Section 21 of IPC.  The IP has been deliberately omitted in section 232.  The Code does not define the expression ‘public servant’.  Therefore the High Court was of the view that the officials mentioned in section 232 are to be only considered as public servants.

However Section 233 gives protection to the insolvency processionals.  The said section provides that no suit, prosecution or other legal proceeding shall lie against the Government or any officer of the Government, or the Chairperson, Member, officer or other employee of the Board or an insolvency professional or liquidator for anything which is in done or intended to be done in good faith under this Code or the rules or regulations made there under.

In interpreting the statutes the plain and simple language of the statute ought to be taken into consideration unless the same are ambiguous or appear to the repugnant to the aims and objects of the statutes when read as a whole or any absurdity arises while interpreting.  The High Court observed that section 232 of the Code brooks no ambiguity nor it is repugnant to the aims and objects of the Code.

Then the High Court analyzed the functions and responsibilities of insolvency professionals under the Code. The High Court observed that there could be a possibility of discharge of duties which may have certain duties appearing to be ‘public duties’.  The IP metamorphizes from IRP to RP and thereafter as a liquidator.  Due to such metamorphizes it would prudent not to characterize the duties even if assumed to be public as in the nature of ‘public character’. 

The High Court held that the insolvency professional does not fall within the meaning of ‘public servant’ under Section 2(c) of the Act.  Therefore the FIR registered by CBI against the petitioner is quashed and set aside by the High Court.

Conclusion

The IP is not to be considered as ‘public servant’ in view of the decision taken by the High Court, Delhi. As held by the Supreme Court the IP is a facilitator to run CIRP smoothly on advice of the Committee of Creditors and on supervision of the Adjudicating Authority.  Therefore the IP is not liable to be taken action under the Act for getting bribe from any body.