2023 (11) TMI 909 - HC - Insolvency and Bankruptcy

Right to get registered as RP - Rejection of application of the Petitioner herein for registration as a Resolution Professional - rejection on the ground that she is not a fit and proper person to be appointed as an Insolvency Professional - HELD THAT - An Insolvency Professional performs very important functions in the insolvency resolution process of a company. An Insolvency Professional virtually takes over the company during the period it goes through the insolvency resolution process. An Insolvency Professional in fact becomes the heart and brain of the company under the insolvency resolution process and a person having slightest of disqualification cannot be permitted to be appointed as an Insolvency Professional otherwise the entire purpose of the IBC will get vitiated. Keeping in mind the functions and obligations of an Insolvency Professional, the Board has taken a decision that the Petitioner is not eligible to be registered as an Insolvency Professional because she is not a fit and proper person to be appointed as Insolvency Professional - As rightly contended by the learned Counsel for the Board, an Insolvency Professional is vested with the responsibility of managing the operations of the company undergoing the insolvency resolution process and all the assets of such a company are looked after by the Insolvency Professional. A reading of the Regulations indicates that the Board can take a decision that a person who has been involved in any kind of financial irregularity cannot be appointed as an Insolvency Professional. The fact that the financial irregularity occurred 11 years ago and that the Petitioner has already paid the penalty for the same. Though the Petitioner might be eligible to be considered to be appointed as an Insolvency Resolution Professional but the decision of the Board not to permit the Petitioner to function as an Insolvency Professional cannot be said to be arbitrary - The question of adjudging as to whether a person is suitable for a particular job or not should be left to the appointing authority and more particularly when the appointing authority consists of experts. It is for the experts to decide as to who is best and most qualified for a particular job. The antecedents of a person is an important criterion to decide as to whether the said person is suitable for the post or not. 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 cannot be said to be so perverse or irrational warranting interference under Article 226 of the Constitution of India. This Court is of the opinion that the decision taken by the Board does not suffer from any irregularity which requires interference by this Court under Article 226 of the Constitution of India - Petition dismissed.

Summary

Issues Involved:
1. Rejection of Petitioner's application for registration as a Resolution Professional.
2. Allegations of violation of SEBI Regulations and subsequent penalties.
3. Fit and proper criteria for appointment as an Insolvency Professional.

Summary:

Issue 1: Rejection of Petitioner's Application for Registration
The Petitioner challenged the order dated 02.05.2022, passed by the Respondent No. 1/Board, rejecting her application for registration as a Resolution Professional under the Insolvency and Bankruptcy Code, 2016 (IBC). The rejection was based on the ground that the Petitioner is not a "fit and proper person."

Issue 2: Allegations and Penalties
The Petitioner, a banker by profession, faced allegations of violating Regulation 3 (a), 3 (b), 3 (c), 3 (d), and 4(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. She was found guilty of front running in certain scrips and was penalized Rs. 1 Crore under Section 15HA of the SEBI Act, 1992. The penalty was affirmed by the Securities Appellate Tribunal and upheld by the Apex Court in Civil Appeal No. 5829/2014. Recovery proceedings were initiated due to non-payment of the penalty, leading to criminal proceedings and arrest warrants against the Petitioner.

Issue 3: Fit and Proper Criteria
The Board rejected the Petitioner's application for registration as an Insolvency Professional, citing that she is not fit and proper. The Board emphasized the importance of an Insolvency Professional's role, which involves managing a company's affairs during insolvency and necessitates an unblemished reputation. The Board's decision was based on the Petitioner's past financial irregularities, despite the penalty being imposed 11 years ago. The Court noted that the Board has the discretion to determine eligibility based on integrity, reputation, and character.

Judgment:
The Court held that the Board's decision to reject the Petitioner's application was not arbitrary or irrational. The decision was based on the Petitioner's past actions and the need for a clean and free corporate insolvency process. The Court emphasized that it does not sit as an appellate authority over the Board's subjective satisfaction and that the Board's decision did not suffer from any irregularity warranting interference under Article 226 of the Constitution of India. Consequently, the Writ Petition was dismissed.