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TMI Blog2024 (8) TMI 1154X X X X Extracts X X X X X X X X Extracts X X X X ..... ment also challenges the validity of Clause 23A provided in the Schedule to the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 ("2016 Regulations") as well as Clause 23A of the Bye-Laws of ICSI Institute of Insolvency Professionals by urging the same to be ultra vires. 3. Facts relevant for considering the challenge as raised in the writ petition are that the petitioner is presently registered with the Insolvency & Bankruptcy Board of India ("IBBI") as an Insolvency Professional ("IP"). This registration is granted under The Insolvency & Bankruptcy Code, 2016 ("Code") read with the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016. The IBBI, through its Deputy General Manager issued a show cause notice to the petitioner on 26th October 2023 under Section 219 of the Code read with Regulations 11 and 12 of the Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017 ("2017 Regulations"). In the show cause notice, reference was made to an investigation report that was submitted by the Investigating Authority. On the basis of the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire action was liable to be struck down. It was thus submitted that if the jurisdictional facts on the basis on which the show cause notices could be issued were absent, this Court could exercise discretion under Article 226 of the Constitution of India and interfere in the matter. (b) The suspension of the AFA was without jurisdiction inasmuch as there was no statutory sanction to the action of suspending such authorization merely on the issuance of the show cause notices. Referring to the provisions of Chapter VI of the Code, it was submitted that there was no power conferred on the IBBI to suspend the authorization of an IP pending adjudication of the show cause notices. Even under the 2016 Regulations or 2017 Regulations, no such power was conferred. Clause 23A of the 2016 Regulations that stipulates such suspension upon initiation of disciplinary proceedings was ultra vires the provisions of the Code. Since the suspension of the AFA affected the legal rights of the petitioner, it was necessary for the IBBI to have first complied with the principles of natural justice. Exclusion of the principles of natural justice before effecting suspension of the AFA rendered Clause 23A b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the show cause notices. The petitioner had submitted his reply to the show cause notices but failed to raise these contentions therein. The challenge, if any, could only be to an adverse order if passed on the show cause notices. Referring to the decision in Union of India and Anr. Vs. Kunisetty Satyanarayana, AIR 2007 SC 906 it was submitted that the writ petition as filed raising a challenge to the show cause notices was premature and the same did not deserve to be entertained. (b) The suspension of AFA was in view of the provisions of Clause 23A of the Model Bye-Laws under the 2016 Regulations. With the issuance of the show cause notices, the disciplinary proceedings against the IP were deemed to have commenced and therefore the AFA was rightly suspended. It was well settled that suspension pending the disciplinary proceedings could not be treated as a punitive measure so as to confer any right upon the person suspended to challenge the same. The learned counsel referred to the decision in State Bank of Patiala and Ors. Vs. S.K. Sharma, 1996 (3) SCC 364 and State of Maharashtra and Ors. Vs. Sajjad Ali Mohammad Ali and Ors, 2011 (2) Mh.L.J. 392 in that regard. Referring to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23 and 10th April 2024. By these show cause notices, the petitioner has been called upon to show cause why action should not be taken to cancel his registration as an IP. Action is also proposed under Section 220 of the Code. Ordinarily, challenge to a show cause notice is considered to be a premature challenge for the reason that the noticee has an opportunity to reply to such notice and contest the assertions made therein. The show cause notice itself calls for the response of the noticee prior to taking any further action as proposed. It is therefore for the authority issuing the show cause notice to consider such response and thereafter indicate either the action to be taken or the dropping of the notice on acceptance of the noticee's stand. It is thus clear as held in Kunisetty Satyanarayana (supra) that mere issuance of a show cause notice does not result in infringement of any right of the noticee. This is for the reason that the authority issuing the show cause notice may well be satisfied with the explanation furnished by the noticee and drop the proceedings. It is only if an order imposing a penalty or taking some action is passed that the noticee can complain of his righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also conferred under Section 240 (2) (zzza) to frame Regulations as regards the manner of carrying out inspection of an IP and the time for giving reply under Section 219 of the Code. Under Section 241 of the Code, every Rule or every Regulation made under the Code have to be laid before each House of Parliament in the manner prescribed and it is only thereafter that such Rule and Regulation would have effect. It can thus be seen that the aforesaid provisions in the Code lay down in detail the manner in which inspection and investigation against any IP can be conducted. 10. In the reply filed on behalf of the IBBI, it has been stated that the 2016 Regulations as well as the 2017 Regulations were placed before each House of the Parliament as required by Section 241 of the Code. No objections whatsoever were raised to the same and thereafter the said Regulations had become part of the Code. It is well settled that on compliance with the requirements of laying before each House of Parliament any Regulations framed under a statute, such Regulations in the form of subordinate legislation become part of the principal enactment. Reference in this regard can be made to the decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctober 2023 is concerned, office noting dated 26th September 2023 has been placed on record which indicates that Shri. Mayank Mehta, DGM was directed to undertake investigation. This office note was supplied to the petitioner when he demanded information under the provisions of the Right to Information Act, 2005. There is a similar office noting appointing the very same officer to undertake investigation that resulted in issuance of the show cause notice dated 10th April 2024. It therefore cannot be said that the Investigating Authority in the absence of any order in writing proceeded to conduct an investigation in terms of Section 218(1) of the Code. We may state that we have not gone into the issue as regards sufficiency of prima facie material that warranted issuance of an order in writing under Section 218(1) of the Code appointing an Investigating Officer in the complaints against the petitioner. Since a jurisdictional issue was raised on behalf of the petitioner that there was no order in writing issued by the IBBI, we have referred to the presence of such orders prior to issuance of the show cause notices. It would be open for the petitioner while contesting the show cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid and natural exercise of power and that the only requirement there must be an express rule enabling the same. 6.1There is no discretion vested with the IPAs and the suspension is automatic, once the disciplinary proceedings are initiated. Therefore, it can neither be termed as manifestly arbitrary nor be challenged on the ground of any confirmation of unguided/unbridled power. 6.2The power of suspension is not a punishment and is an adinterim measure and if one has to be issued with show cause notice, then the very purpose of ad-interim suspension is lost. In as much as ultimate punishment is imposed only on the conclusion of the disciplinary proceedings it cannot be said that any substantial or vested right of the Resolution Professional is violated. On the contrary, the purpose of suspension is to immediately keep the erring person away from the office, so that the relevant materials and evidences which are on record be properly collected and that there is an impartial and fair enquiry in the issue. Therefore, the requirement of issuance of show cause notice cannot be read into a provision of ad-interim suspension. 6.3 Of course, any suspension, if prolonged, witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notices dated 26th October 2023 and 10th April 2024 were preceded by reports of the investigating authority which undertook investigation after being duly authorised by orders passed under Section 218 of the Code. (c) Clause 23A of the 2016 Regulations as well as Clause 23A of the Bye-laws framed by the ICSI Institute of Insolvency Professionals are valid. The suspension of the petitioner's AFA is legal as it is the consequence of initiation of disciplinary proceedings against him. The same is duly provided by Clause 23A of the 2016 Regulations and the Bye-Laws in that regard. 16. Hence for aforesaid reasons, we do not find any exceptional case made out to interfere with the issuance of show cause notices dated 23rd October 2023 and 10th April 2024. The same do not suffer from any jurisdictional infirmity. It is clarified that the observations made in the judgment are only for the purposes of considering the validity of the show cause notices. The same shall not be considered as any expression on the merits of the petitioner's defence as raised in his reply to the show cause notices. All contentions of parties on merits are kept expressly open. 17. Rule stands discharged with n ..... 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