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TMI Blog2025 (4) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... ia (hereinafter referred to as "IBBI") as the Insolvency Professional on 02.06.2017. On 03.08.2017, the National Company Law Tribunal (hereinafter referred to as "NCLT/Adjudicating Authority") admitted an application under section 9 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as "IBC") filed by PR International initiating Corporate Insolvency Resolution Process (hereinafter referred to as "CIRP") against GTHS Retails Pvt. Ltd (Corporate Debtor). 3. It is further stated that the appellant was appointed as an Interim Resolution Professional (hereinafter referred to as "IRP") and vide order dated 20.12.2017, the Adjudicating Authority confirmed and appointed the appellant as the Resolution Professional (hereinafter referred to as "RP"). Vide order dated 04.07.2019, the Adjudicating Authority took note of the fact as informed by the appellant that the period of 270 days within which CIRP needs to be completed had come to an end and also the Resolution Applicant had withdrawn his offer and therefore the only option left was to proceed towards liquidation. So, the liquidation process against the Corporate Debtor (hereinafter referred to as "CD") was initiated. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09.2019, the CD was a going concern and all the records/documents were at the premises only. It is also stated that complete set of all the documents were handed over to the liquidator by 07.11.2019 and the liquidator had himself acknowledged the receipt of all the documents vide e-mail dated 20.09.2020. 8. The investigation report dated 08.08.2023 was filed by the Investigating Authority with the IBBI wherein it was stated that AGM(MM) was directed to conduct investigation in the matter of GTHS Retails Pvt Ltd. Accordingly a notice under section 8 (1) of the Inspection Regulations was issued to the appellant as well as to the liquidator. The Investigating Authority after going through the reply, submissions and documents as produced, held that the appellant is in violation of section 25 (1), 25 (2) (a), 25 (2) (b), 208 (2) (e) of the IBC and the IP Regulations read with clause 24 of the code of conduct and the circular dated 14.08.2019 issued by the IBBI. 9. Thereafter, a show cause notice (hereinafter referred to as "SCN") dated 25.08.2023 was issued to the appellant by IBBI under section 2 (1) (a) of the IBC read with Regulations 11 & 12 of the Inspection Regulations. The IBBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ministrative jurisdiction, while ignoring the basic errors committed by the said authority in reaching the said conclusion. 15. Learned counsel submits that the issue was initiated pursuant to an order dated 17.01.2023 rendered by the NCLT in the matter of M/s. PR International vs. M/s. GTHS Retails Pvt. Ltd. wherein, according to learned counsel, the NCLT erroneously noted the book value of assets as on 2017 at Rs.4.28 Crores as if the same was liquidation value. Apprehending something amiss, the NCLT called upon IBBI to seek details and file a report. Simultaneously the liquidator was also directed to provide a copy of the compliance report. He further submits that vide the notice dated 25.04.2023, the IBBI relying upon the order dated 15.07.2022 of the NCLT put the petitioner to notice in respect of investigation in the context mentioned in the order of NCLT. 16. Consequent upon the reply and responses given by the petitioner, the IBBI issued SCN dated 25.08.2023 under Section 219 of IBC read with Regulations 11 and 12 of the IBBI Inspection Regulation. Following charges were levelled against the petitioner:- Contravention - I (a) Recovery of Security Deposits (b) Recove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iring Valuation Report since at the time when the appellant was executing his assignment as IRP there were no Valuation Rules in force, and Rules were brought into force only in the year 2019. That apart, he contends that so far as the realizable value of assets of the CD qua the job workers are concerned, it was to the extent of Rs.79 Lacs as on the date when the appellant was appointed as the IRP. It is the assertion of learned counsel that during his tenure as IRP, the appellant was able to recover/realize a sum of over Rs.86 Lacs from such job workers. He states that in support of such contention, the appellant had placed before the DC, the Auditor's Report dated 14.09.2023. According to learned counsel the Auditor's Report/certificate clearly indicated the factum of the appellant having realized Rs.86 Lacs where only Rs.79 Lacs were noted to be realized from the job workers. He claims that firstly the DC and secondly the learned Single Judge simply brushed aside the findings and the contents of the Auditor's Report on the premise that the same is an afterthought. He also vociferously contends that the said Auditor's Report was based on the statement of account of the bank of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had approved payment of salary to the extent of Rs. 90,000/- to the CEO, subsequently, in the 7th CoC meeting dated 11.03.2019 it was also resolved that the suspended Director now working as CEO would not be paid as on that date and would be considered by the CoC subsequently. It is on these instances that the learned counsel seeks to predicate his argument that there has been a gross irregularity, illegality and error committed by the DC in considering the well documented and reasoned reply of the appellant Equally, in his submission, the learned Single Judge too, did not appreciate the facts as submitted in the aforesaid context. 21. So far as the charge regarding failure to comply with the process of IBC is concerned, learned counsel vehemently disputes that charge on the ground that the same is a bald averment without any substance in it. He states that from the above three charges and the response tendered by the appellant, it is apparent that there were no violations of any process involved in IBC. Even otherwise he claims, though without admitting, that such procedural lapses cannot entail a draconic imposition of penalty of suspension of two years. 22. Apart from the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng his tenure. Alternatively, without admitting, he states that at worst the only lapse could be those of payments having been released on account of salaries to the employees after the order of liquidation and appointment of liquidator was passed by the NCLT. To that, learned counsel submits that the decision to release payments to the salaries of the CD from the personal account of the then CEO was a conscious decision taken in the interest of the employees but given effect to after the aforesaid order of appointment of liquidator was passed. He states that no prejudice whatsoever was or could have been caused to either the CD or the process itself. According to him, even this lapse too, if at all it could be termed as a lapse, would not entail suspension of the appellant as IRP for a long period of two years. In the same context, learned counsel states that this Court may take a considerate view of the entire gamut of facts and reduce the penalty to the period already undergone. CONTENTIONS OF THE RESPONDENT:- 24. Per contra, Ms. Amrita Singh, learned counsel appearing for the DC of the IBBI vehemently counters the submissions addressed on behalf of the appellant. Learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any WIP on site as the appellant recovered the material and sold them. She submits that the aforesaid submission is an erroneous statement as provisions of the IBC mandate valuation is to be done as on Insolvency Commencement of duty and this is a violation of Regulation 27 of IBBI Regulation, 2016. She further submits that in any event, it was evident that no information regarding such pre-valuation sale was given to the valuers, else it would have been mentioned in the Valuation Reports. This was also manifest from the clarificatory statement later solicited by the appellant from the CA Mr. Vinai K Singh which stated that the appellant was running the business so the fact is known only to him. She submits that this demonstrated that the appellant had not shared the complete information with the appointed valuers. Further, failure to take any action to recover the WIP or in the alternative, sale of WIP in a non-transparent manner, without valuation and without providing necessary information regarding sale proceeds etc. to the valuer, both amount to serious dereliction of duty on the part of the appellant. 29. Learned counsel on the argument of proportionality of penalty address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 997) 7 SCC 463 : 1997 SCC (L&S) 1806] this Court summed up the position relating to proportionality in para 31, which read as follows : (SCC pp. 478-79) "31. The current position of proportionality in administrative law in England and India can be summarised as follows: (1) To judge the validity of any administrative order or statutory discretion, normally the Wednesbury [Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 : (1947) 2 All ER 680 (CA)] test is to be applied to find out if the decision was illegal or suffered from procedural improprieties or was one which no sensible decision-maker could, on the material before him and within the framework of the law, have arrived at. The court would consider whether relevant matters had not been taken into account or whether irrelevant matters had been taken into account or whether the action was not bona fide. The court would also consider whether the decision was absurd or perverse. The court would not however go into the correctness of the choice made by the administrator amongst the various alternatives open to him. Nor could the court substitute its decision to that of the administrator. This is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of administrative or executive action affecting fundamental freedoms, the courts in our country will apply the principle of 'proportionality' and assume a primary role, is left open, to be decided in an appropriate case where such action is alleged to offend fundamental freedoms. It will be then necessary to decide whether the courts will have a primary role only if the freedoms under Articles 19, 21, etc. are involved and not for Article 14." xxx xxx xxx 15. To put it differently, unless the punishment imposed by the disciplinary authority or the Appellate Authority shocks the conscience of the court/tribunal, there is no scope for interference. Further, to shorten litigations it may, in exceptional and rare cases, impose appropriate punishment by recording cogent reasons in support thereof. In the normal course if the punishment imposed is shockingly disproportionate, it would be appropriate to direct the disciplinary authority or the Appellate Authority to reconsider the penalty imposed." (emphasis supplied) 32. In the present case we find that so far as charge (a) is concerned, even the Investigating Authority's Report vindicated the stand taken by the appellant to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken after proper approvals were sanctioned by the CoC. We have seen that the CoC comprised stakeholders of whom, most were reputed banks. In other words, it appears that the CoC members were well versed with the financial impacts of the decisions being taken. It appears, prima facie, that the approvals were sanctioned after proper deliberation and understanding the impact. 35. Lastly, in respect of the charge levelled against the appellant for violation of procedures and process of CIRP as envisaged in IBC, this being purely on factual basis, we are refraining from entering into such issue. Though, we are not interfering with the opinion of the DC that the appellant may have infracted certain procedural aspects of the IBC of obtaining Valuation Reports etc., we have considered the issue only with respect to the proportionality of penalty. 36. The above analysis regarding charges (a), (b) and (c) levelled against the appellant appear to our mind to be aspects which may have inadvertently been overlooked by the DC and it is possible that considered from the above point of view, a penalty, not so severe in nature may perhaps, have been imposed upon the appellant. We are also awar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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