Bombay High Court
Vijendra Kumar Jain vs The Insolvency And Bankruptcy Board Of ... on 16 October, 2024
Author: A.S. Chandurkar
Bench: A.S. Chandurkar
2024:BHC-AS:41058-DB
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.12320 OF 2024
Vijendra Kumar Jain, ]
The erstwhile Resolution Professional of ]
M/s. Transparent Energy System Pvt. Ltd., ]
Bandra (East), Mumbai - 400 051. ] .. Petitioner
Versus
1. The Insolvency & Bankruptcy Board of India, ]
Through Deputy General Manager, ]
Mayur Bhavan, Connaught Circus, New Delhi ]
2. The Union of India, ]
Ministry of Corporate Affairs (MCA), ]
Shastri Bhavan, New Delhi - 110 001. ] .. Respondents
Mr. Gaurav Joshi, Senior Advocate, with Mr. Chaitanya Nikte, Ms. Esha
Malik and Mr. Swapnil Sangle, Advocates for the Petitioner.
Mr. Pankaj Vijayan with Ms. Sushmita Chauhan, Advocates for Respondent
No.1-IBBI.
Mr. Vinit Jain with Mr. Ashutosh Mishra, Advocates for Respondent No.2-
UOI.
CORAM : A.S. CHANDURKAR & RAJESH S. PATIL, JJ
The date on which the arguments were heard : 10TH SEPTEMBER, 2024.
The date on which the Judgment is pronounced : 16TH OCTOBER, 2024.
JUDGMENT :
[ Per A.S. Chandurkar, J. ]
1. Rule. Rule made returnable forthwith and heard learned counsel for
the parties.
2. Pursuant to initiation of Corporate Insolvency Resolution Process -
"CIRP" of M/s. Transparent Energy System Private Limited - Corporate
Digitally
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DIXIT Date:
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Debtor - "CD", the petitioner came to be appointed as Resolution
Professional - "RP" by the National Company Law Tribunal - "NCLT" by
its order dated 21st February 2020. The Insolvency and Bankruptcy Board
of India - "IBBI" , in exercise of powers conferred under Section 218 of
the Insolvency and Bankruptcy Code, 2016 - "the Code", appointed an
Investigating Authority - "IA" to conduct investigation in the matter of the
CD. After receipt of the Investigation Report, the IBBI on 11 th July 2023
issued a show cause notice to the petitioner raising two grounds, namely,
lack of due diligence while verifying the Resolution Plan of the CD and
non-intimation of the claim of Kanoria Chemicals & Industries Limited -
"KCIL" despite being aware of the partial admission of its claim. It was
stated in the show cause notice that the IA had issued a notice of
investigation to the petitioner on 29th April 2023 seeking his response. The
petitioner through his written submissions dated 11 th May 2023 and 19th
May 2023 replied to the same. The IA submitted its investigation report to
the IBBI and on that basis, the aforesaid show cause notice was issued
alleging contravention of the provisions of Section 30(2)(b) and (e),
208(2)(a) and (e) of the Code as well as the Regulations framed in that
regard.
3. The petitioner on 24th July 2023 submitted his reply to the show
cause notice and denied the assertions made therein. Virtual hearing took
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place on 31st January 2024 and thereafter the Disciplinary Committee of
the IBBI through two Whole Time Members on 12th August 2024 passed an
order stating therein that as the petitioner had failed to perform his duties
under the Code read with the relevant Regulations made thereunder, the
petitioner's registration as RP was suspended for a period of one year. The
said order was to come in effect after expiry of thirty days from the date of
its issue. Being aggrieved by the order of suspension, the petitioner has
filed this writ petition raising a challenge to the same.
4. Mr. Gaurav Joshi, the learned Senior Advocate for the petitioner
submitted that there was no basis whatsoever for the Disciplinary
Committee of the IBBI to have suspended the petitioner's registration as IP
for a period of one year. Referring to the order passed by the National
Company Law Appellate Tribunal - "NCLAT" dated 11th April 2023 in the
proceedings initiated by KCIL, it was submitted that the petitioner was
merely reprimanded on account of lack of showing due diligence. It
observed that the petitioner should have been more dutiful and alert in
responding to the e-mails sent by KCIL. These observations made by
NCLAT could not have been the basis for the Disciplinary Committee to
hold that the petitioner had failed to perform his duties under the Code
and the Regulations made thereunder. Referring to the Regulations of
2017 and especially Clause 13(3)(b), it was submitted that the suspension
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of the registration for a duration of one year was disproportionate to the
conduct of the petitioner. The petitioner in reply to the show cause notice
had explained in clear terms the steps taken by him during the course of
the proceedings. The fact that there was some delay in responding to the
e-mails sent by KCIL on account of outbreak of Covid-19 was
acknowledged by the Disciplinary Committee. Despite aforesaid, the
petitioner was faulted for the failure in updating the status of KCIL's claim.
Reference was made to the provisions of Section 30 of the Code to urge
that it was not necessary for a Resolution Professional to comment on each
and every aspect of the Resolution Plan. There was no finding recorded
that any loss was suffered by any person so as to require action being
taken against the petitioner. It was thus submitted that the entire basis or
premise on which the Disciplinary Committee proceeded to take action
against the petitioner was without legal basis and thus was liable to be set
aside.
It was then submitted that the period of suspension of one year was
not at all justified in the facts of the case. The Disciplinary Committee
failed to consider the reason and need to suspend registration of the
petitioner for a period of one year. Referring to the decision in Ranjit
Thakur Vs. Union of India and Ors., (1987) 4 SCC 611 , it was submitted
that suspension of the petitioner from functioning as a Resolution
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Profession was harsh and disproportionate, thus requiring interference. A
reference was also made to the decisions in Writ Petition (Lodging)
No.19031 fo 2023 (Vishal Ghisulal Jain Vs. Union of India and Ors.)
decided on 7th August 2023 and Writ Petition (Lodging) No.28206 of 2023
(Partha Sarathy Sarkar Vs. Insolvency & Bankruptcy Board of India (IBBI)
& Ors.), decided on 17th October 2023. It was thus submitted that taking
an overall view of the matter, there was no case made out to suspend the
registration of the petitioner as RP. Hence, the order passed by the
Disciplinary Committee on 12th August 2024 was liable to be set aside.
5. Mr. Pankaj Vijayan, the learned counsel appearing for the IBBI
supported the impugned order. According to him, there was sufficient
reason for the Disciplinary Committee to suspend the registration of the
petitioner for a period of one year. The observations made by the NCLAT
in its order dated 11th April 2023 were against the petitioner. Various
shortcomings in the discharge of duties by the petitioner as RP were noted
in the said order. The petitioner accepted the said order and did not
challenge the same though he was a respondent in the said proceedings.
The IBBI first obtained an investigation report and on that basis thereafter
issued the show cause notice to the petitioner. The IBBI was justified in
acting against the petitioner on finding that he had not acted diligently in
responding to the e-mails sent by KCIL. In the facts of the case, it could not
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be said that the punishment of suspension for a period of one year was
disproportionate to the conduct of the petitioner as RP. He submitted that
while examining the challenge raised by the petitioner to the order passed
by the Disciplinary Committee, this Court in exercise of jurisdiction under
Article 226 of the Constitution of India ought not to sit in appeal and re-
consider the entire matter. Since the principles of natural justice as well as
the procedure prescribed under the Code had been duly followed prior to
placing the petitioner under suspension for a period of one year, no
interference with the impugned order was called for. Reference was made
to the decision in Director General of Police, Railway Protection Force and
Ors. Vs. Rajendra Kumar Dubey, (2021) 14 SCC 735 in this regard. It was
thus submitted that there is no case made out to interfere in exercise of
writ jurisdiction and the writ petition was liable to be dismissed.
6. We have heard the learned counsel for the parties at length and with
their assistance, we have perused the documents on record. In the
proceedings initiated by the CD under the CIRP, an Interim Resolution
Professional - "IRP" came to be appointed by the NCLT on 8 th March 2019.
The petitioner replaced the earlier IRP and was appointed as RP on 21 st
February 2020. The show cause notice dated 11 th July 2023 proceeds on
the basis that the petitioner as Resolution Professional showed lack of due
diligence in verification of the Resolution Plan inasmuch as despite
verifying the claim of the Operational Creditor, KCIL and thereafter
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admitting the full claim amount, the petitioner as RP did not raise any
objection to zero provisioning of KCIL. The second ground on which the
show cause notice was issued was the non-intimation of the claim of KCIL
by failing to reply to the specific queries made by it to the RP. Reference
was made to the investigation report that was the basis for issuance of the
show cause notice. Then the petitioner's response was called for. The
petitioner replied to the aforesaid show cause notice on 24 th July 2023
denying all the allegations made in the show cause notice. After granting
the petitioner an opportunity of hearing, which he availed virtually, the
Disciplinary Committee passed its order on 12 th August 2024 suspending
the petitioner's registration with the IBBI for a period of one year.
We may note that there is no challenge raised by the petitioner as
regards non-compliance of the principles of natural justice while
adjudicating the show cause notice. Due notice along with all relevant
material was given to him and after the petitioner submitted his reply, he
was heard before the impugned order of suspension was passed. We
would therefore proceed on the basis that after due compliance of the
principles of natural justice, the impugned order of suspension has been
passed by the whole-time Members of the Disciplinary Committee
constituted by the IBBI.
7. Before proceeding to consider the challenge to the order of
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suspension of the petitioner, it would be necessary to refer to the orders
passed by the NCLT and thereafter the NCLAT that led to issuance of show
cause notice. The NCLT considered an application filed under Section
30(6) of the Code by the petitioner in his capacity as Resolution
Professional seeking approval of the Resolution Plan. It allowed the said
application and the Resolution Plan submitted by Mr. Ashok Atre came to
be approved. KCIL being aggrieved by the aforesaid order dated 16 th April
2021 passed by the NCLT approached the NCLAT by filing an appeal under
Section 61 of the Code. The NCLAT framed three issues and issue no.3,
which is relevant for the present purpose, reads as under:-
"(iii) Whether R-1 failed his duty to communicate admitted
claim amount of the Appellant to him during the CIRP
and also in the examination of the submitted
resolution plan before its approval by the Adjudicating
Authority?"
In that context, the NCLAT noted various facts, namely, that KCIL
had submitted its claim in Form-B to the earlier IRP on 3 rd June 2019
clearly stating therein that its claim was based on an Arbitration Award
dated 19th March 2015. Thereafter, an execution application had been filed
by KCIL while the CD had filed proceedings under Section 34 of the
Arbitration and Conciliation Act, 1996 for challenging the award. It was
noted that there was no stay granted in the said proceedings. About five e-
mails were sent on behalf of the KCIL between 17 th February 2021 and 15th
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April 2021 indicating the concern expressed by KCIL about the precise
amount admitted in its claim. The petitioner sent a reply through e-mail
dated 15th April 2021 stating therein that the Resolution Plan was under
submission and consideration of the Adjudicating Authority. The NCLAT
noted that the petitioner did not communicate the precise quantum of the
admitted claim of KCIL. Though the claim of KCIL was admitted to the
extent of Rs.16,78,510.35/- in the CIRP which was clear from the e-mail
sent by the earlier IRP, the petitioner through his e-mail dated 21 st May
2020 stated that he could observe that the claim of KCIL had not been
admitted. The NCLAT gave the benefit of doubt to the petitioner on the
premise that in view of the change in RP, it was likely that all documents
and papers were not transferred from the earlier IRP to the petitioner.
Despite aforesaid, it noted that the petitioner as RP had failed to take
necessary follow-up despite various e-mails received and thus recorded a
finding that the petitioner as RP had failed in his duty under the CIRP
Regulations.
8. The NCLAT further found that the petitioner as RP had failed in his
duty in pointing out objectional comments made by the Successful
Resolution Applicant - "SRA" which had proceeded to examine in detail
the arbitration proceedings on the basis of which an award was passed in
favour of the KCIL. The SRA proceeded to comment on the arbitration
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award as being void ab initio and the entire process of making the award
being defective and unlawful. It was found that the petitioner as RP ought
to have taken note of these comments while examining the Resolution
Plan. By failing to point out such objections and comments when the
Resolution Plan was placed for consideration before the Committee of
Creditors and the Adjudicating Authority, the petitioner in his capacity as
RP had failed in his duty. Thus after considering the matter in detail, the
NCLAT concluded by observing in paragraph (iv) as under :
" (iv) The Resolution Professional Shri Vijendra Kumar Jain
should have been more dutiful and alert in responding
to various e-mails of the Appellant regarding admitted
amount of his claim, and further he should have
brought the objectionable comments made by the
Successful Resolution Applicant regarding the
arbitration award in the arbitration process which was
included in the resolution plan to the notice of
Committee of Creditors as also the Adjudicating
Authority, which he failed to do so, and therefore he is
reprimanded regarding this failure in the call of his
duty."
KCIL was held entitled to litigation cost of Rs.1,00,000/- to be
paid by the SRA. It may be stated that Mr. Ashok Atre and another
challenged the aforesaid judgment of the NCLAT before the Supreme
Court in Civil Appeal (Diary) No.21579/2023 (Ashok Dattatray Atre &
Anr. Vs. Kanoria Chemicals & Industries Ltd. & Anr.) decided on 9th
October 2023 and the Supreme Court did not interfere with the
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directions issued in the matter. Pertinently, the petitioner failed to
challenge the aforesaid order or the observations made against him by
the NCLAT. Thus the findings recorded by the NCLAT against the
petitioner in its judgment dated 11th April 2023 have attained finality.
Keeping these aspects in mind, the decision of the Disciplinary
Committee to suspend the petitioner principally in view of such
conduct for a period of one year is required to be examined.
9. It is clear that the factual basis on which the show cause notice
came to be issued to the petitioner are the observations made by
NCLAT in its judgment dated 11 th April 2023. The said findings not
having been challenged by the petitioner and the same having
attained finality, it would not be open for this Court to go into the
correctness or otherwise of the said findings. Suffice it to observe that
there was sufficient basis for the IBBI to issue the show cause notice
to the petitioner. Its adjudication thereafter by the Disciplinary
Committee is principally based on the findings recorded by NCLAT.
While adjudicating the show cause notice, the Disciplinary Committee
found that there were various lapses on the part of the petitioner as
RP by failing to object to the proposal submitted by the SRA on the
ground that it included comments as well as legal analysis of the
arbitration process wherein an award was passed in favour of KCIL. It
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found that it was not open for the SRA to term the award as void ab
initio or unlawful. In spite of receiving the legal opinion dated 13 th
July 2020 wherein it was stated that such comments by the SRA
ought not to have been made, the petitioner as RP failed to take
cognizance of the same. This conduct of the RP has thus been found
to be in contravention of the Insolvency and Bankruptcy Board of
India (Insolvency Professionals) Regulations, 2016.
As regards inaction on the part of the petitioner as RP to
indicate the precise amount of claim admitted by him, the
observations of the NCLAT in paragraph 20 form the basis for holding
that the petitioner failed to act in accordance with Regulation 13(2)
(a) and (d) of the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons) Regulations,
2016. In our view, the Disciplinary Committee has proceeded to take
necessary action based on the observations of the NCLAT, which the
petitioner did not challenge. The finding recorded by the NCLAT was
that the petitioner had failed in his duty as RP and hence there was
substantial material to proceed against the petitioner. The Disciplinary
Committee was cognizant of the fact that some time was spent on
account of outbreak of Covid-19 but despite that the conduct of the
petitioner as RP in discharge of duties was found to be highly
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deficient. It is therefore clear that in the light of the material available
with the Disciplinary Committee and especially the judgment dated
11th April 2023 passed by the NCLAT, the action of suspending the
registration of the petitioner as RP is justified. The exercise
undertaken by IBBI is within its jurisdiction and powers conferred by
Section 218 of the Code. It has acted on the basis of a judicial order
that has attained finality. Considering the totality of the circumstances
on record and in the absence of any procedural infirmity, there is no
reason to interfere with the action of suspension.
10. According to the learned Senior Advocate for the petitioner, the
suspension of the petitioner as RP for a period of one year was
excessive and disproportionate. The Disciplinary Committee had
failed to indicate the reasons for suspending the petitioner's
registration for a period of one year.
In our view, the material on the basis of which the Disciplinary
Committee proceeded to suspend the petitioner being unquestionable,
the period for which such suspension should operate is a matter
within the realm of the Disciplinary Committee. The Disciplinary
Committee in the light of the jurisdiction conferred upon it by Section
220 of the Code is empowered to take into consideration all relevant
aspects including the conduct of RP. The petitioner's suspension for a
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period of one year cannot be said to be highly disproportionate that
would shock the conscience of the Court for it to interfere in exercise
of writ jurisdiction. Given the deficiencies noted by the Disciplinary
Committee, we do not find that there is any case for reducing the
period of suspension of the petitioner's registration. The ratio of the
decision in Ranjit Thakur (supra) on the aspect of proportionality is
not attracted to the facts of the present case. The orders passed in
Vishal Ghisulal Jain and Partha Sarathy Sarkar (supra) are interim in
nature and do not assist the case of the petitioner.
11. For aforesaid reasons, we do not find any case made out to
interfere in exercise of writ jurisdiction. The Writ Petition stands
dismissed. Rule is discharged with no order as to costs.
12. At this stage, the learned counsel for the petitioner prays that
the interim protection operating be continued for a period of four
weeks. This request is opposed by the learned counsel for the
respondent no.1. Considering the reasons assigned, we do not find
any case to continue the interim relief. The request is therefore
rejected.
[ RAJESH S. PATIL, J. ] [ A.S. CHANDURKAR, J. ]
Digitally
signed by
SNEHA
SNEHA ABHAY
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Date:
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