Bombay High Court
Naren Sheth vs The Union Of India, Th. Ministry Of ... on 25 October, 2024
Author: A.S. Chandurkar
Bench: A.S. Chandurkar
2024:BHC-OS:17938-DB
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (LODGING) NO.5978 OF 2024
Naren Sheth, an Insolvency Professional, ]
Having address at Opera House, Mumbai ] .. Petitioner
Versus
1. The Union of India, ]
Through Ministry of Corporate Affairs, New Delhi ]
2. The Insolvency and Bankruptcy Board of India, ]
New Delhi ]
3. The Disciplinary Committee, ]
The Insolvency and Bankruptcy Board of India, ]
New Delhi ] .. Respondents
Mr. Shyam Kapadia with Mr. Abdullah Qureshi and Ms. Shraddha Patil,
Advocates, i/by Indialaw LLP, for the Petitioner.
Mr. M.S. Bhardwaj, Advocate for Respondent No.1.
Mr. Pankaj Vijayan with Ms. Sushmita Chauhan and Ms. Sejal Kanase,
Advocates for Respondent No.2.
CORAM : A.S. CHANDURKAR & RAJESH S. PATIL, JJ
The date on which the arguments were heard : 08 TH OCTOBER 2024
The date on which the Judgment is pronounced : 25TH OCTOBER 2024
JUDGMENT :
{ Per A.S. Chandurkar, J. }
1. Rule. Rule made returnable forthwith and heard learned counsel for
the parties.
2. The challenge raised in this writ petition is to the order dated 30 th
January 2024 passed by the Disciplinary Committee, Insolvency and
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Bankruptcy Board of India by which the petitioner's registration as an
Insolvency Professional has been suspended for a period of two years.
3. The facts in brief giving rise to the present proceedings are that the
petitioner came to be appointed as Resolution Professional - "RP" in
proceedings that had been filed under Section 9 of the Insolvency and
Bankruptcy Code, 2016 - "Code of 2016" by Vijisan Exports Pvt. Ltd. -
"VEPL" seeking to initiate Corporate Insolvency Resolution Process -
"CIRP" of Ciemme Jewels Ltd. - "CJL". The National Company Law
Tribunal - NCLT on 25th March 2019 passed an order for liquidation of CJL
and therefore appointed the petitioner as Liquidator in the said matter. An
another application under Section 9 of the Code of 2016 was filed by M/s.
Central Investigation and Security Services Ltd. seeking initiation of CIRP
of M/s. Dhanlaxmi Electricals Pvt. Ltd. - "DEPL". The NCLT by the order
dated 6th September 2021 appointed the petitioner as Interim Resolution
Professional - "IRP".
4. The Insolvency and Bankruptcy Board of India - "IBBI" in exercise
of powers under Section 218 of the Code of 2016 appointed an
Investigating Authority to conduct an investigation into the liquidation
proceedings of CJL as well as an investigation in the CIRP proceedings of
DEPL. A notice of investigation was sent to the petitioner on 22 nd June
2022 and 22nd July 2022. The petitioner replied to the same on 23 rd June
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2022 and 27th July 2022. The Investigating Authority submitted its report
to the IBBI on 15th July 2022 as regards the petitioner's role as Liquidator
in CJL and on 3rd August 2022 with respect to his role as IRP in the CIRP
of DEPL. On the basis of the findings recorded, a show cause notice dated
14th February 2023 came to be issued by the IBBI to the petitioner. An
opportunity of personal hearing was availed by the petitioner virtually on
6th September 2023 after which the Disciplinary Committee consisting of
one Whole Time Member of IBBI passed an order suspending the
registration of the petitioner for a period of two years on 30 th January
2024. The said order was to come into effect on expiry of thirty days from
the date of its issuance. Being aggrieved by the aforesaid order, the
petitioner has challenged the same in the present writ petition. By an ad-
interim order dated 28th February 2024, the effect and operation of the
impugned order has been stayed.
5. Mr. Shyam Kapadia, the learned counsel appearing for the petitioner
after referring to the factual aspects leading to the passing of the
impugned order submitted that the Disciplinary Committee was not
justified in suspending the registration of the petitioner for a period of two
years. Referring to the order passed by the NCLT dated 2 nd March 2023
which were proceedings seeking to raise a challenge to the notice dated
2nd April 2022 for the sale of assets of the Corporate Debtor - "CD", it was
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submitted that while setting aside the e-auction dated 8 th April 2022 that
was conducted by the petitioner as Liquidator, directions were issued to
conduct a fresh auction and the petitioner was directed to bear all the
expenses incurred for the said auction. The appeal preferred by the
petitioner challenging the aforesaid order was dismissed by the National
Company Law Appellate Tribunal - NCLAT on 4 th July 2023. The fresh
auction was accordingly conducted and the petitioner complied with the
directions issued by the NCLAT by bearing all expenses for the auction.
Since the petitioner had been directed to bear the cost of the auction, no
further action in the form of suspension of his registration was called
upon. The learned counsel placed reliance on the decisions in (i)
Noratanmal Chouraria Vs. M.R. Murli and Anr., (2004) 5 SCC 689, (ii)
Laxmibai Vs. Collector, Nanded and Ors., (2020) 12 SCC 186, (iii) DKT
India Vs. State of Maharashtra and Anr. (Civil Writ Petition No.2419 of
2023, decided on 3rd April 2023, (iv) Savan Godiawala Vs. Insolvency and
Bankruptcy Board of India (Writ Petition (C) No.13317/2022 & CM
APPLs. 40416/2022, 22945/2023, decided on 11th January 2024), and (v)
Amit Gupta Vs. Insolvency and Bankruptcy Board of India and Anr. (OOCJ
Writ Petition (Lodging) No.34701 of 2023, decided on 4 th April 2024). It
was also urged that the DC comprised of only one Whole-Time member
and not two Whole-Time members as required by the Code.
The action of suspending the petitioner's registration in these facts
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would amount to double jeopardy since the petitioner had borne the
expenses for the auction as directed. It was thus submitted that taking an
overall view of the matter, the penalty of suspension as imposed was liable
to be set aside. In any event, the said penalty was excessive in nature
without indicating the requirement of suspending the petitioner for a
period of two years. It was thus prayed that the reliefs prayed for in the
writ petition be granted.
6. Mr. Pankaj Vijayan, learned counsel for the IBBI opposed the writ
petition and supported the order passed by the DC. He submitted that the
report of the Investigating Authority was duly served on the petitioner and
reference to the same could be found in the show cause notice dated 14 th
February 2023. Referring to the reply filed by the petitioner to the show
cause notice, it was pointed out that no protest whatsoever was raised by
the petitioner in that regard. After complying with the principles of natural
justice and granting due opportunity to the petitioner, the DC had imposed
an appropriate penalty. In absence of there being any perversity in the
impugned order, the scope for challenging the same was narrow. Coming
to the conduct of the petitioner, it was submitted that despite an e-mail
being sent by the State Bank of India on 8 th April 2022, necessary
corrections in the auction notice were not undertaken immediately. The
corrections made were only on the website and not through any paper
publication. This was done after the conduct of the auction. The
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observations of the NCLT, as confirmed by the NCLAT, clearly indicated the
undue haste of the petitioner in conducting auction. As regards the show
cause notice issued with regard to the petitioner's role as IRP in the CIRP
of DEPL, it was submitted that the petitioner failed to indicate lack of due
knowledge of the aforesaid proceedings. The material in question in the
form of the order dated 6th September 2021 passed by the NCLT admitting
the CD into CIRP was available on the website and therefore the stand
taken by the petitioner was rightly disbelieved by the DC. Referring to the
Regulations framed under the Code of 2016 it was submitted that after
noticing the conduct of the petitioner as Liquidator in the matter of CJL
and as IRP in the proceedings pertaining to DEPL, appropriate action was
taken by the IBBI. The learned counsel placed reliance on the decisions in
(i) State Bank of Patiala and Ors. Vs. S.K. Sharma, 1996 AIR(SC) 1669,
(ii) B.C. Chaturvedi : Union of India Vs. Union of India : B.C. Chaturvedi,
1996 AIR(SC) 484, and (iii) Union of India and Ors. Vs. P. Gunasekaran,
2015 AIR(SC) 545. As regards the contention that there was only one
whole time member at the DC, it was submitted that this issue stood
concluded by the judgment of this Court in Rohit J. Vora Vs. Insolvency &
Bankruptcy Board of India, New Delhi (OOCJ Writ Petition (Lodging)
No.20352 of 2023, decided on 4th September 2024). It was thus urged that
there was no case made out to interfere in exercise of writ jurisdiction.
7. We have heard the learned counsel for the parties and with their
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assistance, we have perused the documentary material on record. At the
outset, it may be noted that there is no serious grievance raised in the
challenge to the order passed by the DC on the premise that the principles
of natural justice had been breached. After the show cause notice was
issued to the petitioner, he was granted due opportunity to reply and after
granting him an opportunity of oral hearing which the petitioner availed,
the impugned order came to be passed. The investigation reports that
were called by the IBBI have been referred to in paragraph 2 of the show
cause notice and the said reports were annexed as Annexures "A" and "B"
thereto. Once it is found that the impugned action has been taken after
duly complying with the principles of natural justice, the limited scope
available for examining the impugned order would be on the touchstone
of perversity and irrationality. We may also note that insofar as the
conduct of the petitioner as Liquidator is concerned, the show cause notice
proceeds on the basis of the order passed by the NCLT in Interim
Application No.947 of 2022 in C.P.(IB)-297/(MB)/2018 (Sunrise
Industries Vs. Naren Seth in the matter of Vijisan Exports Pvt. Ltd. Vs.
Ciemme Jewels Ltd.), dated 2nd March 2023, which order was
subsequently upheld by the NCLAT in Company Appeal (AT) (Insolvency)
No.401 of 2023 (Naren Seth Vs. Sunrise Industries and Ors.) vide order
dated 4th July 2023. It is common ground that these orders have attained
finality. Hence, the said adjudication being made the basis for proceeding
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against the petitioner cannot be questioned. With the aforesaid factual
backdrop in mind, the challenge as raised would require consideration.
8. Perusal of the show cause notice dated 14 th February 2023 indicates
that in view of the alleged violation in the matter of conduct of auction by
the petitioner as a Liquidator, the IBBI was of the prima facie view that the
petitioner had violated the provisions of Section 208(2)(a) and (3) of the
Code of 2016 read with the relevant provisions of the Liquidation
Regulations as well as the Code of Conduct as prescribed. In the matter of
DEPL it was observed that there was a delayed issue of public
announcement exceeding the normal period of three days and that there
were inconsistencies in the public announcements.
9. Since the show cause notice is based principally on the order passed
by the NCLT on 2nd March 2023 as upheld by the NCLAT vide order dated
4th July 2023, it would be necessary to refer to the said orders. Before the
NCLT, Interim Application No.927 of 2022 came to be filed by a bidder
praying that the notice of sale of assets dated 2nd April 2022 be set aside. A
grievance was raised that while the notice of sale of assets was dated 2 nd
April 2022, the e-auction was scheduled on 8 th April 2022. In the light of
the short time-frame fixed for conducting the e-auction, the bidder
challenged the same. The reply filed by the petitioner in his capacity as
Liquidator was considered. The NCLT framed the following issue:-
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"Whether the Liquidator has committed any illegality or
material irregularity in conducting the e-auction? and
whether the e-auction dated 08.04.2022 is liable to be set
aside?"
While answering this issue, the NCLT noted that the time of thirty
days from the date of the paper publication of the auction notice and the
date of the e-auction was not maintained. Though the e-auction was
scheduled on 8th April 2022, the Liquidator had wrongly mentioned the
last date for submission of EOI and EMD as 15 th April 2022 and 16th April
2022 respectively. The Corrigendum issued by the petitioner was after
completion of the e-auction and hence it was observed that the same did
not serve any purpose. Accordingly, the NCLT set aside the e-auction dated
8th April 2022 conducted by the petitioner as Liquidator and directed him
to conduct a fresh auction by maintaining thirty days time between the
paper publication and the e-auction to enable more bidders to participate
in the auction. The petitioner was directed to bear all expenses incurred
for the auction.
10. The petitioner filed an appeal before the NCLAT challenging the
said order. While dismissing the said appeal, the NCLAT observed that the
correct procedure for conducting e-auction had not been followed. The
conflicting dates mentioned in the notice were sufficient to cause
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confusion and therefore could not be treated as mere typographical errors
as claimed by the petitioner. It further held that it was not in a position to
appreciate any grounds for such hurry on the part of the Liquidator. The
entire liquidation process was sought to be completed within a period of
one week. Issuance of the Corrigendum was after the sale having been
taken place. It therefore recorded a finding that considering the various
material irregularities, there was no error in the order passed by the NCLT
and accordingly dismissed the appeal.
The aforesaid adjudication has attained finality. The IBBI therefore
was justified in taking cognizance of the aforesaid adjudication and it
proceeded against the petitioner in his capacity as Liquidator for taking
action against him.
11. It was urged on behalf of the petitioner that since the NCLT directed
him to bear the entire expenses of the auction that was set aside, which
the petitioner had borne, the petitioner's suspension by the IBBI for the
same event resulted in double jeopardy. He had been penalised for the
same event twice. We do not find that the suspension of the petitioner by
the IBBI on account of breach of the Code of Conduct under the
Regulations can amount to double jeopardy on the ground that the
petitioner had been directed to bear the expenses of the auction. Merely
paying the amount of auction expenses would not result in wiping out his
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conduct as Liquidator, which was found to be questionable by the NCLT
and thereafter by the NCLAT. This contention of the petitioner cannot be
accepted.
12. As regards the matter of DEPL, it was stated in the show cause
notice that the petitioner in his capacity as IRP delayed the public
announcement dated 29th September 2021 by almost twenty-nine days
after the order of admission of the proceedings was passed by the NCLT.
Such declaration was made on 5th October 2021. According to the
petitioner, he had to trace the Operational Creditor and only after getting
knowledge of the same, the order was published on 5 th October 2021. It is
seen that the petitioner was informed of the order dated 29 th September
2021 on the same day. He could not come up with any satisfactory
explanation as to why he made the public announcement only on 5 th
October 2021. The DC has noted the absence of any justifiable reason
being given by the petitioner for the delay in making the public
announcement. It is on that basis that it was found by the DC that there
was contravention of Regulation 6(1) of the CIRP Regulations. We do not
find any basis to hold that this finding recorded by the DC was either
incorrect or that a perverse view of the matter had been taken.
The other inconsistency noted was the discrepancy in the date of
submission of the claim which had been shown as 13 th October 2021 and
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that date was thereafter indicated as 5th December 2021 in column 11 of
Form "A". The DC noted that no specific reply was given by the petitioner
to these discrepancies in the public announcement as regards the last date
for submission of claims. It was thus concluded by the DC that the
petitioner had shown carelessness and negligence in that regard. We again
do not find any reason to take a different view from the conclusion
recorded by the DC. In absence of any specific reply or explanation by the
petitioner for such discrepancy, the finding recorded by the DC would have
to be accepted.
It is thus found that in the matter of DEPL, the contraventions at the
behest of the petitioner is a reason for taking action against the petitioner.
It cannot be said that such action as taken by the DC was on any
unfounded basis. The action with regard to CJL was in view of the orders
passed by the NCLT and thereafter the NCLAT. The action taken in the
matter of DEPL was on the basis of admitted material on record. It is
therefore held that the DC was justified in proceeding against the
petitioner.
13. On the aspect of proportionality, it was urged on behalf of the
petitioner that the suspension of registration for a period of two years was
excessive and unwarranted. In our view, it cannot be said that the
suspension of the petitioner's registration for a period of two years in the
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facts of the present case is in any manner excessive or disproportionate.
The basis on which the action of suspension has been taken being the
adjudication undertaken by the NCLT and thereafter the order passed by
the NCLAT which has attained finality, the DC was within its jurisdiction in
prescribing the requisite penalty. The conduct of the petitioner has been
found to be questionable and hence his registration has been suspended.
14. It may be noted that despite such suspension of registration, the
petitioner is not completely barred from continuing his ongoing
assignments. The DC has left it to the discretion of the Committee of the
Creditors / Stake-holders Consultation Committee to take a call as to
whether the existing assignments of the petitioner can be continued. This
is clear from paragraph 5.4 of the impugned order dated 30 th January
2024, which reads as under :-
"5.4 A copy of this order shall be sent to the CoC/State
Holders Consultation Committee (SCC) of all the
Corporate Debtors in which Mr. Naren Sheth is
providing his services, if any, and the respective
CoC/SCC, as the case may be, will decide about
continuation of existing assignment of Mr. Naren
Sheth."
In these facts, therefore, we do not find that the suspension of the
petitioner's registration for a period of two years is disproportionate,
warranting interference.
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15. Having considered the entire material on record, we do not find any
scope whatsoever to interfere with the impugned order dated 30 th January
2024 suspending the registration of the petitioner for a period of two
years. The impugned order does not suffer from any perversity whatsoever
nor is it irrational or disproportionate. The ratio of the decisions relied
upon by the learned counsel for the petitioner thus cannot be applied to
the facts of the present case.
For aforesaid reasons, we do not find any merit in the challenge as
raised to the order dated 30th January 2024 passed by the DC. The writ
petition stands dismissed. Rule is discharged with no order as to costs.
[ RAJESH S. PATIL, J. ] [ A.S. CHANDURKAR, J. ]
Digitally
SNEHA SNEHA
ABHAY WP(L)-5978-2024-Judgment.doc
ABHAY DIXIT
Date: Dixit
DIXIT 2024.10.25
17:35:15
+0530
