Delhi High Court Reduces Suspension of Insolvency Professional, Citing Disproportionate Penalty and Procedural Errors.


03 April 2025 Bankruptcy & Insolvency Law >> Business & Commercial Law  

The Delhi High Court has partially allowed a letters patent appeal, reducing the two-year suspension imposed on an Insolvency Professional (IP) by the Insolvency and Bankruptcy Board of India (IBBI) to the period already served. The High Court found that the Disciplinary Committee (DC) of the IBBI may have overlooked crucial facts and that the imposed penalty was disproportionate to the alleged misconduct.

The appellant, Sandeep Kumar Bhatt, an IP registered with IBBI since June 2, 2017, was appointed as the Interim Resolution Professional (IRP) and later the Resolution Professional (RP) for GTHS Retails Pvt. Ltd. (Corporate Debtor). After the Corporate Insolvency Resolution Process (CIRP) period ended and a resolution applicant withdrew their offer, liquidation proceedings were initiated. The appellant was discharged on October 16, 2019, when a liquidator was appointed.

 
 

The case originated from an NCLT order dated July 15, 2022, which raised doubts about the realization of the Corporate Debtor's assets and sought explanations from the appellant and the liquidator. Subsequently, the NCLT also sought a report from the IBBI regarding these doubts. This led to an investigation by the IBBI and the issuance of a show cause notice (SCN) to the appellant.

The SCN primarily leveled three charges against the appellant:

Recovery of Security Deposits and Work-in-Progress (WIP): Alleging failure to recover security deposits and WIP, leading to depletion of the Corporate Debtor's assets.
Failure to take control and custody of Bank Accounts of the Corporate Debtor: Alleging that the appellant did not properly control the bank accounts, allowing unauthorized adjustments and payments.
Delay in filing CIRP forms with the board: A general charge of not complying with IBC procedures.

The IBBI's Disciplinary Committee, after considering the investigation report and the appellant's reply, suspended his registration for two years on November 1, 2023. The appellant's challenge to this order was dismissed by a Single Judge of the High Court on August 27, 2024.

In the present appeal, the appellant's counsel argued that the Single Judge failed to consider "glaring errors" committed by the DC. Specifically, regarding Charge (a) and (b), the appellant contended that the DC relied on erroneous figures and ignored an Auditor's Report, which vindicated his actions in recovering over Rs. 86 lakhs from job workers (exceeding the noted Rs. 79 lakhs in WIP) and crediting it to the Corporate Debtor's account. The appellant also argued that the DC had dismissed the Auditor's Report as an "afterthought" without proper examination.

For Charge (c), the appellant maintained that all actions related to bank accounts, including the appointment and remuneration of the Corporate Debtor's former Director as CEO, were taken with the approval of the Committee of Creditors (CoC), which largely comprised reputable banks and passed resolutions with high majorities.

The appellant also raised procedural irregularities, asserting that the IBBI initiated the investigation without a proper written order containing detailed scope, as required by regulations. Finally, the appellant pleaded for proportionality, arguing that a two-year suspension amounted to "civil death" and was unduly harsh.

The respondents, representing the IBBI, argued that the High Court's writ jurisdiction is limited to examining the decision-making process, not re-evaluating factual findings. They asserted that the appellant's actions constituted serious misconduct and dereliction of duty, justifying the penalty.

The High Court, after reviewing the submissions, agreed that its role is generally limited to examining the decision-making process. However, it noted that the DC's conclusions on Charge (a) and (b) appeared to be based on erroneous figures, contradicting the Investigating Authority's own report, and that the Auditor's Report regarding WIP recovery was dismissed on a "flimsy ground" without proper examination. The Court also found prima facie that the decisions regarding the Corporate Debtor's bank accounts were sanctioned by the CoC after due deliberation.

Considering that approximately 1 year and 4 months of the two-year suspension had already elapsed, and to avoid further delays, the Court chose not to remit the matter back to the DC. Instead, it reduced the suspension to the period already undergone, effective from the date of the order. The appeal was disposed of accordingly.


INSOLVENCY AND BANKRUPTCY CODE, 2016