Limits of Article 226 Judicial Review Over Disciplinary Orders: Delhi High Court Upholds Suspension of Insolvency Professional
- REEDLAW
- 2 hours ago
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REEDLAW Legal News Network reports: In a significant ruling on the limits of judicial review over disciplinary proceedings, the Delhi High Court reaffirmed that the extraordinary jurisdiction under Article 226 of the Constitution cannot be invoked to reappreciate evidence or to substitute the factual findings of a statutory disciplinary authority. The Court held that disciplinary action against an Insolvency Professional for breach of statutory duties and lack of due diligence must be respected unless it is shown to be arbitrary, perverse, or vitiated by jurisdictional error, thereby reinforcing institutional discipline within the insolvency regulatory framework.
The Delhi High Court, comprising Chief Justice Devendra Kumar Upadhyaya and Justice Tejas Karia, while adjudicating an appeal and the connected application, held that the scope of judicial review under Article 226 is confined to examining the legality and procedural correctness of the disciplinary process and does not extend to re-evaluating evidence or replacing the factual conclusions of the disciplinary authority. The Court observed that disciplinary action taken against an Insolvency Professional for breach of statutory obligations and lack of due diligence must be upheld unless it is demonstrated to be arbitrary, perverse, or vitiated by a jurisdictional error.
The Appeal had challenged the dismissal of the writ petition and review petition whereby the disciplinary order suspending the Appellant’s registration as an Insolvency Professional for a period of two years was upheld. The Court noted that the Respondent had exercised powers under Section 220(2) of the Insolvency and Bankruptcy Code, 2016 after finding multiple violations of statutory duties and the Code of Conduct, including failure to conduct due diligence in verifying eligibility of a Joint Resolution Applicant, suppression of material facts from the Committee of Creditors, discrepancies in assessing financial capability, disposal of assets of the Corporate Debtor without requisite approvals, and execution of Leave and License arrangements in respect of the assets without proper authorization. The learned Single Judge had declined interference on the ground that the order of the Respondent was passed after due consideration of relevant material and did not suffer from perversity or jurisdictional infirmity, warranting no exercise of writ jurisdiction under Article 226 of the Constitution.
The Court reaffirmed that the scope of judicial review under Article 226 was supervisory and not appellate in nature. Relying upon Syed Yakoob v. K.S. Radhakrishnan, Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corporation Ltd., and W.B. Central School Service Commission v. Abdul Halim, it was reiterated that a writ court could not reappreciate evidence, reassess factual findings, or substitute its own conclusions for those of a competent statutory authority, unless the decision was shown to be arbitrary, irrational, perverse, or vitiated by jurisdictional error. The Court held that even an erroneous factual conclusion would not justify interference unless it amounted to an error of law apparent on the face of the record or was based on no evidence. The discretionary nature of writ jurisdiction, as emphasized in Central Council for Research in Ayurvedic Sciences v. Bikartan Das and T.C. Basappa v. T. Nagappa, was reaffirmed, underscoring that certiorari was meant to correct jurisdictional and legal infirmities and not to function as an appellate remedy.
The Court observed that the Appellant had sought to raise extensive factual submissions on merits for the first time in the Appeal, which were admittedly not urged before the learned Single Judge in the writ proceedings. It was held that such an attempt was impermissible, as appellate scrutiny of a writ judgment could not be converted into a forum for adjudicating fresh factual controversies. The writ petition itself had been confined primarily to the question of res judicata arising from the closure of the first show cause notice, and that issue had already been decided against the Appellant. The Review Petition had also been rejected on the ground that the pleas raised therein were either already considered or were never argued at the stage of the writ petition. Consequently, the Appellant was barred from expanding the scope of challenge at the appellate stage by introducing factual defences that were not part of the original writ adjudication.
On the substantive statutory framework, the Court emphasized the pivotal role of a Resolution Professional in the effective functioning of the Code. Referring to Section 30(2) of the Code and the Code of Conduct for Insolvency Professionals, it was held that the Resolution Professional was under a strict obligation to ensure that every resolution plan complied with all legal requirements and did not contravene any provision of law, including the disqualification norms under Section 29A. The Court observed that reliance on assurances given by interested or conflicted parties, particularly suspended directors, could not absolve the Resolution Professional of the duty of independent verification and due diligence. The findings of the disciplinary authority that the Appellant had failed to discharge this statutory responsibility were found to be consistent with the regulatory scheme governing insolvency professionals.
The Court further held that the Respondent’s disciplinary action did not suffer from arbitrariness or perversity and was supported by a rational assessment of the material on record. It accepted that the efficient working of the Code hinged on the integrity, diligence, and objectivity of insolvency professionals, and any laxity in compliance with statutory obligations directly undermined the insolvency framework. In light of the settled jurisprudence limiting judicial interference with administrative decisions and the Appellant’s failure to demonstrate any jurisdictional error or manifest illegality, the Court concluded that the Impugned Judgment did not warrant interference. The Appeal was accordingly dismissed as devoid of merit, and the suspension order passed against the Appellant was upheld as a valid exercise of disciplinary jurisdiction.
Mr. Ashish Dholakia, Senior Advocate with Mr. Srikant Mishra, Mr. Karan Sharma, Ms. Annanya Tyagi and Ms. Deeksha Khurana, Advocates, represented the Appellant.
Mr. Sahil Monga and Mr. Shasharah Sharma, Advocates, appeared for the Respondent.
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