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High Court Upholds IBBI Disciplinary Committee’s Decision and Rejects Challenge to Resolution Professional’s Appointment in KSM Yarns Ltd Insolvency Case

The High Court upheld the IBBI Disciplinary Committee’s decision and rejected the challenge to the Resolution Professional’s appointment in the KSM Yarns Ltd. insolvency case.


The Division Bench of Punjab and Haryana High Court comprising Justice Mrs. Lisa Gill and Justice Mrs. Amarjot Bhatti reviewed petitions and found that the IBBI Disciplinary Committee's decision to be within permissible limits of judicial review and affirmed that no procedural irregularities or disproportionate punishment were present, and determined that the petitioners' claims lacked merit, thus dismissing the petitions.


In the consolidated cases of CWP Nos. 19562 of 2022 and 8750 of 2023, the High Court addressed petitions filed by the suspended Director of M/s KSM Yarns Limited, challenging the validity of the Resolution Professional's (RP) appointment in the Corporate Insolvency Resolution Process (CIRP) of the company. The company had been admitted to CIRP on December 17, 2019, with Nipan Bansal appointed as the Interim Resolution Professional/Resolution Professional. Allegations were made against Bansal, including procedural errors and failure to secure the requisite votes. The writ petitions sought various directions from the National Company Law Tribunal (NCLT), including the resolution of applications related to the removal of the RP and other procedural matters.


In response to these challenges, the Insolvency and Bankruptcy Board of India (IBBI) issued a show-cause notice to Bansal. On August 22, 2022, the IBBI's Disciplinary Committee, finding the deficiencies technical, issued a caution but imposed no severe penalties. Subsequently, the NCLT, on April 25, 2023, dismissed the applications, noting that the role of the suspended Director was to assist the Committee of Creditors (CoC) rather than make decisions. The petitioners challenged the IBBI's order in CWP-8750-2023, arguing that it was illegal, arbitrary, and improperly constituted.


The High Court, upon consolidating the cases, noted that the petitioners' claims were largely directed at delaying the CIRP proceedings. The IBBI defended its actions, arguing compliance with its regulatory functions and procedures. The Court found the petition CWP-19562-2022 moot in light of the NCLT's April 25, 2023, order and dismissed it. Concerning CWP-8750-2023, the Court held that there was no merit in the petition. It found no irregularity in the constitution of the Disciplinary Committee, affirmed that the leniency shown in the IBBI's order was within permissible limits, and stated that judicial review of the proportionality of the punishment was limited. The Court concluded that the petitioners retained the right to appeal the NCLT's order before the National Company Law Appellate Tribunal (NCLAT) but deemed that no further intervention or remand was necessary.


In summary, the High Court dismissed both petitions, finding them lacking in merit and noting that the petitioners had appropriate recourse through appeals before the NCLAT. All pending applications were disposed of, with the Court refraining from further comment on the substantive allegations against the RP or the IBBI's disciplinary proceedings.

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