The High Court held that the suspension of the Resolution Professional was unsustainable as the actions were taken in good faith and the procedural lapses were not supported by reasoned findings.
The Division Bench of the Bombay High Court, comprising Justice B.P. Colabawalla and Justice M.M. Sathaye, reviewed a petition challenging the suspension order issued by the Disciplinary Committee of the IBBI. The Bench observed that a Resolution Professional cannot be suspended for actions taken in good faith based on a legal opinion and that alleged procedural lapses, such as reduced notice periods or claim verifications, must be supported by detailed and reasoned findings. The Court held that disproportionate punishment without proper justification is unsustainable.
The writ petition challenged the order dated 19.06.2023 issued by the Insolvency and Bankruptcy Board of India’s Disciplinary Committee, which held the petitioner, a Resolution Professional (RP), guilty of Contravention-II, III, VI, VII, and VIII. Contravention-II related to the inclusion of Wadhwa Buildcon LLP’s promoters as financial creditors without proper verification. The petitioner contended that before admitting them, he had obtained a legal opinion confirming their classification as financial creditors. Though the National Company Law Tribunal (NCLT) later set aside this decision, the petitioner argued that acting in good faith and on a legal opinion should not form grounds for his suspension. The Court, prima facie, agreed with this argument, observing that the petitioner had acted responsibly.
Contravention-III pertained to the reduction in the notice period for the 8th Committee of Creditors (CoC) meeting. The Disciplinary Committee faulted the petitioner for not promptly convening the meeting as directed by the National Company Law Appellate Tribunal (NCLAT). The petitioner, however, pointed out that the shortened notice period was ratified during the same CoC meeting and was not subsequently objected to by the Bank of India. The Court observed that even if the notice period was short, suspending the petitioner for two years was disproportionate to the alleged violation.
Contravention-VII involved the non-verification of claims submitted by home buyers. The Disciplinary Committee alleged that the RP admitted claims without verifying whether payments made by home buyers were credited to the escrow account. The petitioner denied this charge, asserting that verifying escrow account payments was the bank’s responsibility, not his. Despite this specific dispute, the Disciplinary Committee’s findings declared it undisputed that verification was lacking, without providing any reasoning for rejecting the petitioner’s explanation. The Court remarked that the impugned order lacked a proper analysis and contained only superficial findings for most contraventions, apart from Contravention-II.
In view of the above, the Court held that the petitioner had made a case not only for admission of the petition but also for interim relief. It issued Rule, returnable on 12.09.2023, and stayed the implementation of the impugned order, restraining the respondents from enforcing the suspension and allowing the petitioner to continue existing and new assignments as an Insolvency Professional. The Court clarified that this order would not prejudice any proceedings pending before the NCLT or NCLAT regarding the merits of the disputes between the parties. It also permitted both parties to file their affidavits as per the schedule set by the Court, adjourning the matter for final disposal.
Mr. Sharan Jagtiani, Senior Advocate a/w Mr. Nirman Sharma, Mr. Ansh Karnawat and Mr. G. Aniruth Purusothaman a/w Mr. Parth Shah i/b Mr. Parth Shah, Advocates represented the Petitioner.
Ms. Savita Ganoo a/w Mr. Abhishek Bhadang, Advocates appeared for Respondent No. 1.
Mr. Pankaj Vijayan a/w Ms. Mahima Shah i/b Mr. Shyamdhar Upadhyay, Advocates appeared for Respondent No. 2.
Ms. Prajakta Menezez a/w Mr. Rakesh Gupta i/b PRM Legal, Advocates represented Respondent No. 4.
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