Sandeep Kumar Bhatt v. Insolvency and Bankruptcy Board of India & Ors.

13. Cash & Bank Balance 4.77 TOTAL 428.98 RP stated that CD was in the business of manufacturing and trading of lady's garments and was operating through different stores in the country, wherein CD purchased raw material from different vendors and after getting it processed in his factory/job work was supplying the same to the different franchises. As a part of the business model CD had entered different into sets of agreement(s) with the different franchise(s) with different terms wherein franchise shall sell the goods on MRP and shall remit full funds to the account of the CD. The CD shall remit 45% of the receipts back to the franchise being their commission. The business of CD was continuing and in maximum cases, the CD failed to honour its part of commitment and stopped supplying fresh material post April 2016. The old stocks could not be sold being out of fashion by the stores and to meet their expenses, they started selling material of other brands. RP replied that the security given was adjusted against rent which was to be paid by the CD. However, IP failed to provide any details regarding the same, wherein said security deposits were adjusted against the unpaid rent. It has been observed that RP failed to take any step to realise the said security deposit advanced to various franchises. A copy of the reply of RP has been annexed hereto as Annexure VIII. RP further failed to realise the WIP amounting to Rs.79.54 lakhs lying with various petty job workers as shown in the books of the CD as on 03.08.2017 i.e., the Insolvency Commencement Date (ICD). Section 25(2)(b) of the Insolvency and Bankruptcy Code (hereinafter referred to as 'the Code') states that the RP has the duty to represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings. RP was under the duty to approach the AA with regards to any directions relating to the realization of security deposits advanced to various franchise and the WIP lying with various petty workers. However, RP failed to take any steps towards realization of the said security deposits paid to various franchise. Further, Mr. Ramit Rastogi was appointed as liquidator vide order dated 16.10.2019. In the preliminary report filed with AA and the 3rd progress report was well as in his reply liquidator mentioned that Mr. Harsh Manchanda (suspended ex director) transferred amounts of Rs.50,480 and Rs. 61,104 aggregating to Rs.1.11 lacs to his personal SBI account from the CD's account. A copy of the bank statement for the transactions has been annexed hereto as Annexure IX. Copy of the preliminary report and the progress report annexed hereto as Annexure X. Liquidator mentioned that he also filed a non-cooperation application before the AA against the ex-directors/promoters to provide the requisite documents/information/records since he did not obtain the full documents from RP. Further, AA vide order dated 12.10.2020, directed the exdirector to provide all documents and date along with return of monies within a period of 10 days. Copy of the Hon'ble NCLT order dated 12.10.2020 has been annexed hereto as Annexure XI. It has been observed that RP failed to preserve and protect the assets of the CD. Further, he failed to handover the complete records of the CD to the incoming liquidator. RP himself has mentioned in his affidavit dated 20.10.2020 before the Ho'ble NCLT in para 9 that liquidator was not handed over certain records of the CD as he was not in possession of the same. The relevant extract is as follows:- "the records of the company viz.-Cash book, ledger Bills, vouchers, assets, accounting records always remain with the company and there is no obligation on the RP to keep all records in his possession when he left the office as RP…" Further, RP not only failed to take the control and custody of the CD during his tenure, but also allowed suspended ex director to transfer money from the CD's account to the suspended director's account to the tune of Rs.1.11 lakhs. It was the duty of the RP to take the control and custody of the assets of the CD and its business records. Accordingly, the said conduct of RP is in violation of

4.2. Charges of operating the bank account of the CD, which was under liquidation estate, by the RP is of grave nature. Keeping in view the facts recorded in the summary findings, the Disciplinary Committee, in exercise of the powers conferred under section 220 of the Code read with regulation 13 of the Investigation Regulations hereby hereby, suspends the registration of Mr. Sandeep Bhatt for two years.

4.3. This Order shall come into force after expiry of30 days from the date of this order.

4.4. A copy of this order shall be forwarded to the ICSI Institute of Insolvency Professionals where Mr. Sandeep Bhatt is enrolled as a member.

4.5. A copy of this order shall be sent to the CoC/Stake Holders Consultation Committee (SCC) of all the Co~porate Debtors in which Mr. Sandeep Bhatt is providing his services, and the respective CoC/SCC, as the case may be, will decide about continuation of existing assignment of Mr. Sandeep Bhatt.

4.6. A copy of this order shall also be forwarded to the Law Tribunal, New Delhi, for information.

4.7. Accordingly, the show cause notice is disposed of." u) It is this Order which has been challenged by the Petitioner in the present Petition.

3. Learned Counsel for the Petitioner states that the impugned Order dated 01.11.2023, passed by the Respondents, is illegal, devoid of merits, and passed without considering the facts and evidence placed by the Petitioner. It is also stated that the principle of natural justice on which our judicial system is based upon was not at all followed as the Petitioner was not informed about any incriminating documents relied upon by the Disciplinary Committee while passing the impugned Order. It is further stated that the Disciplinary Committee which heard the case of the Petitioner and even requested the Petitioner to file certain documents was not the Disciplinary Committee that passed the impugned Order.

4. It is further contended by the learned Counsel for the Petitioner that the Respondents have failed to show whether the investigation report prepared by the Investigating Authority was accepted by the Disciplinary Committee and whether the Investigating Authority was duly appointed to conduct an investigation on the Petitioner. It is also stated that only onemember Disciplinary Committee passed the impugned Order against the Petitioner and a perusal of Section 220(1) of the IBC shows that the Disciplinary Committee shall comprise of at least two members and one of such members must be a whole time member. Hence it is a cardinal principle of having at least two members in a coram because a single member may be biased or incompetent to hear and adjudicate upon the issues in front of him.

5. Per contra, Learned Counsel for the Respondents states that the scope of judicial review in matters of disciplinary proceedings is very limited and it is a settled law that judicial review under Article 226 of the Constitution of India is confined to the decision making process and is not analogous to the adjudication of the case on merits. It is stated that in the present case, the investigation and the Disciplinary proceedings were conducted as per the procedure and there is no perversity or arbitrariness in the impugned Order. It is further stated that the averment made by the Petitioner that the physical hearing was in front of another Disciplinary Committee whereas the impugned Order was passed by another Disciplinary Committee is completely false. She states that the physical hearing was held before Mr. Sudhaker Shukla and it was him who passed the impugned Order. She also states that it was only after the impugned Order was passed against the Petitioner that objections regarding the constitution of the Disciplinary Committee were raised which clearly shows that this was an afterthought and such objections should not be permitted to be raised at a belated stage. She further states that there is no provision in the Code which mandates that the Disciplinary Committee should comprise of two or more members. The only requirement under Section 220 is that the Disciplinary Committee shall comprise of whole time members and such requirement has been duly met. She further states that the Disciplinary Committee followed the applicable procedure and principles of natural justice while passing the impugned Order which is well reasoned and does not require any interference from this Court in Writ Jurisdiction.

6. Heard the Counsels for the parties and perused the material on record.

7. The contention of the Petitioner that the Oder of the IBBI suffers from corum non-judice inasmuch as it was only a single member committee which passed the impugned Order, is not tenable in law. At this juncture, it is imperative to reproduce Section 220 of the IBC and the same reads as under:

Provided that where such loss or unlawful gain is not quantifiable, the total amount of the penalty imposed shall not exceed more than one crore rupees. (4) Notwithstanding anything contained in sub-section (3), the Board may direct any person who has made unlawful gain or averted loss by indulging in any activity in contravention of this Code, or the rules or regulations made thereunder, to disgorge an amount equivalent to such unlawful gain or aversion of loss. (5) The Board may take such action as may be required to provide restitution to the person who suffered loss on account of any contravention from the amount so disgorged, if the person who suffered such loss is identifiable and the loss so suffered is directly attributable to such person. (6) The Board may make regulations to specify— (a) the procedure for claiming restitution under subsection (5); (b) the period within which such restitution may be claimed; and

(c) the manner in which restitution of amount may be made.”

8. A perusal of Section 220 IBC shows that Section 220 only postulates that the Board shall constitute the Committee and this Committee can be a one member Committee also. The proviso does not indicate that there has to be always more than one member in the Committee. Respondents have relied on Section 13(2) of the General Clauses Act 1987 and the same reads as under: “Section 13. Gender and number. In all Central Acts and Regulations, unless there is anything repugnant in the subject or context, (1).... (2) words in the singular shall include the plural, and vice versa.”

9. Applying the said principle to the facts of the present case, in absence of any specific mandate that there has to be more than one Member Committee or that the Board shall always constitute more than one member Committee, the contention of the learned Counsel for the Petitioner is not tenable in law.

10. The contention of the learned Counsel for the Petitioner that the IBBI ought to have awaited the proceedings before the Adjudicating Authority instead of rushing with enquiry awarding punishment, cannot be accepted. Both the proceedings are entirely distinct from each other. IBBI has been constituted to oversee the conduct of the IRPs and the Liquidators and to see as to whether the IRPs and Liquidators are acting in compliance with the mandate of the IBC. The IBBI can proceed ahead to investigate into the conduct of the IRPs and the Liquidators even if on getting information that the IRP has committed a misconduct.

11. It is the responsibility of the Resolution Professional to manage the affairs of the corporate debtor as a going concern during corporate insolvency resolution process and to appoint and convene meetings of the Committee of Creditors, so that they may decide upon resolution plans, and to collect, collate and finally admit claims of all creditors, which must be examined for payment, in full or in part or not at all, by the resolution applicant and be finally negotiated by the Committee of Creditors. The role of the Resolution Professional is not adjudicatory but administrative and a Resolution Professional should not forget that their office is not an office of comfort but an onerous one for it is on their diligence and integrity, the successful working of the IBC rests.

12. A perusal of the records reveals that the Petitioner adjusted Rs.1,51,64,091/-, Rs. 1,52,20,146/- and Rs. 18,28,668/- as rent payable against the security deposit on 03.08.2017, 31.03.2018 and 31.03.2019 respectively. However, such adjustments were not shown transparently in the yearly financial account.

13. Material on record shows that the Petitioner has failed to preserve the assets of the Corporate Debtor. He has not handed over the complete record of the Corporate Debtor to the Liquidator. The Petitioner has allowed suspended ex-Directors to transfer money from the Corporate Debtor's account to his account and has therefore failed to take control and custody of the Corporate Debtor and business records. Material on record discloses that the Petitioner has violated several provisions of the IBC and the Regulations.

14. At the outset it is pertinent to mention that this Court while exercising its jurisdiction under Article 226 of the Constitution of India does not sit as an Appellate Authority. A writ court exercising its jurisdiction under Article 226 of the Constitution of India does not substitute its own conclusion to the one arrived at by any authority unless the decision is so perverse that no authority can come to such a conclusion or that the order is completely in contravention of any provision of any law be it an Act or the Regulation framed under the Act.

15. The Apex Court in Central Council for Research in Ayurvedic Sciences & Anr. v. Bikartan Das & Ors., 2023 SCC OnLine SC 996, has held as under:-

situation demands after setting right the legal formulations, not to take it to the logical end, the High Court would be failing in its duty if it does not notice equitable consideration and mould the final order in exercise of its extraordinary jurisdiction. Any other approach would render the High Court a normal court of appeal which it is not.

53. The essential features of a writ of certiorari, including a brief history, have been very exhaustively explained by B.K. Mukherjea, J. in T.C. Basappa v. T. Nagappa, AIR 1954 SC 440. The Court held that a writ in the nature of certiorari could be issued in „all appropriate cases and in appropriate manner‟ so long as the broad and fundamental principles were kept in mind. Those principles were delineated as follows:

54. Relying on T.C. Basappa (supra), the Constitution Bench of this Court in the case of Hari Vishnu Kamath (supra), laid down the following propositions as well established: “(1) Certiorari will be issued for correcting errors of jurisdiction, as when an inferior court or tribunal acts without jurisdiction or in excess of it, or fails to exercise it. (2) Certiorari will also be issued when the court or tribunal acts illegally in the exercise of its undoubted jurisdiction, as when it decides without giving an opportunity to the parties to be heard, or violates the principles of natural justice. (3) The court issuing a writ of certiorari acts in exercise of a supervisory and not appellate jurisdiction. One consequence of this is that the court will not review findings of fact reached by the inferior court or tribunal, even if they be erroneous.”

55. This Court explained that a court which has jurisdiction over a subject matter has jurisdiction to decide wrong as well as right, and when the Legislature does not choose to confer a right of appeal against that decision, it would be defeating its purpose and policy if a superior court were to rehear the case on the evidence and substitute its own finding in certiorari.

56. In Syed Yakoob v. K.S. Radhakrishnan, AIR 1964 SC 477, P.B. Gajendragadkar, CJ., speaking for the Constitution Bench, placed the matter beyond any position of doubt by holding that a writ of certiorari can be issued for correcting errors of jurisdiction committed by inferior courts or tribunals. The observations of this Court in para 7 are worth taking note of: “7. The question about the limits of the jurisdiction of High Courts in issuing a writ of certiorari under Art. 226 has been frequently considered by this Court and the true legal position in that behalf is no longer in doubt. A writ of certiorari can be issued for correcting errors of jurisdiction committed by inferior courts or tribunals: these are cases where orders are passed by inferior courts or tribunals without jurisdiction, or is in excess of it, or as a result of failure to exercise jurisdiction. A writ can similarly be issued where in exercise of jurisdiction conferred on it, the Court or Tribunal acts illegally or improperly, as for instance, it decides a question without giving an opportunity to be heard to the party affected by the order, or where the procedure adopted in dealing with the dispute is opposed to principles of natural justice. There is, however, no doubt that the jurisdiction to issue a writ of certiorari is a supervisory jurisdiction and the Court exercising it is not entitled to act as an appellate Court. This limitation necessarily means that findings of fact reached by the inferior Court or Tribunal as result of the appreciation of evidence cannot be reopened or questioned in writ proceedings. An error of law which is apparent on the face of the record can be corrected by a writ, but not an error of fact, however grave it may appear to be. In regard to a finding of fact recorded by the Tribunal, a writ of certiorari can be issued if it is shown that in recording the said finding, the Tribunal had erroneously refused to admit admissible and material evidence, or had erroneously admitted inadmissible evidence which has influenced the impugned finding. Similarly, if a finding of fact is based on no evidence, that would be regarded as an error of law which can be corrected by a writ of certiorari. In dealing with this category of cases, however, we must always bear in mind that a finding of fact recorded by the Tribunal cannot be challenged in proceedings for a writ of certiorari on the ground that the relevant and material evidence adduced before the Tribunal was insufficient or inadequate to sustain the impugned finding. The adequacy or sufficiency of evidence led on a point and the inference of fact to be drawn from the said finding are within the exclusive jurisdiction of the Tribunal, and the said points cannot be agitated before a writ Court. It is within these limits that the jurisdiction conferred on the High Courts under Art. 226 to issue a writ of certiorari can be legitimately exercised…..”

57. In Surya Dev Rai v. Ram Chandra Rai, (2003) 6 SCC 675, a Bench of two Judges held that the certiorari jurisdiction though available, should not be exercised as a matter of course. The High Court would be justified in refusing the writ of certiorari if no failure of justice had been occasioned. In exercising the certiorari jurisdiction, the procedure ordinarily followed by the High Court is to command the inferior court or tribunal to certify its record or proceedings to the High Court for its inspection so as to enable the High Court to determine, whether on the face of the record the inferior court has committed any of the errors as explained by this Court in Hari Vishnu Kamath v. Ahmad Ishaque, AIR 1955 SC 233 occasioning failure of justice.”

16. At this juncture, this Court deems it appropriate to delineate the scope of interference by Court exercising its powers of judicial review in respect of a challenge pertaining to a decision taken by the experts of the field. It has been observed consistently by the Supreme Court in a number of judgments that the Court may interfere in an administrative decision, if and only if the same is arbitrary, irrational, unreasonable, mala fide or biased. The Hon’ble Supreme Court in Tata Cellular v. Union of India, (1994) 6 SCC 651, has stated as follows:

17. Summing up the principles laid down in Tata Cellular (supra), Jagdish Mandal v. State of Orissa, (2007) 14 SCC 517, Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay, (1989) 3 SCC 293, and Central Coalfields Ltd. v. SLL-SML (Joint Venture Consortium), (2016) 8 SCC 622, the Hon’ble Supreme Court in Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corpn. Ltd., (2016) 16 SCC 818, stated:

18. In Silppi Constructions Contractors v. Union of India (2020)16 SCC 489, the Hon’ble Supreme Court has followed the aforesaid judgments and reiterated the principle that Courts should exercise a lot of restraint while exercising powers of judicial review in respect of matters pertaining to technical issues as the Courts lack the expertise to adjudicate upon technical issues. The relevant portion of the Judgment is reproduced as under:

interference will cause unnecessary loss to the public exchequer.” (emphasis supplied)

19. From the aforestated judgments, it is clear that the scope of interference by way of judicial review in commercial matters is extremely limited and can only be justified when a case of arbitrariness, unreasonableness, mala fide, bias, or irrationality is clearly made out. Further, the Courts lack the requisite expertise to adjudicate upon technical issues which are often involved in commercial matters.

20. Applying the law laid down by the Apex Court to the facts of the present case, this Court is of the opinion that the IBBI has not contravened any of the procedural requirements mandated under the IBC or the Inspection Regulations. Apart from making bald allegations, the Petitioner has not been able to pin point as to which of the regulations have been violated by the Respondents. The contention of the Petitioner has mainly been that the assessment or the conclusion arrived by the Disciplinary Committee is not correct and as stated by the Apex Court, this Court does not sit over the conclusions arrived at by the expert bodies in its jurisdiction under Article 226 of the Constitution of India. This Court only has to see as to whether the decision making process is justified or not and is in accordance with law or not.

21. The role of the Resolution Professional is the very heart of the purpose for which the IBC has been enacted. He is the person who takes complete charge of the company when the company is undergoing through resolution process to see whether the company can be revived or not. The Resolution Professional is, therefore, obliged to maintain highest standard of professional ethics and even a single act of negligence, omission or commission is sufficient for the Board to take action against the Resolution Professional under Section 217-220 of the IBC after following the due procedure. The contention of the Petitioner that the Board ought to have waited till the conclusion of the proceedings before the Appellate Tribunal does not have any merit. The function of the Board under the IBC are distinctive from the functions of the Appellate Authority which is in seisin of appeals from the Orders of the NCLT. The purpose of the IBBI is to look into the conduct of the resolution professional in the nature and manner of the performance of their duty.

22. The conduct of the Petitioner herein has been first scrutinized by the Investigating Authority which has found substantial deficiencies in the performance of the Petitioner inasmuch the Petitioner has failed to protect the assets of the Corporate Debtor and that there is a substantial delay in the submission of the forms by the Petitioner with the Board. Several instances of the failure on the part of the Petitioner have been found in failing to protect the assets of the company which are listed as under:

23. The Order of the Disciplinary Committee shows that the reply given by the Petitioner has been considered and all the aspects have been taken care of by the Board and the decision has been taken by the Board after following the due procedure. This Court has gone through the Orders of the Board and the material on record and is of the opinion that the procedure has been followed by the Board before passing the Order suspending the Petitioner herein. The attempt of the Petitioner has been to persuade this Court to substitute its conclusion to the one arrived at by the Board, which is outside the scope of Article 226 of the Constitution of India.

24. This Court, therefore, does not find any reason to interfere with the Order passed by the Respondents.

25. Accordingly, the Petition is dismissed, along with the pending applications, if any.

SUBRAMONIUM PRASAD, J AUGUST 27, 2024 hsk/yc