Resolution Professional's challenge to IBBI show cause notice dismissed for sharing valuation reports with bidders

The HC dismissed a petition challenging IBBI's show cause notice against a Resolution Professional (RP) who shared valuation reports with scheme proponents, resulting in identical bids. The RP defended his actions citing NCLT orders for compromise under Section 230 of Companies Act and SC precedent. The court held that prima facie grounds existed for the show cause notice since the RP admitted sharing the report. The court ruled that automatic suspension under Regulation 23A upon commencement of disciplinary proceedings was valid and could not be interfered with, as IBBI had jurisdiction to initiate proceedings without malafide exercise of power.

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Issues Involved:
1. Jurisdiction of IBBI to issue a show-cause notice.
2. Validity of the show-cause notice issued by IBBI.
3. Suspension of the Authorization For Assignment (AFA).

Summary:

Issue 1: Jurisdiction of IBBI to Issue a Show-Cause Notice
The petitioner argued that the IBBI lacks jurisdiction to issue a show-cause notice since he was functioning as a liquidator under the Companies Act, 2013, and not under the Insolvency and Bankruptcy Code (IBC). The petitioner contended that the IBBI cannot invoke IBC provisions against a liquidator appointed by the NCLT. However, the court found that the liquidation of a Corporate Debtor (CD) is not exclusive to the Companies Act but is also contemplated within the IBC. Therefore, the IBBI has jurisdiction under Section 218 of the IBC to initiate disciplinary action.

Issue 2: Validity of the Show-Cause Notice Issued by IBBI
The petitioner challenged the show-cause notice on the grounds that he was under an order from the NCLT to explore a compromise under Section 230 of the Companies Act, 2013, and that sharing the valuation report was part of his responsibilities. The court noted that the IBC and its regulations are designed to protect the information leak on the valuation of corporate assets. Since the petitioner admitted to sharing the valuation report, the court found a prima facie ground for the IBBI to issue the show-cause notice. The court also dismissed the argument that the IBBI cannot proceed due to the rejection of a similar complaint by the IIIP of ICAI, as the IBBI operates independently under Section 218 of the IBC.

Issue 3: Suspension of the Authorization For Assignment (AFA)
The petitioner argued that the suspension of his AFA was done without giving him an opportunity of hearing. The court clarified that the suspension of AFA is an automatic process upon the commencement of disciplinary proceedings under Regulation 23A of the IBBI (Model Bye-laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. Since the IBBI has jurisdiction to initiate disciplinary proceedings, the suspension of AFA cannot be interfered with.

Conclusion:
The court dismissed the petition, affirming that the IBBI has the jurisdiction to issue the show-cause notice and initiate disciplinary proceedings. The petitioner is allowed to present his defense in the disciplinary enquiry. No costs were awarded, and the connected miscellaneous petition was closed.

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