IBBI disciplinary order against Resolution Professional upheld despite petitioners seeking removal and disqualification

The Punjab & Haryana HC dismissed a petition challenging an IBBI order dated 22.08.2022 that took lenient action against a Resolution Professional (RP) for misconduct. The petitioners sought removal of the RP, disqualification of resolution applicant, and declaration of CIRP proceedings as illegal. The HC held that judicial review scope is limited and courts cannot reappraise disciplinary authority decisions merely because alternative punishment seems appropriate. The court upheld the single-member Disciplinary Committee's constitution as valid under IBC provisions, finding no irregularity or malafide. The RP was cautioned for future compliance, with warning that repetitive instances would be treated as willful negligence warranting stricter action.

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Issues Involved:

1. Validity of the appointment of the Resolution Professional (RP).
2. Allegations of misconduct and procedural irregularities by the RP.
3. Constitution and authority of the Disciplinary Committee (DC) of the Insolvency and Bankruptcy Board of India (IBBI).
4. Alleged violation of principles of natural justice.
5. Judicial review of the leniency in punishment imposed by the DC.
6. Impact of ongoing appeals on current proceedings.

Detailed Analysis:

1. Validity of the Appointment of the Resolution Professional (RP):

The petitioners challenged the appointment of the RP, arguing that the RP secured only 65.89% of the votes, failing to meet the statutory requirement of 66% as per Section 22 of the Insolvency and Bankruptcy Code (IBC). The petitioners contended that the subsequent post facto approval by Punjab National Bank was illegal. The Disciplinary Committee (DC) observed that the RP's appointment was a technical mistake, but since no objections were raised in subsequent meetings and the Resolution Plan was approved, a lenient view was taken.

2. Allegations of Misconduct and Procedural Irregularities by the RP:

The petitioners alleged various instances of misconduct by the RP, including non-disclosure of relationships and procedural irregularities in the appointment process. The DC found the deficiencies to be technical and not causing prejudice to stakeholders. The RP was cautioned to be more careful in future assignments. The court noted that the IBBI's findings did not indicate any harm to stakeholders, and the CoC had not objected to the RP's actions.

3. Constitution and Authority of the Disciplinary Committee (DC) of the IBBI:

The petitioners argued that the DC was not properly constituted as it comprised only one member. The court, however, found no infirmity in the constitution of a single-member DC, citing that the IBC does not explicitly prohibit such a composition. The court referred to precedents supporting the interpretation that a 'Committee' can include a single member.

4. Alleged Violation of Principles of Natural Justice:

The petitioners claimed that they were not afforded an opportunity to be heard by the DC, violating principles of natural justice. The court held that the complaint handling mechanism under the IBC does not necessitate a hearing for the complainant, aligning with similar rulings in other regulatory contexts. The court found no violation of natural justice principles in the DC's proceedings.

5. Judicial Review of the Leniency in Punishment Imposed by the DC:

The petitioners argued that the lenient view taken by the DC was unwarranted. The court emphasized that judicial review of the proportionality of punishment is limited and interference is warranted only if the punishment is disproportionate or irrational. The court found no basis to interfere with the DC's discretion, noting that the DC's decision was based on a thorough consideration of the facts.

6. Impact of Ongoing Appeals on Current Proceedings:

The court noted that an appeal challenging the NCLT's order dated 25.04.2023 was pending before the NCLAT. The court refrained from expressing an opinion on the merits of the allegations pending in the appeal, emphasizing that parallel adjudication was not appropriate. The court disposed of CWP-19562-2022 as infructuous due to subsequent developments and dismissed CWP-8750-2023 for lack of merit, allowing the petitioners to pursue their appeal before the NCLAT.

Conclusion:

The court concluded that the petitioners' challenges to the RP's appointment and the DC's proceedings lacked merit. The court upheld the DC's decision to take a lenient view of the RP's actions, finding no procedural irregularities or violations of natural justice. The court disposed of the petitions, allowing the petitioners to continue their appeal before the NCLAT.

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