2024 (11) TMI 735 - HC - IBC

Delhi HC dismisses petition against show cause notice, upholds 45-day time limit under IBBI Regulations

Delhi HC dismissed petition seeking interim relief against show cause notice. Court found petition raised complex jurisdictional challenges but declined ... Seeking grant of interim relief - failure to consider the preliminary objections raised by the Petitioner concerning the maintainability of the Show Cause Notice - Time limitation - HELD THAT:- It is important to note that the amended writ petition is exhaustive and voluminous, raising numerous grounds of challenge. Given the breadth and complexity of these issues, it is neither practical nor appropriate to adjudicate them fully at this interim stage. It is also pertinent to observe that Mr. Krishnan, Senior Counsel for the Petitioner, appropriately chose not to delve deeply into the merits of the grounds for suspension. Instead, his arguments primarily focused on the jurisdictional issues noted above, which forms the core of the challenge against the impugned order. Thus, it should be made clear that a detailed examination of the substantive grounds on merits is not being undertaken, since at this interim stage, the assessment of contentions particularly in terms of the merits of the case must necessarily be only on a prima facie basis. Time Limitation - Regulation 3(4) of the IBBI (Grievance and Complaint Handling Procedure) Regulations, 2017 - HELD THAT:- The Regulation clearly stipulates that a complaint must be filed within forty-five days of the occurrence of the cause of action. A complaint filed after the aforesaid period can be entertained only if there are sufficient reasons justifying the delay, but such period shall not exceed 30 days. Thus, the proviso to Regulation 3(4) indeed sets a strict time limit for filing a complaint, hence, the critical issue here is determining when the cause of action for the grievance or complaint actually arose. In the instant case, the allegations against the Petitioner in the Show Cause Notice dated 2 nd April, 2024 are serious and revolve around the improper constitution and functioning of the CoC. Specifically, it is alleged that Axis Bank, a Financial Creditor of the corporate debtor, had not filed its claim at the time, yet the Petitioner proceeded to form a CoC comprising only the sole operational creditor - the Petitioner took no action to notify Axis Bank about the initiation of the CIRP. This raises serious concerns about the Petitioner’s conduct in ensuring that all relevant creditors were duly informed and included in the CoC, as required under the IBC. These allegations, if substantiated, point to significant procedural irregularities and potential breaches of duty on the part of the Petitioner. Under Section 13(2) of the General Clauses Act, 1897, it is provided that in all Central Acts and Regulations, unless there is anything repugnant in the subject or context, words in the singular shall include the plural, and vice versa. This principle of statutory interpretation allows for flexibility and adaptability in the application of the law, ensuring that the legislative intent is not frustrated by a narrow or literal interpretation - Applying this principle to the present case, on a prima facie view of Section 220(1) of the IBC, it is noted that the term “whole-time members” can reasonably be understood to also include a scenario where there is only a singular “member” of the committee. This interpretation is in consonance with the functional necessity of ensuring that the disciplinary committee can be constituted and can operate effectively, even if there is only one whole-time member available. The Court finds no ground to grant any interim stay on the impugned order - the present application is dismissed. Issues Involved:1. Jurisdictional objections concerning the maintainability of the Show Cause Notice.2. Timeliness and limitation regarding the filing of the complaint.3. The status of the complainant as an 'aggrieved party' or 'stakeholder.'4. The constitution of the Disciplinary Committee under the Insolvency and Bankruptcy Code (IBC).Detailed Analysis:1. Jurisdictional Objections:The petitioner challenged the jurisdiction of the Disciplinary Committee to issue the impugned order suspending the registration of the petitioner as an insolvency professional. The petitioner argued that the preliminary objections regarding the maintainability of the Show Cause Notice (SCN) dated 2nd April 2024, were not adequately considered. The petitioner contended that the Disciplinary Committee failed to substantively examine these jurisdictional challenges, which are crucial for determining the validity of the proceedings. The petitioner also argued that the Disciplinary Committee, consisting of only one member, lacked jurisdiction as Section 220(1) of the IBC requires the committee to consist of 'whole time members' in plural form. However, the court interpreted the statutory provisions to allow flexibility, stating that the term 'whole-time members' could include a singular member, thus permitting the committee to function effectively even with one member.2. Timeliness and Limitation:The petitioner argued that the complaint was time-barred under Regulation 3(4) of the IBBI (Grievance and Complaint Handling Procedure) Regulations, 2017, which mandates filing a complaint within forty-five days of the cause of action, with a possible extension of thirty days for sufficient reasons. The petitioner contended that the cause of action could not extend beyond the approval date of the Resolution Plan on 16th January 2021. However, the court found this argument unconvincing, noting that the allegations of improper constitution and functioning of the Committee of Creditors (CoC) could give rise to a new cause of action beyond the approval date. The court emphasized that procedural irregularities in the Corporate Insolvency Resolution Process (CIRP) are continuous and may impact subsequent steps, including the implementation of the Resolution Plan. Therefore, the complaint was not dismissed as time-barred.3. Status of the Complainant:The petitioner argued that the complainant did not qualify as an 'aggrieved party' or 'stakeholder' under the Regulations, as the complainant entity was incorporated after the approval of the Resolution Plan. The court, however, noted that Section 218(1) of the IBC allows the IBBI to act on its own initiative if there are reasonable grounds to believe that an insolvency professional has contravened provisions of the IBC or related regulations. The court highlighted that the IBBI's broad investigatory powers enable it to uphold the integrity of the insolvency process, irrespective of the complainant's status.4. Constitution of the Disciplinary Committee:The petitioner contended that the Disciplinary Committee's constitution was contrary to the IBC, as it comprised only one member. The court referred to Section 220(1) of the IBC, which requires the committee to consist of whole-time members. Applying the principle of statutory interpretation from the General Clauses Act, 1897, the court concluded that the term 'whole-time members' could include a scenario with a singular member. This interpretation ensures the committee's effective operation, aligning with legislative intent.Conclusion:The court, after considering the jurisdictional objections and other contentions, found no grounds to grant an interim stay on the impugned order dated 30th July 2024. The application for a stay was dismissed, and the amended writ petition was taken on record. Notices were issued to the respondents, with further proceedings scheduled for a later date.