Insolvency Board must follow 2017 grievance rules and natural justice, resolving complaints within three months

The HC directed the Insolvency and Bankruptcy Board of India to consider the complaint against R2 in accordance with the 2017 Grievance and Complaint Handling Procedure Regulations, ensuring adherence to natural justice and issuance of a reasoned order. The Board must complete this process within three months from receipt of the order. Regarding R3, the court noted the matter was at a preliminary stage before investigation and closed the petition, emphasizing that the prescribed procedure under the 2017 Regulations be followed for resolution.

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1. ISSUES PRESENTED and CONSIDERED

• Whether the Insolvency and Bankruptcy Board of India (IBBI) is obligated to consider and dispose of complaints filed by a stakeholder against liquidators within the prescribed time frame under the 2017 (Grievance and Complaint Handling Procedure) Regulations.
• Whether the time limits prescribed under the 2017 (Grievance and Complaint Handling Procedure) Regulations for filing and disposal of complaints are mandatory and the extent of the Board's discretion in relaxing such timelines.
• The applicability and procedural requirements under the 2017 (Inspection and Investigation) Regulations for investigation of service providers, including liquidators, upon receipt of complaints.
• The scope and procedure for inspection and investigation by the Board of service providers under the 2017 (Inspection and Investigation) Regulations.
• The procedural safeguards, including issuance of show cause notices and principles of natural justice, to be followed by the Board and Disciplinary Committee in dealing with complaints and investigations.
• The appropriate remedy and directions that can be issued by the Court to ensure compliance with the grievance redressal mechanism prescribed under the 2017 Regulations.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Obligation of the Board to consider and dispose of complaints within prescribed time frame

The 2017 (Grievance and Complaint Handling Procedure) Regulations, specifically Regulation 7, prescribe a structured timeline for disposal of complaints:

• Within 7 days (extendable by 7 days) from the request, the complainant and service provider must submit additional information.
• The Board must form an opinion on the existence of a prima facie case within 30 days of receipt of the complaint.
• If no prima facie case is found, the complaint is to be closed and communicated to the complainant, who may seek review within 30 days.
• The Board must dispose of any review within 30 days.

The Court noted that the complaint dated 23.04.2025 had not been disposed within the 30-day period, thus breaching Regulation 7(3). The Board's obligation is mandatory to adhere to these timelines to ensure timely grievance redressal. However, the Court acknowledged that the Board has been lenient in accepting complaints beyond the stipulated period to address genuine grievances but emphasized that the Board itself must not breach the prescribed timelines.

Conclusion: The Board is bound to consider and dispose of complaints within the prescribed timelines under Regulation 7, and failure to do so warrants judicial intervention directing compliance.

Issue 2: Time limits for filing complaints and Board's discretion in condonation of delay

Regulation 3(4) of the 2017 (Grievance and Complaint Handling Procedure) Regulations requires complaints to be filed within 45 days of the cause of action, with a proviso allowing filing beyond 45 days but not exceeding 30 additional days, subject to a petition for condonation of delay.

The Court observed that the Board has been entertaining complaints even beyond the extended 30-day period, exercising discretion in the interests of justice. This practice, though lenient, is accepted to ensure genuine and serious complaints are addressed.

Conclusion: While the time limits for filing complaints are prescribed, the Board may exercise discretion in condoning delays beyond the prescribed period, but must do so judiciously and ensure procedural fairness.

Issue 3: Applicability and procedure under the 2017 (Inspection and Investigation) Regulations for investigation

The 2017 (Inspection and Investigation) Regulations provide the framework for inspection and investigation of service providers, defined to include insolvency professionals such as liquidators.

Regulation 3(4) enumerates the purposes of inspection/investigation, including verifying records, internal controls, compliance with the Code and regulations, and inquiry into complaints.

Regulation 7 under Chapter III specifically governs investigations pursuant to Section 218 of the Code, detailing the scope, composition of Investigating Authority, timelines, progress reporting, and submission of reports.

The Board may, upon forming a prima facie opinion under the grievance handling procedure, issue a show cause notice or order an investigation under these Regulations.

Conclusion: The Board's investigation powers under the 2017 (Inspection and Investigation) Regulations are triggered upon a prima facie case being established during grievance handling, and investigations must follow the prescribed procedural safeguards.

Issue 4: Scope and procedure for inspection and investigation by the Board

The Board may conduct inspections through an Inspecting Authority, which submits interim and final reports. Based on these reports, the Board may refer matters to the Disciplinary Committee.

Investigations involve detailed examination of records, activities, and persons related to the service provider, with interim and final reports submitted in accordance with Regulations 8 to 10.

Chapter IV provides that the Board may take into account inspection and investigation reports to decide on issuing show cause notices under Sections 220, 236, or 236(2) of the Code.

Conclusion: The inspection and investigation process is comprehensive and structured to ensure thorough analysis before disciplinary action, with procedural safeguards embedded in the Regulations.

Issue 5: Procedural safeguards and principles of natural justice in disposal of complaints and investigations

Regulations 12 and 13 require the Disciplinary Committee to dispose of show cause notices following principles of natural justice and to pass reasoned orders.

These safeguards ensure that service providers are given an opportunity to be heard and that decisions are transparent and justifiable.

Conclusion: The regulatory framework mandates strict adherence to natural justice principles and reasoned decision-making in disciplinary proceedings arising from complaints and investigations.

Issue 6: Appropriate remedy and directions to ensure compliance with grievance redressal mechanism

The Court granted a mandamus directing the Board to consider and dispose of the complaint against the current liquidator within three months from the date of receipt of the order, emphasizing adherence to the procedural framework under the 2017 Regulations.

Regarding the erstwhile liquidator, the complaint had been disposed of by the Board, exonerating him, and no further directions were necessary.

Conclusion: The Court's intervention is warranted to enforce compliance with statutory timelines and procedures, ensuring effective grievance redressal without encroaching on the Board's investigative discretion.

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