2026 (2) TMI 293 - HC - IBC

Proportionality of administrative penalty in disciplinary proceedings: delay led court to reduce suspension to period served

Proportionality of administrative penalty and judicial review standards govern interference in disciplinary proceedings where regulatory timelines are ... Proportionality of administrative penalty - judicial review of disciplinary proceedings (Wednesbury / reasonableness standard) - principles of interference by writ court in disciplinary matters - directory nature of regulatory timelines and reasonableness of administrative delay - automatic suspension of Authorisation for Assignment under Regulation 23A - suspension of registration u/s 220 of the Code - transparency in remuneration and prohibition on accepting / sharing support services fees - HELD THAT:- The analysis regarding charges (a), (b) and (c) levelled against the appellant appear to our mind to be aspects which may have inadvertently been overlooked by the DC and it is possible that considered from the above point of view, a penalty, not so severe in nature may perhaps, have been imposed upon the appellant. We are also aware that ordinarily in such cases, the remit to the DC on this aspect, would be the correct course of action, however, having regard to the fact that almost 1 year and 4 months of the penalty imposed have already lapsed i.e. from 1-12- 2023 leaving 8 months remaining, we deem it appropriate not to remit the matter for decision of the DC lest it may get further delayed defeating the purpose of such remit. In that view of the matter and in our considered opinion, the penalty imposed of two years suspension from taking any assignment as IRP is reduced to the period already undergone and the suspension of the appellant would be deemed to come to an end from the date of this order.” Thus, this Court is of the considered view that the penalty imposed upon the petitioner does not meet the test of proportionality. Also, certain relevant aspects have not been considerate while passing the impugned order. In the present case, the show cause notice was issued on 05.04.2024, on which date the petitioner’s Authorisation for Assignment stood automatically suspended as per regulation 23A of the IBBI (Model Bye- Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. The petitioner submitted his reply on 19.04.2024. However, the impugned order came to be passed only on 25.04.2025, nearly one year thereafter. As a consequence, the petitioner remained subjected to suspension of AFA for almost one year even before the final adjudication, and was thereafter visited with an additional penalty of one year suspension of registration by the impugned order. Though it is true that suspension of AFA pending disciplinary proceedings and suspension of registration upon conclusion of proceedings operate under different provisions and are distinct in nature, the cumulative effect of the delay has resulted in the petitioner effectively suffering a bar from professional assignments for a period of almost two years. The Disciplinary Committee, while imposing the penalty of one year’s suspension, failed to account for the prejudice already suffered by the petitioner on account of the prolonged pendency of proceedings and the mitigating circumstances noted hereinabove. Considering the peculiar facts and circumstances, the penalty of one year suspension from taking any assignment as Resolution Professional is, therefore, reduced to the period already undergone; the suspension shall be deemed to have come to an end from the date of this order. The petition stands disposed of. Issues: Whether the one year suspension of the petitioner's registration imposed by the Disciplinary Committee of the IBBI was disproportionate in the light of the facts, including (i) the delay in concluding the disciplinary proceedings and (ii) mitigating material regarding payment/disbursement of support service fees; and whether the penalty should be modified.Analysis: The Court applied established principles of judicial review in disciplinary matters, recognising that interference is permissible where there is (i) clear infraction of statute or rule or breach of natural justice, (ii) vitiation of the decisionmaking process, or (iii) a penalty so disproportionate that it shocks the conscience of the Court. The Court examined Regulation 13(2) (which requires the Disciplinary Committee to endeavour to dispose of a showcause notice within sixty days) and observed that, although directory in language, unexplained and prolonged delay must be justified; administrative authorities are required to act within a reasonable period. The Court considered the effect of automatic suspension of Authorisation for Assignment under Regulation 23A from the issuance of the showcause notice and noted that, in the present case, the petitioner remained barred from accepting new assignments for nearly one year prior to the final order. The Court further evaluated mitigating material placed before it: (a) the absence of any finding that the petitioner retained amounts for personal gain or diverted funds; (b) evidence of disbursement to the support team and documents such as invoices and TDS forms; and (c) the petitioner's 90% shareholding in the corporate support entity and factual background including inter se disputes. The Disciplinary Committee's findings on contravention of Circular IP/004/2018 and Clauses 25C and 26A were not disturbed on the merits; however, the Court found that the DC failed to advert to the prejudice already suffered by the petitioner due to the inordinate pendency and did not adequately account for mitigating circumstances when fixing the quantum of punishment.Conclusion: The Court concluded that the one year suspension was disproportionate in the circumstances and that relevant mitigating factors and the prejudice caused by the delay had not been considered. The penalty is therefore reduced: the suspension is deemed to have come to an end from the date of this order (i.e., the period already undergone shall be treated as sufficient). This disposition is in favour of the petitioner.