TaxTMI 
TaxTMI 
2026 (7) TMI 927
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....ions, 2016. 2. By an order dated August 7, 2019, passed by the learned National Company Law Tribunal, Kolkata Bench (in short 'NCLT, Kolkata'), the writ petitioner was appointed as the Industrial Resolution Professional (in short 'IRP') of INCAB Industries Limited (hereinafter referred to as the 'said Company'). The factual matrix as narrated in the writ petition were as follows:- A. In October, 1999, a reference was made to the Board for Industrial and Financial Re-construction (in short 'BIFR') for the purpose of declaring the said company as a sick unit. B. On April 4, 2000, BIFR declared the said company as a sick unit under the provisions of The Sick Industrial Companies (Special Provisions) Act, 1985. C. The accounts of the said company had not been audited from April 1, 2000, and accordingly annual returns and balance sheets had not been filed in the office of the Registrar of Companies, West Bengal, since 2000. D. The said company's production at its main factory at Jamshedpur, had been closed since 1999 and the factory at Pune was carrying on production more or less up to 2016. E. The determination of the provident fund dues ....
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....e-mail dated 4th and 5th November, 2019, the petitioner informed both Kamala Mills and Fasqua Investments that, in terms of Section 5(24) and other applicable provisions of IBC, they would be treated as related parties. The fourth meeting of the COC was held on November 11, 2019. At the said meeting, Kamala Mills and Fasqua Investments were not invited. The petitioner treated them to be related parties. The petitioner filed an application before the NCLT under Section 19(2) of IBC, inter alia, alleging that Mr. Gowani was not cooperating with the petitioner and had not made over the records of the corporate debtor (said company). L. The application was disposed of by the NCLT Kolkata, by an order dated November 20, 2019. According to the NCLT, as the telefax by which the representative of Kamala Mills had been appointed as a nominee director of the said company, had been set aside by the Delhi High Court, Mr. Gowani, who was the respondent in the said application, was not a director of the corporate debtor and had never remained a director of the corporate debtor. The NCLT Kolkata held that, Mr. Gowani was wrongly impleaded as a respondent in the application under Section ....
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....I. R. Ms. Tuhina Madri of IBBI, had viewed the Information Memorandum of the said company on September 13, 2020 and no irregularities were found. Such inspection had taken place prior to the decision of the NCLAT. S. The petitioner preferred a civil appeal before the Hon'ble Apex Court challenging the order of the NCLAT dated June 4, 2021, and the same was numbered as Civil Appeal No. 2209-2210 of 2021. Upon hearing the respective parties, by an order dated December 3, 2021, the Hon'ble Apex Court allowed the petitioner to withdraw the special leave application, but permitted the petitioner to raise all pleas and contentions before the IBBI. The petitioner approached IBBI and requested that the show cause notice dated September 10, 2021, be rescinded and the petitioner be allowed to file a fresh representation. The petitioner also prayed for activation of the Authorisation For Assignments (AFA). The respondent No. 3 failed to reply to the said e-mail dated December 13, 2021. Ultimately the order impugned was passed by IBBI. 3. Mr. Jaydip Kar, learned Senior Advocate for the writ petitioner submitted that the proceedings initiated by the respondent No. 3 (Discip....
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....etitioner were non-verification of the claims, failure to collate the claims, constitution of the COC prior to verification of the claims, inclusion of related parties in the COC, non-preparation of the Information Memorandum and hasty recommendation for liquidation. With regard to the allegation of failure to collate the claims and constitution of the COC without verification of claim, it was submitted by Mr. Kar that, admittedly, the company was in BIFR as it had become sick since 1999. The company did not have any audited books of accounts and other relevant documents. The company was not in active operation and was not a going concern. On April 14, 2000, the BIFR had declared the said company as a sick company. The accounts of the company was last audited for the year 1999. Reference was made to the order of the NCLT dated April 18, 2024, to support such contention. In a proceeding with regard to renewal of lease in favour of the said company, the NCLT observed that the company was not a going concern. Such application was filed by the subsequent RP, who was appointed after the petitioner was removed and his registration was cancelled. By another order dated March 7, 2025, the ....
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.... (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. In view of the practical difficulties faced by the petitioner, the COC also accepted the gross estimation that was made by the petitioner with regard to the claims and the voting share of the members. Reliance was placed on Regulation 13(1A) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, by Mr. Kar to urge that, although, the said Regulation was brought in later, but the insertion of the same would clearly indicate that IBBI had acknowledged the fact that there could be situations where the claims could not be collated after due verification and as such, a provision to address such a crisis was incorporated. If the IRP could not collate the claims, they had to provide reasons. In this case, reasons were provided. 6. According to Mr. Kar, collation and verification were not synonymous, but two distinct processes. Under Regulation 14 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the RP could make the best estimates of the amount claimed, based on material available to him. 7. With regard to the inc....
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.... Kar that, the same could not be prepared due to non-availability of statutory records, books of accounts and audited financial statements since the year 1999, which was mandatory under Regulation 36 of IBBI (CIRP) Regulations, 2016. In every meeting, the COC was apprised of such a situation. The Information Memorandum was to be prepared as per Section 29(1) of IBC, read with Regulation 36 of the IBBI (CIRP) Regulations, 2016. Reference was made to the minutes of the fifth meeting of the COC, wherein it was resolved that the said company should go into liquidation in terms of Section 33(2) of IBC and the reasons for such decision have been recorded in the minutes of the said meeting. The petitioner had disclosed to the COC that, the Information Memorandum was under preparation, but could not be completed due to the absence of records. With regard to the allegation that the decision to go for liquidation was hasty, it was submitted that, although the order impugned recorded multiple allegations on this issue, the show cause notice did not mention such allegation separately. The COC comprised of financial creditors with more than 80% voting share and consequently, the COC resolved to....
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....d the jurisdiction to act as a Disciplinary Committee. The Chairperson could not be the Disciplinary Committee. The Board had not nominated the Chairperson to act as the Disciplinary Committee. The Chairperson and the Whole Time Members belonged to separate categories of Board members. Only Whole Time Members, as defined under the law, could act as the Disciplinary Committee. The jurisdictional defect could not be cured by consent, waiver or acquiescence. Even if the petitioner participated before the Committee, it did not take away his right to raise the point of lack of subject matter jurisdiction before the higher forum. The order was a nullity and the proceedings were null and void. It was submitted that, the entire proceeding was vitiated on account of non-compliance of the statutory provisions requiring inspection and investigation, prior to any action being taken under Section 220 of IBC. A, prima facie, opinion was required to be formed before the show cause notice could be issued. Compliance of Section 218 of IBC was mandatory. The Hon'ble Apex Court had clearly directed that the IBBI would not be bound by the observation made in the impugned order and would independently ....
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....with the support of and consequent to the conscious omissions of the petitioner. It was urged that, the declaration of the NCLT that, Mr. Gowani was not a director of the said company and as such, Kamala Mills and Fasqua Investments were related parties, was perverse and misconceived. The NCLT could not have adjudicated on such issue, at all, while disposing of an application under Section 19(2) of IBC. Moreover, investigation and/or inspection was not compulsory in all cases and the IBBI could act on the basis of the information received. Section 219 of IBC used the expression 'may' and not 'shall'. The order of the NCLAT would reveal that the actions of the petitioner demonstrated violation of the law and failure to perform his duties as the RP. The petitioner pushed the corporate debtor into liquidation, which was wholly against the intention of the legislature and the philosophy behind IBC. The records before the NCLAT clearly indicated that Mr. Gowani was a director in the said company and at the same time he was also a director of Kamala Mills and Fasqua Investments. Mr Gowani also attended the Annual General Meeting till 2018. It was contended that the COC could not be const....
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....ua and also a director of Incab Industries. Both Fasqua and Kamala together constituted more than 90 percent of the COC. Therefore, all the three entities were found to be related parties and they were not entitled to participate in the COC. Non Preparation of Information Memorandum The 4th and 5th minutes of COC Section 29 of the Code read with Regulation 36 of CIRP Regulations mandates RP to prepare IM before 54th day from CIRP order. The RP has failed to do the same and has not assigned any reasons for such violation thus contravening the said regulations. Non appointment of registered valuer and abdication of duty of appointment of COC. The 2nd, 3rd and 4th minutes of COC. Regulation 27 of CIRP mandates RP to appoint two valuers within 47 days. The RP has failed to do the same and has not assigned any reasons for such violation thus contravening the said regulations. Constitution of COC without verification of claims Report dated 28.08.2019 certifying the constitution of COC. The claims of the Fasqua and Kamala were kept pending because of want of information. Without verifying the claims, the COC could not have been constituted. 13. It was thus....
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....of IBC, the Chairperson had all the powers of general superintendence and could exercise powers as delegated by the Board. The petitioner had accepted the jurisdiction of the Disciplinary Committee by submitting his reply and by participating in the entire process. The point of jurisdiction had not been raised before the said authority at any point of time. 14. Heard the parties. Admittedly, the scope for interference with the decision of the respondent No. 4, by the writ court is limited. The power of Judicial review can be exercised in certain cases, i.e. if the decision making process is faulty and is not in accordance with the procedure laid down by law; or if the proceeding is concluded without compliance of the principles of natural justice; or if the decision suffers from error apparent on the face of record or the decision making authority lacks jurisdiction. In the event, the decision is based on extraneous materials, or if the decision is based on no materials at all, or if the order is passed on the dictation of someone else, the writ court can quash such decision. 15. The writ petitioner has alleged that the decision of the respondent No. 4 is without jurisdiction....
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.... objections first. Admittedly, the decision was taken by the respondent No. 4 who is the Chairperson. Section 220 provides that the Board shall constitute a Disciplinary Authority to consider the reports of the investigating authority that was submitted under sub-Section 6 of Section 218. The first proviso stipulates that the members of the Disciplinary Committee shall consist of whole time members of the Board only. Thus, the expression 'only' clearly indicates that none other than Whole Time Members can constitute the Disciplinary Committee. Section 220 casts a duty upon the Board to constitute a Disciplinary Committee for the purpose of disposal of any complaint against RP. Sub-Section 2 provides that, on examination of the report of the investigating authority, if the Disciplinary Committee is satisfied that sufficient information exists, it can impose such penalty as specified under Sub-Section 3 or suspend or cancel the registration of the Insolvency Professional or suspend or cancel the registration of the Insolvency Professional Agency. Thus, none other than Whole Time Members can comprise the Disciplinary Committee. Section 189 of IBC deals with constitution of the Board. ....
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....Other Terms and Conditions of Service of Chairperson and Members) Rules, 2016, the Chairperson has been defined under Section 2(1)(e) to mean the Chairperson of the Board appointed under Clause (a) of sub-Section (1) of Section 189 of IBC. Similarly, under Section 2(1)(d), a Whole Time Member has been defined as a member of the Board appointed under clause (d) of sub-Section (1) of Section 189 of IBC. Thus, as per the IBC and the Rules of 2016, the Chairperson and Whole Time Members belong to different categories of members in the Board. The definition of Chairperson and Whole Time Member under the 2016 Rules also refer to Section 189(1). Rule 3 of the 2016 Rules, deals with terms and conditions of service of Chairperson and members. Sub-Rules 1, 2 and 3 thereunder, also treat the Chairperson and the Whole Time Members separately, even though, the terms and conditions of the service of the Chairperson and members are similar. Some of the provisions of the 2016 Rules are quoted below :- "2. Definitions (1) In these rules, unless the context otherwise requires - (c) "Chairperson" means the Chairperson of the Board appointed under clause (a) of sub-section (....
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....de of exercising it is pointed out, it means that no other mode is to be adopted. For instance, the 16th section says that the proceeding is to be by petition. It is enabling, I know, in form, that the application may be by petition; but no other process can be adopted. That has been decided on a great variety of Acts where the application has been directed to be by petition, and it has been laid down that that being the mode pointed out by the Act which conferred the jurisdiction, you must exercise the jurisdiction (as the 2nd section of this Act says in terms, though it was not necessary) according to the provisions of the Act. In the same way, when the statute says who is the person to petition, it means that the person or persons so described, and no others, shall be entitled to petition, otherwise anyone interested might petition under the general principle that when powers are to be exercised by a Court of law any person interested in calling those powers into execution is entitled to come before the Court, and the only reason for putting in such a section is to shew that that is not meaning of the Legislature, but that the right of calling for the exercise of the powers shal....
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.... Disciplinary Committee. In exercise of powers conferred under Section 230 of IBC, the Board had delegated its powers and functions to such members or officers of the Board as specified in the said 2017 Order. In the definition clause under Section 2(1)(e) of the said Order, Chairperson means the Chairperson of the Board. Under Section 2(1)(n), the Whole Time Member means a member of the Board appointed and designated as such by the Central Government. Thus, a Whole Time Member has to be appointed and designated as such by the central government and only such members can function as a Disciplinary Committee. Reference is made to Part B of the said order which deals with delegation of powers and function. Serial No. 8 deals with Committees. Mr. Chowdhury lays great emphasis on such provision, which is quoted below:- Sl.No. Power/Function Delegate 8. Committees Constitution of Governing Board Committees Governing Board Constitution of other Committees (Advisory Committees, Examination Committee, Committee of Officers, any other Committee unless specified specifically elsewhere) Chairperson Invitation to an Outsider as Secretary to a Committee ....
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....legated to the Disciplinary Committee. Thus, even if the respondent No.4 had the authority to constitute the Disciplinary Committee as a delegate of the Board, the 2017 Order clarifies that the Disciplinary Committee shall dispose of the show cause notice and impose punishment, including cancelling the registration of the Insolvency Professional. 25. In this case, the order has been passed by the Chairperson. Under such circumstances, the order cannot be sustained in law on account of lack of jurisdiction of the Chairperson. The chairperson lacked the jurisdiction to act as the Disciplinary Committee. The order is a nullity. 26. In Sushil Kumar Mehta vs Gobind Ram Bohra (dead) Through his LRS reported in (1990) 1 SCC 193, the Hon'ble Apex Court held as follows:- "12. This Court has held that it is a well-established principle that a decree passed by a court without jurisdiction is a nullity and the plea can be set up whenever and wherever the decree is sought to be enforced or relied upon, and even at the stage of execution or in collateral proceedings. * * * * * * 27. Thus it is settled law that normally a decree passed by a court of compe....
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....s judicata. But when the law has since the earlier decision been altered by a competent authority or when the earlier decision declares a transaction to be valid despite prohibition by law it does not operate as res judicata. Thus a question of jurisdiction of a court or of a procedure or a pure question of law unrelated to the right of the parties founded purely on question of fact in the previous suit, is not res judicata in the subsequent suit. A question relating to jurisdiction of a court or interpretation of provisions of a statute cannot be deemed to have been finally determined by an erroneous decision of a court. Therefore, the doctrine of res judicata does not apply to a case of decree of nullity. If the court inherently lacks jurisdiction consent cannot confer jurisdiction. Where certain statutory rights in a welfare legislation are created, the doctrine of waiver also does not apply to a case of decree where the court inherently lacks jurisdiction." 27. Chapter VI of IBC deals with inspection and investigation. Section 217 provides that complaints against an Insolvency Professional Agency or its members or information utility, can be lodged by any person aggrieved by....
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....ofessional. The said Section does not deal with issuance of the show cause notice. Section 218 deals with inspection and investigation and the filing of a report of inspection or investigation before the Board, upon completion of the investigation or the inspection as the case may be. Section 218 is quoted below :- "218. Investigation of insolvency professional agency or its member or information utility.-(1) Where the Board, on receipt of a complaint under section 217 or has reasonable grounds to believe that any insolvency professional agency or insolvency professional or an information utility has contravened any of the provisions of the Code or the rules or regulations made or directions issued by the Board thereunder, it may, at any time by an order in writing, direct any person or persons to act as an investigating authority to conduct an inspection or investigation of the insolvency professional agency or insolvency professional or an information utility. (2) The inspection or investigation carried out under sub-section (1) of this section shall be conducted within such time and in such manner as may be specified by regulations. (3) The Investigati....
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....or constitution of a Disciplinary Committee. It states that the Board shall constitute a Disciplinary Committee to consider the report of the investigating agency submitted under sub-Section 6 of Section 218. The proviso states that the members of the Disciplinary Committee shall consist of whole time members of the Board 'only'. Sub-section 2 provides that, on the examination of the report of the investigating agency, if the Disciplinary Committee is satisfied that sufficient causes exist to impose penalty or suspend or cancel the registration of the Insolvency Professional, such punishment shall be imposed. In this case, the Assistant General Manager issued the show cause notice dated September 10, 2021 under Regulation 11 of the 2016 Regulations. NCLAT, vide order dated June 4, 2021 had made adverse observations against the writ petitioner. Paragraph 3 of the NCLAT's order stated that, on the basis of the facts and materials available on record, the matter was examined and accordingly observations with regard to the alleged contravention were made. Those were narrated in the show cause notice. The 2017 order was heavily relied upon by Mr. Chowdhury. Serial No. 12 shows that the ....
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.... of Inspection Purpose under 3(4) of the IBBI (Inspection and Investigation) Regulations 2017 4. Composition of Inspection Authority Mr. Rajesh Kumar Gupta, CGM Ms. Archana Sharma, AM Ms. Tuhina Mardi, AM 5. Submission of Draft Inspection Report By 10th September, 2020 6. Submission of Final Inspection Report By 30th September 2020 31. It appears that the purpose for the inspection was to check compliances under Regulation 3 and 4 of the IBBI (Inspection and Investigation) Regulations, 2017. Regulations 3 and 4 of the said Regulations are quoted below :- "3. Inspection by the Board. (1) The Board shall conduct inspection of such number of service providers every year, as may be decided by the Board from time to time. (2) Without prejudice to provisions of sub-regulation (1), the Board may conduct inspection of a service provider under section 218. (3) The Board may, for the purposes of this regulation, by an order, direct an Inspecting Authority to conduct an inspection of records of a service provider for purposes specified under sub-regulation (4). (4) The purposes under sub-regulation (3) include - ....
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....he service provider and an associated person to produce before the Inspecting Authority such records in his custody or control and furnish to the" 32. One of the grounds for such inspection was to ascertain whether the provisions of IBC and the Rules or the Regulations and Guidelines framed thereunder and the directions issued by the Board, were being complied with. On such inspection being held, the report was filed and no infraction of law or violation of IBC, Rules, Guidelines and directions of the Board, was noticed in respect of the petitioner's conduct as an Insolvency Professional. Thus, when the said report was in favour of the petitioner and was prepared by a team constituted by the Board, just a few months prior to the issuance of the show cause notice, such report could not have been ignored. It was all the more necessary for the Board to direct an inspection or an investigation into the affairs of the said company, before a show cause notice was directly issued on the basis of the order of the NCLAT. Formation of opinion by the Board necessitated a deeper probe in the matter and scanning of the records. The Hon'ble Apex Court directed that the IBBI would not be bound....
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....es later: "It is true, that the judgment and discretion of determining upon this skill, ability, learning and sufficiency to exercise and practise this profession is trusted to the College of Physicians and this Court will not take it from them, nor interrupt them in the due and proper exercise of it. But their conduct in the exercise of this trust thus committed to them ought to be fair, candid and unprejudiced; not arbitrary, capricious, or biased; much less, warped by resentment, or personal dislike." 33. The IBBI committed an error of law. The order also suffers from gross illegality and procedural irregularity. The lack of jurisdiction and failure to comply with the provisions of Section 218 and 219 are adequate reasons for interference by the writ court. The order impugned is set aside, as a whole. Although statutory infractions had been pointed out by the respondent No. 4, the said respondent did not point out what were the options available to the RP, to continue with the CIRP process in the facts and circumstances of the case. It has also not been stated whether the decision of the COC could be avoided or disregarded by the RP. 34. The IBBI failed to take in....