TaxTMI 
TaxTMI 
2026 (8) TMI 1614
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....enge order dated 18th December 2024 passed by the Disciplinary Committee of the respondent No.2-Insolvency and Bankruptcy Board of India (hereinafter referred to as 'Board'), whereby the petitioner-Jitender Kumar Jain (petitioner in Writ Petition (Lodging) No. 2817 of 2025) was suspended for a period of three months from performing the role of insolvency professional/liquidator under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) and the Regulations framed thereunder. Additionally, the aforesaid petitioner in Writ Petition (Lodging) No. 2817 of 2025 also challenged the show cause notice dated 9th July 2024, which led to the said impugned order dated 18th December 2024. The petitioner in Writ Petition (Lodging) No. 5263 of 2025 i.e. Edelweiss Asset Reconstruction Company Limited (hereinafter referred to as 'Edelweiss') was one of the secured financial creditor of the corporate debtor in the context of which the petitioner-Jitender Kumar Jain was appointed as liquidator. 2. The corporate debtor i.e. 'Aaj Ka Anand Papers Limited' had availed loan facility and in the light of defaults in repayment thereof, the account of the corporate debtor was declared as a Non-P....
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....n, as regards violation of provisions of the IBC and Regulations framed thereunder. It was alleged that he was acting mala fide with ulterior motive and for unethical gains, thereby causing mental and monetary suffering to the said complainant. It was also alleged that the said petitioner had damaged the reputation and credibility of the complainant and his family members, further alleging that he was acting along with the other stakeholders to intentionally cause suffering to the complainant. It was claimed that the cause of action being continuous, the complaint was within limitation. 6. Thereafter, the complainant submitted a further set of grievances in writing. While the first complaint was as per the requisite form under Regulation 3(3) of the Insolvency and Bankruptcy Board of India (Grievance and Complaint Handling Procedure) Regulations, 2017 (hereinafter referred to as 'Grievance Regulations 2017'), the second set of grievances submitted in writing on 10th August 2023 were not in the said form. It appears that respondent No.2-Board proceeded to treat the second set of grievances submitted in writing on 10th August 2023 also as a complaint and on the basis of the two co....
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....ubmissions dated 10th October 2024 before the Disciplinary Committee of the respondent-Board. In the said written submissions, the said petitioner further elaborated his stand and also referred to case law in support of his submissions. Thereafter, on 18th December 2024, the Disciplinary Committee of the respondent-Board through respondent No.4 i.e. its whole time member passed the impugned order, inflicting the penalty of suspension of the authorisation for assignment of the said petitioner for a period of three months. Aggrieved by the same, the petitioner-Jitender Kumar Jain filed Writ Petition (Lodging) No. 2817 of 2025 and petitioner-Edelweiss filed Writ Petition (Lodging) No. 5263 of 2025. Notices were issued in the writ petitions. 10. It is to be noted that in the light of the impugned order, suspending the petitioner-Jitender Kumar Jain for a period of three months, he resigned from the role of liquidator of the corporate debtor, but the members of the SCC resolved that the petitioner be requested to withdraw his resignation and accordingly, he withdrew his resignation on 10th January 2025 and he was permitted to continue as liquidator of the corporate debtor. The pleadi....
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....ation into the said complaints was initiated and after delay of eight months, a notice of investigation dated 2nd April 2024 was served upon the petitioner-Jitender Kumar Jain, in the light of the response given by the said petitioner, no substance was found in the allegations levelled in the said complaints. The petitioner-Jitender Kumar Jain asserts the aforesaid fact on the ground that the show cause notice dated 9th July 2024 raised five issues that had nothing to do with the grievances raised in the aforesaid two complaints. It was submitted that on this ground alone, the show cause notice was rendered without jurisdiction and bad in law. 13. In this context, it was submitted that although Section 219 of the IBC as it then stood, stipulated that the respondent-Board could issue show cause notice to a service provider like the said petitioner, upon completion of inspection and investigation under Section 218 thereof, in the present case, the show cause notice was evidently not issued on the basis of the investigation report and it was issued on the basis of material that purportedly came on record. In other words, while the petitioner-Jitender Kumar Jain was issued notice in....
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....the Secretary, Revenue Department & Ors., 2022 SCC OnLine Bom 3794. 16. It was further submitted that Regulation 11 of the Investigation Regulations 2017 mandatorily requires the Board to consider the inspection report and after consideration thereof, if it forms a prima facie opinion that sufficient cause exists to take action under Section 220(2) of the IBC, only then show cause notice can be issued. It was submitted that the expression 'consider' has to be given its logical meaning. In this context, reliance was placed on the judgment of the Supreme Court in the case of Chairman, Life Insurance Corporation of India & Ors. vs. A. Masilamani, (2013) 6 SCC 530, to emphasize that the word 'consider' would mean 'to think over', 'to regard as' or 'deem to be'. An attempt was also made on behalf of the petitioner-Jitender Kumar Jain to claim that the entire proceeding was vitiated by bias, as the respondent No.5 i.e. the Executive Director of the respondent-Board was performing multiple functions in the proceeding. It was submitted that in such a situation, the entire proceeding stood vitiated and hence, the impugned order deserved to be set aside. 17. Mr. Palav, learned counsel ....
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....the words used in Section 219 of the IBC as they stood at the relevant time before the latest amendment, cannot be read in such a manner that would denude the respondent-Board from exercising power to even suo motu issue show cause notice. It was emphasized that the Board as a regulator is a watchdog and one of its crucial functions is to ensure that the service providers perform their duties in an appropriate manner, maintaining the integrity of the process and in line with the object of enactment of the IBC. On this basis, it was submitted that the ground raised on behalf of the petitioner-Jitender Kumar Jain, to the effect that the show cause notice was issued without jurisdiction, deserves to be rejected. 20. It was further submitted that while exercising writ jurisdiction, this Court cannot review the findings rendered in the impugned order on merits, to arrive at independent findings on the basis of the material on record. It was submitted that this Court can also not go ino the question of proportionality of the penalty imposed on the petitioner-Jitender Kumar Jain. Even where the penalty is found to be shockingly disproportionate to the nature of the misconduct, after se....
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.... Kumar Jain. Although the rival parties have relied upon judgements, concerning the nature of jurisdiction exercised by the Writ Court in the context of service matters, this Court finds that the present case cannot be equated to an employer - employee relationship between the respondent-Board and the petitioner-Jitender Kumar Jain i.e. the insolvency professional. But, the role of the respondent-Board as the regulator under the provisions of the IBC and the Regulations framed thereunder needs to be emphasized. There can be no doubt that the respondent-Board, as the regulator, would be well within its powers to ensure that service providers like the petitioner-Jitender Kumar Jain perform their duties in line with the provisions of the IBC and the Regulations framed thereunder. It is in this backdrop that the rival contentions are being analyzed and considered. 23. The action against the petitioner-Jitender Kumar Jain stood triggered on the basis of complaints submitted by the promoter of the corporate debtor. While the first complaint dated 3rd July 2023 was in the form prescribed in the Regulation, the further written document dated 10th August 2023 submitted by the promoter wa....
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....the contention raised on behalf of the petitioner that the grievances raised in the two complaints by the promoter of the corporate debtor were vague, general and without specifications. It is to be appreciated that the said complaints were lodged in the backdrop of the said promoter and other promoters / ex-directors of the corporate debtor taking a series of obstructionists steps during the process of CIRP and liquidation, as also lodging a series of police complaints against the petitioner-Jitender Kumar Jain i.e. the liquidator. In respect of some of such steps taken by the promoters / ex-directors of the corporate debtor in writ petitions filed before this Court, certain observations have been made against such tactics adopted by the promoters / ex-directors. Even the NCLT had dismissed one such frivolous application filed by the promoter of the corporate debtor with cost of Rs.1 lakh, wherein not only the petitioner-Jitender Kumar Jain but the members of the SCC had highlighted such conduct of the promoters / ex-directors. 27. It is also an admitted position on facts that the respondent-Board did not find any substance in the allegations made in the complaint lodged by the....
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....ad specifically responded to the notice dated 2nd April 2024 issued during the course of investigation and he had given his detailed response to allegations made against him. The investigating officer was satisfied with the responses and no actionable material was found against the said petitioner. Yet, the impugned show cause notice was issued on aspects completely foreign to the complaints and the allegations that triggered the investigation. This is found to be a procedural irregularity committed by the respondent-Board and its officials while proceeding against the said petitioner as a service provider. Once the statutory provisions under the IBC and the Regulations framed thereunder prescribe a particular procedure, it ought to be followed. 30. In this context, it becomes crucial that Section 219, as it then stood, did not use the words 'or on the basis of material available on record', which have been added by way of amendment dated 6th April 2026. In other words, the procedure, as it then stood, provided for complaints to be lodged by any aggrieved person against the service providers like the petitioner under Section 217 of the IBC, which could lead to an investigation u....
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...., had irregularly constituted the SCC. Secondly, it was found that the said petitioner had failed to present liquidation costs before the SCC in the 4th, 5th and 6th meetings; and thirdly, that the said petitioner had caused delay in issuing notices for conducting the first and second auctions. 34. A perusal of the impugned order shows that, while arriving at findings with regard to the aforementioned three issues, the Disciplinary Committee of the respondent-Board stated the issues in brief, then the response of the said petitioner and eventually the analysis and findings thereon. At first blush, it does appear that the respondent-Board, through its Disciplinary Committee, while passing the impugned order, considered the material on record while reaching its findings. But, a closer analysis shows that while the said petitioner in his reply to the show cause notice and also in his written submissions tendered after personal hearing, had raised a number of concerns and issues, the respondent-Board does not appear to have considered the same in the proper perspective. In this regard, it would be appropriate to refer to the detailed reply to the show cause notice submitted by the s....
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....s of natural justice and a serious procedural infirmity that goes to the root of the matter. 37. We also find substance in the contention raised on behalf of the petitioner that the defences raised on his behalf, inter alia, concerned interpretation of the relevant Regulations framed under the IBC, particularly the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations 2016 (hereinafter referred to as 'Liquidation Regulations 2016'). We are of the opinion that if more than one interpretation of the relevant regulations was reasonably possible and the petitioner, as the liquidator, had adopted one such interpretation, it could not be said that there was serious contravention or infarction of the provisions of the IBC and the Regulations framed thereunder. In this context, it would be appropriate to consider the findings rendered by the respondent-Board in the impugned order. 38. The first issue on which the respondent-Board found against the petitioner in the impugned order pertained to alleged irregular constitution of the SCC. Regulation 31A(1) of the Liquidation Regulations 2016 pertains to the SCC and it requires the regulator to constitute the committe....
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....rity resulting in violation of principles of natural justice. 40. As regards the second issue pertaining to the failure of the said petitioner acting as the liquidator in presenting liquidation costs in SCC meetings, at the outset, we find that the Disciplinary Committee of the respondent-Board, in the impugned order, wrongly took into consideration the proceedings of the 7th, 8th and 9th meetings of the SCC, because the show cause notice raising the said issue concerned only the 4th, 5th and 6th meetings of the SCC. Thus, the consideration of the said issue was necessarily limited to the 4th, 5th and 6th meetings of the SCC. This is found to be an error in the impugned order. 41. As regards the allegations contained in the said issue, the impugned order analyzes the response of the said petitioner on the touchstone of interpretation of Regulations 5 and 31A of the Liquidation Regulations 2016. It appears that the said petitioner proceeded on the basis that the necessity of the liquidator presenting the liquidation cost to the SCC under Regulation 31A(6B) of the Liquidation Regulations was to be read with Regulation 5(3)(c) thereof. On that basis, the said petitioner, while p....
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....r auction could be issued. The members of the SCC were throughout aware of the same and in the meetings, there were deliberations regarding the said issues. After a semblance of regularity was brought about by the efforts of the said petitioner functioning as the liquidator along with the members of the SCC, that the first notice for auction could be issued. 44. Even with regard to the second notice for auction, ample material was placed on record by the said petitioner to explain why the same could not be undertaken within 15 days on the failure of the first auction. Although the Disciplinary Committee of the respondent-Board does refer to such material, the effect of the same has not been taken into consideration. But the most crucial factor is that the said petitioner had placed on record the fact that such delays were all condoned by the adjudicatory authority i.e. the NCLT. The impugned order proceeds on the basis that such condonation of delay by the adjudicating authority, which has an overarching role in such circumstances, was not a relevant factor at all. This is another illustration of a crucial factor being ignored while holding against the said petitioner on the iss....
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....oard, which is the regulator of the process of insolvency and liquidation under the provisions of the IBC. Therefore, strictly speaking, the said judgements may not apply to the facts of the present case. 48. We find substance in reliance placed on behalf of the said petitioner on the judgement of the Supreme Court in the case of Chairman, Life Insurance Corporation of India & Ors. vs. A. Masilamani (supra), wherein the Supreme Court has given an analysis of the word 'consider'. In the context of Regulation 11 of the Investigation Regulations 2017, the said position of law assumes significance, because the respondent-Board is required to 'consider' the inspection report to reach a prima facie opinion that sufficient cause exists to take action under Section 220(2) of the IBC for issuing show cause notice. In the present case, the inspection report categorically concluded that no actionable material was available. As per the said position of law, the respondent-Board was required to 'think over' and form an opinion on the investigation report to reach a prima facie opinion that action against the said petitioner was warranted. We find that the impugned sho....
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....ing Board of Insolvency Professional Agencies) Regulations, 2016, which provides as follows:- "The authorisation for assignment shall stand suspended upon initiation of disciplinary proceedings by the Agency or by the Board, as the case may be." 82. While the aforesaid provision is not under challenge before us, we take judicial notice of the serious repercussions on insolvency professionals when the Insolvency and Bankruptcy Board of India issues a show cause notice. The moment disciplinary proceedings are initiated, the insolvency professional's authorisation to conduct his assignments stands suspended. Such a position enabled by subordinate law can have serious implications for insolvency professionals. This position may also have the effect making the Insolvency and Bankruptcy Board of India reticent to issue show cause notices, considering the debilitating impact it can have on any insolvency professional. This situation deserves to be reviewed by the Insolvency and Bankruptcy Board of India. 51. Thus, we find that the respondent-Board needs to be more circumspect while issuing show cause notices to insolvency professionals like the petitioner herein a....