Ad.(CA) V.Venkata Siva Kumar vs IBBI and Ors
WP (C) 21186 of 2023
Facts:
1.On 25.02.2019, a Corporate Insolvency Resolution Process (CIRP) of Jeypore Sugar Company Ltd. commenced, and the petitioner was appointed as the Resolution Professional by the Adjudicating Authority, which by definition is the NCLT. On 29.05.2020, the Adjudicating Authority decided that CIRP has failed, and initiated the liquidation process of the corporate-debtor, and the petitioner was appointed as the liquidator
2.An application was filed by the FC bearing no IA 815/IB/2020 in CP 1307/IB/2018 before the Adjudicating Authority, seeking the replacement of the petitioner as the liquidator on the ground that the petitioner has acted against the interest of the corporate debtor (CD) by sharing the valuation report with the prospective scheme proponent. On 01.07.2022, the Adjudicating Authority condemned the said act of the petitioner and proceeded to pass an Order and removed the petitioner as the liquidator.
3.Subsequently, on 01.09.2022, one Mr. Anil Kumar, a Technical Member of the NCLT (3rd respondent herein), had filed two complaints, one with the Indian Institute of Insolvency professionals of the Institute of Chartered Accountants of India(IIIP/ICAI), and the other with the IBBI. In his complaint, the 3rd respondent had alleged that the petitioner, after he was removed as the liquidator of the corporate debtor, was defiling the former’s reputation in the profession by concocting stories of corruption.
4.On 03.07.2023, the IBBI issued a show cause notice to the petitioner alleging that he had violated Regulations 34(2) and 34(5) of the Liquidation Regulations, which mandate that the asset memorandum must be kept confidential during the process of liquidation, that by leaking the same to the prospective scheme proponents had resulted in all the prospective scheme proponents quoting identical price along the valuation report. The IBBI asked the Petitioner to show cause as to why disciplinary action should not be taken for violating Secs. 35(1)(d), 208(2)(a), 208(2)(e) of the Code, Regulation 34(5) of the Liquidation Regulations, Regulations 7(2)(a) and 7(2)(h) of the IP Regulations r/w. Clauses 1,2,12, and 14 of the Code of Conduct specified therein. On the same date (03.07.2023), the Authorization for Assignment (AFA) of the petitioner was also suspended.
5.Petitioner has challenged the issuance of SCN and suspension of AFA
Issue: Whether the IBBI is having the authority to issue SCN ?
Arguments:
Petitioner:
1.Petitioner argued that the time when the show cause notice was issued on him, the petitioner was functioning only as a liquidator appointed by the NCLT, and that he was under a direction from the NCLT to explore the possibility of a compromise under Sec.230 of the Companies Act 2013. When the petitioner was functioning as the liquidator under the Companies Act, IBBI cannot invoke the provisions of the IBC to examine the conduct of the petitioner.
2.He agued that even if it is presumed that IBBI can invoke IBC, still the show cause notice cannot be sustained on the ground that the petitioner had shared the information regarding the value of the company under liquidation, since a liquidator is expected to share vital information with the stake holders, more so, when he is discharging his responsibility under Sec.230 of the Companies Act, 2013.
3.It is the case of the Petitioner that complaint of the 3rd respondent was dismissed by the 2nd respondent while acting under Section 204(e). Therefore, the 1st Respondent cannot take cognizance of the complaint under Secs. 217 and 218. The IBC has a set of statutory provisions, one in Sec. 204, and the others under Sec. 217 and 218, and when one body has exonerated (IIIP), the other body (IBBI) cannot continue to believe that there is merit in the complaint. The Board under Sec. 208 does not sit in appeal over Sections 204, 217 or 2018. At any rate, the Board cannot ignore the proceedings under Sec. 204.
Respondent:
1.The IBBI is empowered under Section 218 of the IBC to initiate an action based on any information it may receive from other sources. Merely because the ICAI, being an independent body, found no merit in the complaint it does not ipso facto take away the authority of the Board under Section 217 and 218 of the Code.
2.It was further contended that the suspension of the AFA does not prohibit the Petitioner from completing the assignments that he has taken up. Further, the suspension does not prohibit the Petitioner from practising as an advocate and a CA.
3.It was contended that What is under challenge in this case is the show cause notice, and unless it is established that there is no jurisdiction vested in the IBBI to issue the show cause notice, the petition cannot be maintained.
Decision: HC Dismissed the petition
Rationale:
1.Hon’ble HC noted that IBC authorises the Resolution Professional to share certain information and these are listed in Regulation 36 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The the objective of the Resolution Professional at this point is to explore the possibility of evolving a resolution-scheme for the CD facing insolvency. It includes sharing inter alia information on the assets and liabilities of the CD, financial statements of corporate debtors, but it nowhere has included the sharing of the valuation of the CD.
2.It held that the process and the procedure for liquidation of a CD is not exclusive to the domain of Companies Act, but it is also contemplated within the IBC. It held that the IBC and the Regulations made thereunder are anxious to protect the information leak on the valuation of the corporate assets both by the Resolution Professional or by the liquidator, even though they may have a role at different stages of a corporate insolvency proceeding, with the latter becoming necessary only when the former fails.
Order:
