“A Penalty Not So Severe May Have Been Imposed”: Delhi High Court Reduces Insolvency Professional’s Suspension After Finding Disciplinary Action Based on Erroneous Figures and Procedural Gaps
Safiya Malik
The Division Bench of the High Court of Delhi comprising Chief Justice Devendra Kumar Upadhyaya and Justice Tushar Rao Gedela, in a judgment delivered on April 3, 2025, reviewed a disciplinary suspension imposed by the Insolvency and Bankruptcy Board of India (IBBI) and reduced the penalty duration already served by the appellant. The Court concluded that certain factual and procedural inconsistencies in the disciplinary proceedings warranted modifying the two-year suspension originally imposed.
The Court stated on an appeal challenging a single bench judgment that had upheld the IBBI's Disciplinary Committee (DC) order suspending the appellant from acting as an Insolvency Professional for two years.
The appellant, Sandeep Kumar Bhatt, registered as an Insolvency Professional with IBBI on June 2, 2017. On August 3, 2017, the National Company Law Tribunal (NCLT) admitted an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) against GTHS Retails Pvt. Ltd., appointing Bhatt as the Interim Resolution Professional (IRP). He was later confirmed as the Resolution Professional (RP) on December 20, 2017.
Due to the withdrawal of the Resolution Applicant's offer and the lapse of the 270-day period for completing the Corporate Insolvency Resolution Process (CIRP), the NCLT initiated liquidation proceedings on July 4, 2019. Bhatt was discharged from his responsibilities when Ramit Rastogi was appointed as liquidator on October 16, 2019.
Subsequently, the liquidator filed an application for dissolution. The NCLT, in an order dated April 19, 2022, directed submission of a Valuation Report which revealed asset value of Rs. 4.29 crores, including Rs. 2.89 crores in debtors and work-in-progress (WIP), and Rs. 12.14 lakhs in fixed assets. On July 15, 2022, the NCLT directed both Bhatt and the liquidator to explain why no steps had been taken to recover these assets.
Bhatt responded on October 29, 2022, stating that the responsibility lay with the liquidator, who had taken full possession of the corporate debtor's assets in September 2019. Bhatt cited prior communications, including a September 2020 email from the liquidator acknowledging receipt of all relevant documents.
IBBI subsequently initiated an investigation under Regulation 8(1) of the Inspection and Investigation Regulations, 2017, issuing a notice on April 25, 2023. Bhatt responded via multiple emails, reiterating his prior compliance and stating that relevant records had been duly handed over.
An investigation report submitted on August 8, 2023, alleged contraventions of Sections 25(1), 25(2)(a), 25(2)(b), 208(2)(e) of the IBC, and relevant regulations. A show cause notice (SCN) dated August 25, 2023, accused Bhatt of failing to:
(a) Recover security deposits; (b) Realize WIP; (c) Take custody of the corporate debtor's bank account; (d) Timely file CIRP forms.
Bhatt responded on September 13, 2023, claiming full compliance and attaching an auditor's report dated September 14, 2023, to demonstrate recovery exceeding projected realizable WIP.
Despite these submissions, the IBBI's DC, by order dated November 1, 2023, suspended Bhatt's registration for two years. Bhatt challenged this order through a writ petition, which was dismissed by a single judge on August 27, 2024. The current Letters Patent Appeal (LPA) challenged the dismissal.
The Division Bench noted that judicial review under Article 226 primarily concerns the decision-making process rather than the merits of the decision. However, it acknowledged exceptions where factual or procedural irregularities may render disciplinary actions disproportionate.
On Charge (a) related to recovery of security deposits, the Court stated: "the conclusion based on erroneous figures which are contrary to the Report of the Investigating Authority... had the potential of persuading the DC to impose a higher and stricter penalty."
Regarding Charge (b), the Court noted that the appellant presented an auditor's report confirming recovery of Rs. 86 lakhs against a projection of Rs. 79 lakhs. The Court observed: "The document furnished ought to have been examined for what it may have been worth since the same was asserted to be based on financial statements of the CD."
On Charge (c) concerning control of bank accounts, the Court found documentary evidence indicating that Bhatt had informed the banks immediately upon his appointment and that decisions regarding bank operations were approved by the Committee of Creditors (CoC). The Court recorded: "the approvals were sanctioned after proper deliberation... the CoC comprised stakeholders of whom, most were reputed banks."
Concerning delay in filing CIRP forms, the Court refrained from factual evaluation but held that procedural lapses alone should not attract severe penalties.
The Bench acknowledged that nearly 1 year and 4 months of the suspension had already been served, and only 8 months remained. Considering the nature of procedural lapses, it recorded: "a penalty, not so severe in nature may perhaps, have been imposed upon the appellant."
The Court modified the penalty imposed on the appellant. It stated:
"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."
The appeal was accordingly disposed of.
Advocates Representing the Parties
For the Appellant: Mr. Mohit Nandwani, Advocate with CMA Kamal Deep Tyagi
For the Respondents: Ms. Amrita Singh and Mr. Ankit Gupta, Advocates
Case Title: Sandeep Kumar Bhatt vs. Insolvency & Bankruptcy Board of India & Ors.
Neutral Citation: 2025: DHC:2252-DB
Case Number: LPA 1054/2024, CM APPL. 61894/2024 & CM APPL. 1284/2025
Bench: Chief Justice Devendra Kumar Upadhyaya and Justice Tushar Rao Gedela
[Read/Download order]
