“A Penalty Not So Severe May Have Been Imposed”: Delhi High Court Reduces Two-Year Suspension of Insolvency Professional, Citing Investigative Gaps and Disproportionate Action
Sanchayita Lahkar
The Division Bench of the High Court of Delhi, comprising Chief Justice Devendra Kumar Upadhyaya and Justice Tushar Rao Gedela, reduced the suspension period of an insolvency professional imposed by the Insolvency and Bankruptcy Board of India (IBBI). The court found discrepancies in the figures considered by the Disciplinary Committee (DC) and noted that the penalty imposed was disproportionate. The court stated that the suspension would be deemed to have concluded as of the date of the judgment.
The appellant, registered with IBBI as an Insolvency Professional since June 2, 2017, had been appointed as Interim Resolution Professional (IRP) and later as Resolution Professional (RP) in the Corporate Insolvency Resolution Process (CIRP) of GTHS Retails Pvt. Ltd., initiated on August 3, 2017 by PR International under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).
Following the withdrawal of a resolution plan and the lapse of the CIRP timeline, liquidation proceedings commenced with Mr. Ramit Rastogi appointed as the liquidator on October 16, 2019. The appellant was discharged thereafter. In April 2022, the National Company Law Tribunal (NCLT) raised concerns about asset realisation and sought explanations from the appellant and the liquidator. An investigation notice was issued to the appellant on April 25, 2023.
The appellant submitted responses, asserting that all required records were handed over to the liquidator, who had acknowledged receipt. The investigation culminated in a report dated August 8, 2023, finding the appellant in violation of several IBC provisions, including Sections 25(1), 25(2)(a), 25(2)(b), and 208(2)(e), and related regulations.
Based on the investigation, a Show Cause Notice (SCN) was issued on August 25, 2023. The Disciplinary Committee, in an order dated November 1, 2023, suspended the appellant's registration for two years. The appellant filed a writ petition challenging this decision, which was dismissed by the Single Judge on August 27, 2024.
The present appeal challenged the Single Judge's judgement, contending that the Disciplinary Committee had committed factual errors and overlooked vital evidence, including an Auditor's Report dated September 14, 2023.
The appellant's counsel argued that the figures used in the SCN were contradicted by the Investigating Authority's report and the Auditor's Report. The appellant also contended that actions taken during the CIRP, such as the appointment of a Chief Executive Officer (CEO) and financial decisions, were all approved by the Committee of Creditors (CoC), comprising reputed banks.
Regarding charges relating to asset recovery, the counsel pointed to successful realisation of assets exceeding their stated value, with proceeds deposited into the Corporate Debtor's account. It was argued that this was verified by the Auditor's Report, which should not have been disregarded as an afterthought.
On procedural grounds, the appellant stated that IBBI had not passed a written order initiating investigation as required under Sections 217 and 218 of the IBC and the IBBI (Inspection and Investigation) Regulations, 2017. An RTI response allegedly confirmed the absence of such a written order.
Further, the appellant contended that the penalty imposed was disproportionate, leading to what was described as "civil death" and commercial ostracism.
The respondent IBBI opposed the appeal, stating that the appellant failed to prove any statutory violations in the decision-making process and that the disciplinary action was justified by findings of asset depletion, failure to preserve assets, and delay in submitting required CIRP forms. It was asserted that penalty decisions were taken on a case-by-case basis depending on the gravity of contraventions.
The court reiterated the established principle that judicial review under Article 226 is limited to examining the decision-making process and not the decision itself. It further noted that penalties could only be interfered with if they were found to be grossly disproportionate or shocking to judicial conscience.
The Bench recorded: "In the present case we find that so far as charge (a) is concerned, even the Investigating Authority’s Report vindicated the stand taken by the appellant to the extent of the figures furnished by the appellant, whereas, the DC as well as the learned Single Judge proceeded on the figures mentioned in the SCN ignoring the conclusion reached by the Investigating Authority in its Report."
Regarding recovery of Work-in-Progress (WIP), the Bench noted: "The appellant vehemently contended that he was successful in realising a sum of Rs.86 lakhs odd amount on account of WIP which was not only realised but also credited to the account of the CD. In support thereof, the appellant furnished the Auditor’s Report dated 14.09.2023." The court observed that the Disciplinary Committee "trashed it on the flimsy ground of it being 'an afterthought.'"
On the issue of failure to take control of bank accounts, the court recorded that the appellant had "immediately communicated with the Banks apprising them of his appointment as IRP" and demonstrated that decisions were backed by "proper approvals by 86% stakeholders" of the CoC.
The Bench stated: "Though we are not interfering with the opinion of the DC that the appellant may have infracted certain procedural aspects of the IBC... we have considered the issue only with respect to the proportionality of penalty."
The court concluded:
"The above 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."
"Having regard to the fact that almost 1 year and 4 months of the penalty imposed have already lapsed... we deem it appropriate not to remit the matter... In that view of the matter and in our considered opinion, the penalty imposed of two years suspension... is reduced to the period already under gone and the suspension... would be deemed to come to an end from the date of this order."
The present appeal is disposed of alongwith the pending applications, in the aforesaid terms.
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 for IBBI
Case Title: Sandeep Kumar Bhatt vs. Insolvency and Bankruptcy Board of India & Ors.
Neutral Citation: 2025: DHC:2252-DB
Case Number: LPA 1054/2024
Bench: Chief Justice Devendra Kumar Upadhyaya, Justice Tushar Rao Gedela
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