IBC | Assistant General Manager Signs Inspection Order In Place Of Executive Director Of IBBI, Bombay High Court Stays The Suspension Of Insolvency Professional

Background Facts

An Insolvency Professional is appointed in proceedings under the Insolvency and Bankruptcy Code, 2016 (“IBC”) to manage the affairs of the Corporate Debtor, which is undergoing the Corporate Insolvency Resolution Process (“CIRP”).

Prior to issuance of any Show Cause Notice to any Insolvency Professional under Section 219 of IBC, an Investigating Authority has to be appointed by the Insolvency and Bankruptcy Board of India (“IBBI”) under Section 218.

Once the Investigating Authority is appointed, it has to file a detailed Report of the inspection or investigation and submit the same to the IBBI. Thereafter, the IBBI considers the report of the Investigating Authority and then, if necessary, appoints a Disciplinary Committee under Section 220 of IBC.

Mr. Partha Sarathy Sarkar (“Petitioner”) is a registered Insolvency Professional. On 09.03.2021, the IP Monitoring Division of IBBI issued an Inspection Order directing the Inspecting Authority to conduct an inspection on the Petitioner. The Inspection Order was signed by the Assistant General Manager alone.

On 13.09.2023, an order was passed by IBBI to suspend the IP registration of the Petitioner.

The Petitioner filed a writ petition before the High Court challenging its suspension. It was argued that the Investigating/Inspecting Authority was not appointed by a person duly authorized by the IBBI prior to issuance of the Inspection Order.

As per the IBBI (Delegation of Powers and Functions) Order, 2017, any action, inspection or investigation order has to be issued by the Executive Director of IBBI. Since the constitution of the Investigating Authority is itself defective, therefore all subsequent proceedings are inconsequential.

High Court Verdict

The Bench noted that prima facie the Inspection Order was signed by the Assistant General Manager in place of the Executive Director.

The Bench while directing the IBBI to file its affidavit in reply, has stayed the operation of the Inspection Order dated 13.09.2023.

“Considering these circumstances, we direct that the IBBI shall file their affidavit-in-reply on or before 31st October, 2023 and serve copy of the same on the advocates for the Petitioner. If the Petitioner wants to file any affidavit-in-rejoinder, they may do so, on or before 7th November, 2023 and serve a copy of the same on the advocates for the Respondent. In the meanwhile, and until further orders, the effect, implementation and execution of the impugned order dated 13th September, 2023 (Exhibit-'A' to the Petition) shall remain stayed.”

The next date of hearing is 08.11.2023.

Case Title: Partha Sarathy Sarkar v Insolvency & Bankruptcy Board of India (IBBI) & Ors.

Case No.: Civil Writ Petition (L) No.28206 Of 2023

Counsel for Petitioner: Mr. Pratik Sarkar i/b Vijay Kurle

Counsel for Respondent: Mr.Pankaj Vijayan a/w Hitesh R. Kharat & Shyam Upadhyay i/b Intra Legal.

Click Here To Read/Download Order