IBBI Has Discretion To Decide Fitness For Appointment As Insolvency Professional, Immediate Past Being Clean No Clean-Chit: Delhi HC

The Delhi High Court has dismissed a banker’s challenge to IBBI’s rejection of her application to be registered as a Resolution Professional ("RP"), observing that a person’s past actions could not be ignored when judging if they are fit and proper for appointment as an Insolvency Professional ("IP").

“The Petitioner has been found guilty of fraudulent practices of violating market integrity and the decision of the Respondent Board to refuse the registration of the Petitioner as an Insolvency Professional on the basis of the decision of the Apex Court cannot be said to be so perverse or irrational warranting interference under Article 226 of the Constitution of India.”

The petitioner, who was reportedly found guilty of violating Regulation 3(a), 3(b), 3(c), 3(d) and 4(1) of the SEBI Regulations, 2003 in the past, and adjudged unfit for registration as an IP by the IBBI, had approached the court contending that she could not be condemned forever for events that occurred 11 years ago.

She had further urged that there was no criminality involved in her past conduct, and a penalty had already been imposed, which was in the nature of civil obligation under SEBI laws.

Analyzing the IBBI Regulations, 2016, Justice Subramonium Prasad said that an IP performs very important functions in the insolvency resolution process of a company. As such, IBBI can decide that a person who has been involved in any kind of financial irregularity cannot be appointed as an IP.

“An Insolvency Professional in fact becomes the heart and brain of the company under the insolvency resolution process and a person having slightest of disqualification cannot be permitted to be appointed as an Insolvency Professional otherwise the entire purpose of the IBC will get vitiated.”

It was further opined that the decision to determine as to whether a person is fit and proper to be appointed as IP is based on the subjective satisfaction of IBBI, to which determination good reputation and character of a person are important.

Regarding the petitioner’s contention that the alleged financial irregularity occurred 11 years ago, the court noted:

“Though the Petitioner might be eligible to be considered to be appointed as an Insolvency Resolution Professional but the decision of the Board not to permit the Petitioner to function as an Insolvency Professional cannot be said to be arbitrary...the fact that immediate past was clean does not give a clean chit to the person that his candidature will be considered”.

Dealing with the scope of judicial review, Justice Prasad referred to Barium Chemicals Ltd. v. Company Law Board and Mansukhlal Vithaldas Chauhan v. State of Gujarat, and recapitulated:

“…Courts do not sit as an Appellate Authority over the subjective satisfaction arrived at by the Authorities and the Courts only see as to whether the satisfaction has been arrived at on irrelevant consideration or by ignoring relevant materials, in that case the Court will interfere with such decisions.”

Speaking of the adjudication of whether a person is suitable for a post or not, the court added,

“The question of adjudging as to whether a person is suitable for a particular job or not should be left to the appointing authority and more particularly when the appointing authority consists of experts. It is for the experts to decide as to who is best and most qualified for a particular job. The antecedents of a person is an important criterion to decide as to whether the said person is suitable for hte post or not.”

Counsels for petitioner: Mr. Viraj R. Datar, Senior Advocate alongwith Mr. Saurav Joon, Ms. Natasha Gupta, Mr. Vishal Ganda, Ms. Akanksah Mathur and Mr. Rahul Narula, Advocates

Counsels for respondents: Mr. Asheesh Jain, CGSC with Mr. Keshav Sehgal, GP, and Mr. Gaurav Kumar, Ms. Ankita Kedia & Ms. Ria Khanna, Advocates for respondent Nos.1 & 2

Case Title: Pooja Menghani v. Insolvency and Bankruptcy Board of India & Anr., W.P.(C) 8696/2022

Citation: 2023 LiveLaw (Del) 1197

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