Gujarat High Court Stays IBBI's Order Requiring Resolution Professional To Undergo Pre-Registration Educational Course From IPA

Background Facts

M/s Nuvoco Vistas Corporation Ltd. had filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("IBC") before the NCLT Ahmedabad ("Adjudicating Authority"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against M/s Shilpraj Developers Pvt. Ltd. ("Corporate Debtor"). The Adjudicating Authority vide an order dated 24.07.2019 had admitted the petition and CIRP was initiated. Mr. Sunil Kumar Agarwal ("Resolution Professional/Petitioner") was appointed as the Interim Resolution Professional ("IRP") and was later confirmed as the Resolution Professional.

After constitution of the Committee of Creditors (CoC), an application was filed by the Resolution Professional under Section 12A of the IBC seeking withdrawal of CIRP and the same was approved by the Adjudicating Authority vide an order dated 31.08.2020. In the order dated 31.08.2020, the Adjudicating Authority had also made certain observations regarding the working of the Resolution Professional at Para 6 of the Order. The Resolution Professional filed an appeal before the NCLAT seeking expunging of the remarks made by the Adjudicating Authority, however, the NCLAT vide its order dated 13.10.2020 held that there is no casting of any stigma on the conduct of Resolution Professional through those remarks.

Proceedings Before IBBI

On 28.02.2020 the IBBI had issued a notice for conducting inspection and the draft inspection report was released on 28.01.2021 which was challenged by the Resolution Professional.

Subsequently, after 15 months the Insolvency and Bankruptcy Board of India ("IBBI") issued a Show Cause Notice ("SCN") dated 10.05.2022 to the Resolution Professional based on its findings in the inspection and alleging contravention of provisions of the IBC and Insolvency Professional Regulations in the CIRP of the Corporate Debtor. The IBBI had accused the Resolution Professional of not filing requisite avoidance application, not appointing registered valuer, failure to make public announcement as per Regulation 6 of CIRP Regulations and making misleading representation before CoC. The Resolution Professional's Authorisation for Assignment ("AFA") was also suspended from the date of issuance of SCN which prevented him from undertaking further assignments till the pendency of proceedings before the Disciplinary Committee of IBBI. The Show Cause Notice was disposed off on 05.07.2022 by directing the Resolution Professional to undergo pre-registration educational course from IPA of which he is a member (Condition 4.3) and a penalty of 50% of the fees received by the Resolution Professional during the CIRP of the Corporate Debtor was imposed (Condition 4.4).

Proceedings Before The High Court

The Resolution Professional filed a writ petition under Article 226 of the Constitution of India seeking issuance of writ of Certiorari to quash the Order dated 05.07.2022 passed by the IBBI and also the SCN; issuance of writ of Mandamus calling for records of proceedings arising out of Order dated 05.07.2022; grant of stay on the Order dated 05.07.2022; and restoration of Resolution Professional's AFA.

Contentions Of The Petitioner

The Petitioner submitted that SCN was improperly issued by the Assistant General Manager of the IBBI devoid of authority under IBC, as the Disciplinary Committee must comprise of two Whole Time Members. Further the IBBI had misinterpreted the NCLAT order as a refusal to expunge the remarks whereas the same reflected that no adverse remarks have been made against the Resolution Professional.

The Resolution Professional had also undertaken to deposit the penalty amount of Rs.5,30,000/- before the Registry of the High Court and had requested stay on Condition No. 4.3 (Resolution Professional to undergo pre-registration educational course from IPA of which he is a member) of the Order dated 05.07.2022 after depositing of the penalty amount.

Decision Of The High Court

The High Court taking in view the willingness of Resolution Professional to deposit of Rs. 5,30,000/- before the Registrar, stayed the Order dated 05.07.2022 to the extent of Condition no. 4.3, i.e. Resolution Professional to undergo pre-registration educational course from IPA of which he is a member. Notice was issued to the IBBI.

"5. Having regard to the submissions advanced by the learned senior advocate and in light of the petitioner is ready and willing to deposit an amount of Rs.5,30,000/- before the Registry of this Court, the condition Nos.4.3 which requires the petitioner to undergo pre-registration educational course from the IPA of which he is a member, is stayed till the next date of hearing.

6. Issue NOTICE to the respondent returnable on 09.09.2022.

7. The petitioner shall deposit the aforesaid amount on or before the next date of hearing."

Case Title: Sunil Kumar Agarwal v Insolvency and Bankruptcy Board of India (IBBI), R/Special Civil Application No. 13767 of 2022

Citation: 2022 LiveLaw (Guj) 296

Counsel for Petitioner: Sr. Adv. P.C. Kavina and Adv. Vishal Dave.

Counsel for Respondent: Adv. Nipun Singhvi.

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