Delhi High Court Reduces Suspension Period Imposed By IBBI Disciplinary Committee On Insolvency Professional, Finds Penalty Disproportionate

Brief Facts

The NCLT admitted an application under Section 9 of the IBC against GTHS Retails Pvt. Ltd. on 03.08.2017 and appointed the appellant, Sandeep Kumar Bhatt, as the Interim Resolution Professional (IRP). The Appellant was later confirmed as the Resolution Professional (RP) on 20.12.2017.

On 04.07.2019, the Adjudicating Authority noted that the CIRP period had lapsed and the Resolution Applicant withdrew his offer. Liquidation proceedings were initiated. The appellant was discharged from the case on 16.10.2019. Mr. Ramit Rastogi was appointed as the liquidator. The Liquidator filed a dissolution application. The NCLT directed the liquidator to place on record the Valuation Report.

On 25.04.2023, IBBI issued an investigation notice under Regulation 8(1) of the Inspection Regulations. The appellant replied to the notice stating that the liquidator had reported the wrong liquidation value by filing the application for dissolution.

The investigation report dated 08.08.2023 concluded that the appellant violated Sections 25(1), 25(2)(a), 25(2)(b), 208(2)(e) of the IBC and the IBBI Code of Conduct. A Show Cause Notice (SCN) dated 25.08.2023 was issued under Sections 2(1)(a) and 220(2) of the IBC. On 01.11.2023, the Disciplinary Committee of IBBI suspended the appellant's registration as an Insolvency Professional for two years under Section 220 of IBC.

The appellant filed a writ petition challenging the suspension. The Single Judge dismissed the writ petition on 27.08.2024. The appellant filed the appeal challenging the Single Judge's judgment.

Contentions of the Appellant:

Mr. Mohit Nandwani, Counsel for the Appellant, submitted that the NCLT's order dated 17.01.2023 in PR International v. GTHS Retails Pvt. Ltd. mistakenly treated book value (Rs. 4.28 crores) as liquidation value. On this basis, it called upon the IBBI to investigate, and the IBBI issued a notice to the appellant based on the earlier NCLT order.

He stated that the SCN dated 25.08.2023 issued under Section 219 of the IBC and Regulations 11 & 12 of the IBBI Inspection Regulations, made four allegations: (a) Recovery of security deposits, (b) Recovery of work-in-progress, (c) Failure to take control of Bank Accounts of CD, and (d) Delay in filing CIRP forms.

The Counsel submitted that for recovery of security deposits, the figures used by the DC were different from those in the investigation report and Auditor's Report. These discrepancies led to perverse factual findings and an unjust penalty.

It was contended that the DC disregarded Regulation 12(2) of the Investigation Regulations which provides circumstances to be looked at while deciding punishment, including nature and seriousness of contravention, consequences of such contravention, conduct before and after the contravention etc., like the seriousness of the contravention or conduct of the appellant, while imposing the penalty.

Contentions of the Respondent

Ms. Amrita Singh, Counsel for the Respondent, raised a preliminary objection stating that the appellant cannot be permitted to argue merits of the findings of fact in an appeal, since it is well settled that writ courts only examine the decision-making process and not the decision itself. The counsel argued that no violation of any Section, Rule or Regulation was at all pointed out by the appellant before the learned Single Judge, and having failed to do so, the Appellant cannot raise these arguments at the appellate stage.

She then submitted that the suspension order dated 01.11.2023 passed by the Disciplinary Committee was justified due to specific infractions by the appellant, including 'contravention of Section 25 of the IBC' which imposes a duty on the Resolution Professional to preserve and protect the assets of the Corporate Debtor and 'delay in submission of CIRP forms with the IBBI'.

Responding to the appellant's claim of disproportionality in penalty, Ms. Singh submitted that “this issue was never raised before the learned Single Judge and cannot be raised now”.

Observations

The Court observed that ordinarily, a writ court does not interfere in matters arising out of disciplinary proceedings or administrative decisions, save and except where there is apparent or palpable infraction of a statute, statutory rule or regulation or the proceeding displays violation of the principles of natural justice. It observed that it is not the decision itself but the decision-making process that is generally subject to judicial review under Article 226 of the Constitution.

The Court held that “unless the penalty imposed is such which shocks the conscience of the Court, or that which no prudent man would reach, no interference by Courts is warranted, ordinarily.” The court placed reliance upon the judgment of the Supreme Court in Union of India & Anr. v. K.G. Soni, which held that “unless the punishment imposed by the disciplinary authority or the Appellate Authority shocks the conscience of the court/tribunal, there is no scope for interference. Further, to shorten litigations it may, in exceptional and rare cases, impose appropriate punishment by recording cogent reasons in support thereof.”

The Court found that in evaluating charge (a), the Disciplinary Committee (DC) relied on figures from the SCN rather than those in the Investigating Authority's Report. Since the report vindicated the appellant's stand, reliance on incorrect data could have influenced the imposition of a higher penalty.

In relation to charge (b), the appellant provided an Auditor's Report supporting his claim of realising the fund. Instead of examining the report, the DC rejected it outright as an “afterthought”. The Court observed that the DC should have considered its authenticity or sought clarifications before discarding it.

As to charge (c), regarding failure to take control of the Corporate Debtor's bank accounts, the Court noted that the appellant had immediately informed the banks of his appointment as IRP.

On the charge related to violation of CIRP procedures (like obtaining valuation reports), the Court noted that even if there were procedural lapses, the penalty imposed should be proportional.

The Court concluded that the DC may have overlooked material aspects while imposing the penalty. Considering that the appellant had already undergone suspension for over 1 year and 4 months, it reduced the penalty to the period already undergone.

Case Title: Sandeep Kumar Bhatt vs. Insolvency & Bankruptcy Board of India & Ors.

Case Number: LPA 1054/2024, CM APPL. 61894/2024 & CM APPL.1284/2025

For the Appellant : Mr. Mohit Nandwani, Advocate with CMA Kamal Deep Tyagi.

For the Respondents : Ms. Amrita Singh and Mr. Ankit Gupta, Advocates for R-1.

Date of Judgment: 03.04.2025