Tribunal Upholds Principles of Proportionality and Due Process, Limits IBBI's Suspension to Specific Misconduct Cases
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has curtailed the powers of the Insolvency and Bankruptcy Board of India (IBBI) concerning the suspension of resolution professionals. The case involved Sachin Naveen Sinha, a resolution professional whose registration was suspended by the IBBI for three years, affecting all his assignments. The NCLAT has now limited this suspension to only the specific assignment where misconduct was alleged, citing the necessity for adherence to the principles of proportionality and due process.
The judgment, delivered by Justice N. Seshasayee and Member (Technical) Barun Mitra, emphasized that the IBBI's disciplinary powers must be exercised proportionally and cannot extend to all assignments without a fair hearing on each specific case. The Tribunal highlighted the importance of the rule of audi alteram partem, which ensures that parties are given a fair hearing before any adverse action is taken.
The case arose when Sinha was removed as a resolution professional in one Corporate Insolvency Resolution Process (CIRP) and faced disciplinary proceedings initiated by the IBBI. The IBBI's decision to suspend him from all assignments was challenged, leading to this appeal.
The Tribunal observed that while the IBBI holds regulatory authority, it cannot override the statutory role of the Committee of Creditors (CoC) in deciding the suitability of a resolution professional for other assignments. Regulation 13(7) of the IBBI (Inspection and Investigation) Regulations, 2017, mandates that the CoC be informed of any disciplinary action, allowing them to decide independently on replacing the resolution professional.
The NCLAT's decision underscores the balance required between regulatory authority and the statutory role of the CoC, ensuring that disciplinary actions are fair and proportional. The Tribunal's ruling prevents the IBBI from imposing blanket suspensions without due process, thereby protecting the professional integrity and rights of resolution professionals.
The judgment is expected to have a significant impact on how disciplinary actions are conducted under the Insolvency and Bankruptcy Code, 2016, reaffirming the importance of procedural fairness and the limitation of powers of regulatory bodies.
Bottom line:-
Disciplinary action against a resolution professional by IBBI - Suspension of registration to operate across all assignments - Tribunal suspends the impugned order with respect to other assignments, citing violation of the rule of audi alteram partem and statutory principles of proportionality.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 220(7), 22, 27, Regulation 13(7) of IBBI (Inspection and Investigation) Regulations, 2017
