IBC | Bombay High Court Upholds One-Year Suspension of Resolution Professional for Failing Duties During Insolvency Process

Resolution Professionals Must Diligently Perform Duties; Suspension Upheld for Lack of Due Diligence - Bombay High Court, with a bench comprising Justices A.S. Chandurkar and Rajesh S. Patil, dismissed the writ petition of Vijendra Kumar Jain, former Resolution Professional (RP) for M/s. Transparent Energy Systems Pvt. Ltd., challenging the one-year suspension of his registration by the Insolvency and Bankruptcy Board of India (IBBI). The suspension was based on Jain's failure to verify claims diligently and failure to raise objections regarding legal issues in the Resolution Plan. The court upheld the disciplinary action, confirming that the RP had failed in his duties as required under the Insolvency and Bankruptcy Code (IBC), 2016.

The petitioner, Vijendra Kumar Jain, was appointed as the Resolution Professional during the Corporate Insolvency Resolution Process (CIRP) of M/s. Transparent Energy Systems Pvt. Ltd. The IBBI initiated an investigation following complaints about Jain’s handling of creditor claims and his failure to highlight important legal issues in the Resolution Plan. Based on the investigation findings, the IBBI issued a show cause notice to the petitioner and, after hearing him, suspended his registration for one year.

I. Lack of Due Diligence in Verifying Claims

The court observed that the petitioner had failed to notify Kanoria Chemicals & Industries Limited (KCIL) of the exact admitted amount of its claim, despite repeated emails from the creditor. The National Company Law Appellate Tribunal (NCLAT) had earlier reprimanded the petitioner for this failure, stating that the petitioner had not acted with sufficient diligence in responding to KCIL's communications. The court held:

"The petitioner’s failure to communicate the precise admitted claim amount of KCIL constitutes a clear breach of his duties as a Resolution Professional."

II. Failure to Object to Legal Analysis in Resolution Plan

The petitioner also failed to raise objections to comments made by the Successful Resolution Applicant (SRA) about an arbitration award in favor of KCIL. The SRA included remarks in the Resolution Plan questioning the validity of the arbitration award, which was beyond the scope of the SRA’s role. The court noted that Jain should have brought these comments to the attention of the Committee of Creditors (CoC) and the Adjudicating Authority but did not. The court found this omission significant, holding:

"The petitioner failed to perform his duty by not objecting to the comments regarding the arbitration award in the Resolution Plan, thereby neglecting his responsibilities as RP."

III. Principles of Natural Justice – No Violation

The petitioner did not contest the compliance of natural justice during the disciplinary proceedings. The court confirmed that the Disciplinary Committee of the IBBI had followed due process by providing the petitioner with notice, access to relevant documents, and an opportunity to be heard.

"The disciplinary proceedings were conducted in compliance with the principles of natural justice, and the petitioner was afforded every opportunity to present his case," the court observed.

IV. Proportionality of Punishment – Suspension Period Not Excessive

The petitioner argued that the one-year suspension was disproportionate to his conduct. However, the court rejected this argument, stating that the Disciplinary Committee had acted within its authority under the IBC. The deficiencies in the petitioner’s performance were significant enough to justify the suspension.

"The one-year suspension is proportionate to the petitioner’s conduct, and there is no reason to reduce the suspension period," the court held.

The Bombay High Court upheld the IBBI's decision to suspend Vijendra Kumar Jain's registration as a Resolution Professional for one year. The court found that Jain had failed in his duties under the IBC by not communicating properly with a creditor and failing to object to legal issues in the Resolution Plan. The court also rejected Jain’s argument that the suspension was excessive, stating that the punishment was within the bounds of the Disciplinary Committee’s powers and proportionate to the deficiencies in his conduct.

Date of Decision: October 16, 2024

Vijendra Kumar Jain v. Insolvency and Bankruptcy Board of India & Anr.