Disciplinary proceedings initiated by IBBI cannot be quashed by NCLT, rules NCLAT

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has held that the National Company Law Tribunal (NCLT) can’t quash the disciplinary proceedings initiated by the insolvency regulator IBBI.

This will be the position even if the IBBI’s proceeding had been initiated at the instance and recommendation of the NCLT, the NCLAT has ruled.

It may be recalled that the insolvency regulator Insolvency and Bankruptcy Board of India (IBBI) had approached NCLAT against the NCLT’s February 5 order quashing the disciplinary proceedings initiated by IBBI against Rishi Prakash Vats, an insolvency professional.

The question that came up for consideration in the appeal was whether the NCLT has jurisdiction to quash the disciplinary proceedings initiated by the IBBI. NCLAT held that once a disciplinary proceeding is initiated by the IBBI on the basis of evidence on record, it is for the disciplinary authority, IBBI to close the proceeding or pass appropriate orders in accordance with law.

Such power having been vested with IBBI and in absence of any power with the NCLT, the adjudicating authority (NCLT) cannot quash the proceeding, the NCLAT said.

NCLAT had, therefore, set aside the last portion of the NCLT’s February 5 order relating to quashing of all disciplinary proceedings.

In the present case, Corporate Insolvency Resolution Process (CIRP) was initiated against Rana Global Ltd (corporate debtor) in which Rishi Prakash Vats was appointed as a ‘resolution professional’.

For certain reasons, including lackadaisical attitude of RP, the CIRP was delayed and NCLT wanted the matter to be brought to the notice of IBBI for an appropriate action. After this direction, IBBI initiated disciplinary proceeding against Rishi Prakash Vats.

Rish Prakash Vats then filed certain explanation before the NCLT showing the reasons for the delay in CIRP. Since proper explanation was provided, NCLT expunged the earlier observation made on April 26, 2018 and IBBI was informed.

As IBBI continued proceeding, NCLT passed its order on February 5, 2019 and the disciplinary proceedings were quashed. “We have already noticed that once a disciplinary proceeding is initiated, the final order is required to be passed by the IBBI. Expunge of the earlier order made by NCLT on April 25, 2018, may be a good ground to close the proceeding, but the NCLT cannot quash the proceeding initiated by IBBI,” the NCLAT said.

Experts’ take

Aseem Chawla, Managing Partner, ASC Legal, a law firm, said the NCLAT order emphasises the lack of jurisdiction with the NCLT vis-a-vis disciplinary proceedings initiated by the IBBI. The order suggests the prerogative of IBBI to pass the final order in cases of disciplinary proceedings related to resolution professionals, Chawla said.

Saurav Kumar, Partner, Induslaw, a law firm, said: “Under the code, the powers to conduct disciplinary proceedings rests with the board. There are no provisions under the code which grants jurisdiction to the adjudicating authority to pass orders on the disciplinary proceedings or to pass orders for withdrawal or closure of such disciplinary proceedings”.

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