IS A RESOLUTION PROFESSIONAL A PUBLIC SERVANT? UNFOLDING THE TRUE FABRIC OF THE IBC AND RELATED REGULATIONS

[Vrinda Gaur is a third-year law student from Dr Ram Manohar Lohiya National Law University, Lucknow]

INTRODUCTION

The Delhi High Court’s recent ruling  in Dr Arun Mohan vs. Central Bureau Investigation has affirmed that a Resolution Professional (RP) is not a ‘Public Servant’ under the purview of Section 2 of the Prevention of Corruption Act 1988 (PC Act). This ruling has again sparked a discourse regarding the nature of the post of an RP under Section 22 of the Insolvency and Bankruptcy Code 2016 (Code) and the interplay between the IBC and the PC Act.

In June 2023, a similar question arose before the Jharkhand High Court, where it upheld a contrary view from that of a Delhi High Court judgement, recognizing him as a public servant.

The primary issue before the courts was the interpretational interplay of the nature of the post in reference to the definition of a ‘Public Servant’ under the PC Act, and whether it is in tandem with the intent of the IBC. However, before gaining a comprehensive understanding of the interplay between these two legislations, it is pertinent to decode the true intent of the IBC, which accords an intelligible interpretation of the nature of the post of an RP. This piece, by probing the prominent sections under the code and related regulations, aims to decipher whether the office of an RP is a public office under the IBC.

DECODING THE TRUE FABRIC

To resolve the dilemma surrounding the nature of the post of an RP, one can rely on the very section which gives genesis to the post. Section 22 of the Code provides that after the determination of the Committee of Creditors (CoC) by an Interim RP (IRP), the CoC at its first meeting is obliged to either appoint the IRP as a permanent RP of the Corporate debtor or replace the interim professional with a new RP by presenting an application before the adjudicating authority. From a plane interpretation of the Section, the CoC plays an authoritative role in sanctioning the appointment of a potential RP while the National Company Law Tribunal (NCLT) plays a restrictive role by merely endorsing the name with little power to meddle with the appointment, removal, or replacement. This was affirmed in IDBI Bank Limited Vs C.J. Davis by the NCLT Chennai bench, where it held that the appointment to the post of an RP calls for the application of commercial wisdom of the CoC, and its decision cannot be interfered with by the NCLT. If it were a public office, much discretion would have been vested in the NCLT or the Insolvency and Bankruptcy Board of India (IBBI) in nominating a professional under Section 22.

Next, unlike all judicial officers, who discharge the public duty of administration of justice, an RP’s duties are restricted to Section 25 of the Code, with no underlying facet of justice administration. In fact, the Apex Court in ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta acknowledged the role played by an RP as a mere facilitator/administrator to serve the interest of the CoC and the Corporate Debtor. Further, the SC in the landmark judgement of Dilip B Jiwrajka Vs Union of India & Ors, dismissing around 382 writ petitions and upholding the constitutional validity of various provisions of the IBC, analyzed the role of an RP in a corporate setting and clarified its role as a facilitator rather than an adjudicator.

From all the duties listed under Section 25 of the Code, it is easy to conjecture that there is no Clause under the Section that extends the liability of an RP to the public at large or any person other than the CoC and the Corporate Debtor. Even his duty of making a public announcement in the local newspaper for initiating the Corporate Insolvency Resolution Process (CIRP) under Section 15, though addressed to the public at large, is mainly aimed at the interested creditors, with little impact on the general public in entirety.

Moving forward, the IBBI (Insolvency Resolution Process for Corporate Persons) 2022 and IBBI (Insolvency Professionals) Regulations 2022 provide a lucid elucidation on the nature of the post under Section 22. Firstly, the determination of the fee of an RP is a role assigned either to the resolution applicant or the CoC. Secondly, the payment of such fee is paid from the funds available with the Corporate Debtor, contributions made by either the resolution applicant or the CoC or raised by way of interim finance. Presuming an RP to be a public servant, it would most certainly mean that fee payment is determined and mandated via a court order. For instance, a receiver acting as an officer of the court and discharging public duties, under Order 40 Rule 2 of the CPC, accumulates remunerations, determined by the court, for the services provided by him. In addition to this, he is most likely to be paid through public funds similar to judicial officers, who mainly receive their allowances through the Consolidated Fund of India. However, such an exposition seems to run contrary to the outline of the Code.

To further decipher the true intent of the Code, Section 232 requires meticulous perusal. According to Section 232, the Chairperson, Members, officers, and other employees of the Board shall be deemed to be public servants within the meaning of Section 21 of the Indian Penal Code.

Further, the Delhi High Court in its judgment had ascertained the intent of the lawmakers to deliberately exclude an RP under Section 232 by including his office under the subsequent section. Section 233 of the IBC, grants safeguards for actions taken by persons mentioned under Section 232, in good faith. An additional post of an Insolvency Professional has been established by the lawmakers under this section. It is highly improbable that the legislature would have negligently omitted his post under Section 232 while immediately in the following section established safeguards for actions taken by him in good faith.

Additionally, Section 21 upholds the public nature of the post of officers such as a liquidator, receiver or commissioner. If the legislature did not acknowledge a liquidator as a public servant, it is unlikely that it committed a grave omission by not attributing an RP as a public servant, weighing the consequential responsibilities affixed to him, long before the office of a liquidator becomes operational. Hence these Sections make it unrefutably clear that the lawmakers intended to exclude an RP from being subjected to a public post. Conclusively, IBC being a special law, is a complete Code and its provisions do not warrant any external interpretation as per the ‘plain meaning rule’ of statutory interpretation. 

THE WAY FORWARD

A sectional analysis of the Code substantiates the judgement of the Delhi High Court that an RP is not a public servant. The prime rationale being, that an RP is not accountable to the public at large and acts as per the whims and satisfaction of the CoC in managerial decisions. After the finalization of the resolution plan, it is the adjudicating authority which decides upon its approval or rejection rather than the RP. Hence, he is a mere facilitator of the resolution process devoid of any adjudicatory discretion or power to administer justice.

After the Jharkhand High Court’s ruling of 28 June 2023, the Supreme Court issued a notice to the respondents affirming that it will take cognizance of the matter. However, after the issuance of the notice, the decision is still awaited.

Bearing in mind the recent ruling by the Delhi High Court, it is almost certain that the Apex Court will revisit the issue at hand in the near future. If we browse the historical design of the Code, all legislations governing the realm of insolvency in different sectors were infused into one compact law, now the IBC. This infusion was pillared on the wisdom of making corporate insolvency resolution a time-efficient practice.

However taking into account the aggravating caseload under the Code,  coupled with countless cases of missed timelines prescribed under the code, the present dilemma adds to the adversity.

Petitions accusing RPs of corruption and malafide conduct are likely to soar, in the absence of a definite judicial interpretation by the Apex Court and divergent judgements of the high courts. Moreover, Creditors who are dissatisfied with the RP’s decision to reject their claims get the leeway to play tit-for-tat and retaliate by challenging his employment on the grounds of subversion. They are most likely to question the RP’s commercial wisdom, despite the professional having acted in good faith. Having said this, it will most certainly prolong the resolution process as an RP is restricted from carrying out his duties in the normal course until the charges against him are cleared. 

What is more daunting is that the Delhi High Court took around 11 adjournments to decide on whether an RP is a Public Servant, that too when it merely had to uphold the status quo through a formal interpretation of the code. In light of the above considerations, the Apex Court must make a decisive call by issuing suo moto cognizance in this matter as it is imperative to protect innocent RPs from baseless criminal charges and safeguard the initial fabric of the Code which aims at facilitating speedier resolution.