Is Resolution Professional a Public Servant? – By Ms. Reyyi Sameera and Ms. Rapaka Sravya

The most debated topic these days in the regime of Insolvency and Bankruptcy Code, 2016 is whether a Resolution Professional is a Public Servant the Prevention of Corruption Act, 1988 or not. The two High Courts of Jharkhand and Delhi gave two conflicting opinions in the same year and it is to the apex court to settle the position now.

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Is Resolution Professional a Public Servant?

Ms. Reyyi Sameera and Ms. Rapaka Sravya
(Students of the Post Graduate Insolvency Program at IICA)

The most debated topic these days in the regime of Insolvency and Bankruptcy Code, 2016 (“IBC/Code”) is whether a Resolution Professional (“RP”) is a Public Servant the Prevention of Corruption Act, 1988[1] (“POCA”) or not. The two High Courts of Jharkhand and Delhi gave two conflicting opinions in the same year and it is to the Apex Court to settle the position now.

Clause 5 of  Sec 2(c) of the POCA defines public servant. So, an inference from the section and the explanation reveals that RP can also be considered as a public servant. It is the nature of a duty, not an individual’s position, that discloses whether or not the person carrying it out is a public servant.[2] Under POCA, the concept was to replace the notion of conventionally recognized public officials with those who carry out public duties.[3]

A bare reading of Section 232 of the Code reveals that RP is not listed amongst persons who are public servant within the meaning of Section 21 of the then IPC and Section 233 protects to RP for any acts done in good faith. At the same time, the duties and functions of RP u/s 208 are public in nature. These responsibilities of RP are closely linked to bank loans that accept public deposits; as a result, it can be said that RP is carrying out public functions.

In the Sanjay Kumar Agarwal v. CBI (2023) ibclaw.in 209 HC[4] case, where the petitioner RP was arrested by the CBI after being caught red-handed accepting a bribe from the promoters, RP argued that he is not a public servant and is therefore not protected by the POCA Act. The Jharkhand High Court, the RP is a public servant under the POCA, and the RP’s responsibilities under Section 208 of the Code are public in nature.

The Court cited State of Gujarat v. Mansukhbhai Kanjibhai Shah[5] and determined that the RP would be considered a public servant for the purposes of POCA Section 2(c) because he is an individual performing a public duty. The RP said that the legislature purposefully failed to state that the RP would be regarded as a public servant for the purposes of Section 21 of the IPC under Section 232. The Court noted that RP was not one of the officers covered by Section 232, but it held that in cases where RP accepts a bribe to support a party to which the POCA applies, it cannot be interpreted that Section 232 precludes the use of the POCA.[6]

On the Contrary, the Delhi HC in the case of Dr. Arun Mohan Vs. Central Bureau of Investigation (2023) ibclaw.in 986 HC[7] has held that a Resolution Professional is not a Public Servant. The principal issue was whether the petitioner, an Insolvency Professional is a public servant and thus, would be liable for offenses punishable under POCA. An Impleadment Application of IBBI was also accepted to assist the Court in determining the issue at hand.

The Delhi High Court considered Insolvency Professional as a genus and not IRP, RP and Liquidator as separate entities. The Court has interpreted Section 232 and Section 233 of the Code and denied using the Golden Rule of Interpretation for inclusion of RP in Section 232 as there is no ambiguity or lack of clarity. The gap between Sections 232 and 233 is so minute that the Court was unable to fathom the Legislature’s wisdom while drafting S Section233 to save the IP from any act done in good faith, had completely overlooked or suffered from temporary amnesia by not inserting the “IP” in Section 232[8], which is the immediate previous Section. While at the same time, in Section 232, the Legislature had included other officers of the Board to be deemed “Public Servants” for the purposes of Section 21 IPC. Thus, it is clear as crystal that the omission was nothing but willful and deliberate.  

The Court also has relied on Arcelor Mittal India Pvt. Ltd. Vs Satish Kumar Gupta (2018) ibclaw.in 31 SC[9]  and Swiss Ribbons Pvt. Ltd Vs. Union of India (2019) ibclaw.in 03 SC[10] where the provisions relating to the roles and responsibilities of RP were discussed in great detail and it was held that RP is a mere “facilitator” to the entire process of CIRP. Although the above mentioned cases do not mention the then Indian Penal Code, 1860 or the Prevention of Corruption Act, 1988, yet what has been considered by the Delhi HC is that none of the duties of RP shall assume the character of a Public Duty.

By relying on the Central Bureau of Investigation, Bank Securities and Fraud Cell Vs. Ramesh Gelli and Ors[11], it was also held that every duty, even if it has a colour of “public duty” may necessarily not be a character which is “public” in nature. When the legislature appears to have deliberately omitted such an individual or institute from such ambit, widening the definition of Public Servant is not allowed.

If only the legislature intends to treat RP as a Public servant then it shall mention it expressly like under Reg.5(1) and 5(3) of Securities Exchange Board of India (Appointment of Administrator and Procedure for Refunding to the investors) Regulations,2018[12], which again gives substance to the fact that RP was deliberately omitted under S.232. The principle of “Casus Omissus” cannot be supplied except in the case of clear necessity and in the present case, Section 232 leaves no ambiguity nor is it repugnant to the objectives envisioned by the code.

On perusal of Section 2(c)(vi) of Prevention of Corruption Act,1988, no adjudicatory role is played by the IP. By applying the doctrine of “noscitur a sociis”, it is apparent that the words “other person” stipulated in sub-section (vi) would be an individual whose powers would be akin to the arbitrator in the subsection (vi) who is entitled with adjudicatory powers. Since no such responsibility is conferred upon RP he cannot fall within the ambit of Section  2(c).

The Delhi High Court has respectfully differed with the conclusion reached in the case of “Sanjay Kumar Aggarwal’s[13]” by the High Court of Jharkhand at Ranchi.

The undetermined question here is why Section 232 does not include RP in context with Section 21 of the IPC and if this precludes POCA’s authority over RPs for corrupt activities. This question is essential to be determined as such a lacunae would lead to increased corrupt activities by an IRP/RP jeopardizing the interests of the stakeholders.

The POCA was amended in the year 2018 but IP was not inserted under the definition of the public servant. This reveals that the legislature has no intention to consider RP as a public servant to get him covered either under POCA or under the IBC. There is an appeal pending before Apex Court against the order passed by the Jharkhand HC[14].

Further, Sec 7(1) of the Code states that A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor,…”. This signifies that the legislature by including “any person” under the said section has intended that, even though such debt is not due and payable to that person, such person can initiate CIRP u/s 7(1). It is thus inferred that FC’s, majority of them being banks are dealing with public money which is in turn dealt by RP. This makes him accountable for his actions towards public.

The authors feel that since the duties performed by RP are public in nature, they are public servants and Sec 2(c) is pretty clear that an individual who performs public duties are public servants for the purpose of the Act and hence, the legislature would have felt that there are no explicit provisions are required. Although the IRP/RP might not possess adjudicatory powers but he undeniably possess administrative powers as the Supreme Court has help in Swiss Ribbons. Therefore, RP must be a Public Servant to the extent of his powers as an administrator or the Corporate Insolvency Resolution Process The authors opine that RP be declared as a public servant by the SC to protect the procedural justice of CIRP as well as to increase the accountability of RP.

Reference:

[1] The Prevention of Corruption Act, 1988, Act No. 48 of 1988

[2] State of Gujarat v. Mansukhbhai Kanjibhai Shah, (2020) 20 SCC 360 at Para 34

[3] Explanation Section 2(c) of Prevention of Corruption Act, 1988

[4] (2023) ibclaw.in 209 HC

[5] Supra Note. 1

[6] Supra note 3 at Para 25

[7] Dr. Arun Mohan Vs. Central Bureau of Investigation, (2023) ibclaw.in 986 HC

[8] Ibid at Para 45

[9] Arcelor Mittal India Private Limited Vs. Satish Kumar Gupta, (2018) ibclaw.in 31 SC

[10] Swiss Ribbons Pvt. Ltd & Anr. Vs Union of India & Ors. (2019) ibclaw.in 03 SC

[11] Central Bureau of Investigation, Bank Securities and Fraud Cell Vs. Ramesh Gelli and Ors, (2016) 3 SCC 788

[12] Securities Exchange Board of India (Appointment of Administrator and Procedure for Refunding to the investors) RegulationsS,2018

[13] Supra note 4

[14] SLP (Crl) 7029/2023

 

 


Disclaimer: The Opinions expressed in this article are that of the author(s). The facts and opinions expressed here do not reflect the views of IBC Laws (http://www.ibclaw.in). The entire contents of this document have been prepared on the basis of the information existing at the time of the preparation. The author(s) and IBC Laws (http://www.ibclaw.in) do not take responsibility of the same. Postings on this blog are for informational purposes only. Nothing herein shall be deemed or construed to constitute legal or investment advice. Discussions on, or arising out of this, blog between contributors and other persons shall not create any attorney-client relationship.


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