Prosecution of Resolution Professionals under the Prevention of Corruption Act: A Case Analysis

INTRODUCTION:

The Insolvency and Bankruptcy Code, 2016 (referred to as the 'Code') establishes a comprehensive framework for the resolution of corporate insolvency. A key element of this process is the appointment of a Resolution Professional (RP) or an Interim Resolution Professional (IRP). This article outlines the procedures for the appointment of an IRP and the subsequent replacement of a resolution professional during the insolvency and bankruptcy process.

Appointment of Interim Resolution Professional (IRP):

Under Section 16 of the Code, the appointment of an IRP is an integral part of the corporate insolvency resolution process (CIRP). Financial creditors have the authority to propose an IRP, while operational creditors and the corporate debtor may or may not propose one. In cases where no proposal is put forth, the Adjudicating Authority has the power to direct the Insolvency and Bankruptcy Board of India (IBBI) to nominate a suitable candidate. The final appointment of the IRP is made by the Adjudicating Authority based on the information provided by the IBBI.

Role of Resolution Professional (RP):

Once the IRP assumes the position, they function as the RP throughout the CIRP. The RP plays a crucial role in managing the affairs of the corporate debtor, collecting and verifying claims of creditors, and facilitating the resolution process. They act as the bridge between the creditors, the corporate debtor, and other stakeholders.

Replacement of Resolution Professional:

In certain situations, the Committee of Creditors (CoC) may decide to replace the existing RP. This decision typically arises when the CoC believes that a change in the resolution professional is necessary for the effective resolution of the insolvency case. The CoC holds the authority to make such a decision based on the consensus of its members. The replacement process involves identifying and appointing a new insolvency professional as the resolution professional.

Appointment of New Resolution Professional:

When the CoC decides to replace the existing RP, the matter is brought before the Adjudicating Authority. The Authority reviews the CoC's decision and assesses the suitability of the proposed replacement professional. The Adjudicating Authority has the final authority to appoint the new resolution professional based on the qualifications and experience of the candidate and in compliance with the provisions of the Code.

ISSUE:

The status of resolution professionals (RPs) under the Prevention of Corruption Act has been a topic of legal debate. This article delves into the question of whether RPs can be classified as public servants under the Act and explores the potential for prosecuting them in cases involving bribery during the corporate insolvency resolution process (CIRP). By examining relevant case law, we aim to shed light on the legal framework surrounding the accountability of RPs and the applicability of anti-corruption laws.

DEFINITION OF 'PUBLIC SERVANT':

Section 2(c) of the Prevention of Corruption Act defines the term 'public servant.' It includes individuals falling under the following categories:

i. Persons employed by or remunerated by the government to perform public duties.

ii. Persons employed by or remunerated by a local authority.

iii. Persons employed by or remunerated by corporations, authorities, or bodies established, controlled, or aided by the government or government companies.

iv. Judges and individuals authorized to perform adjudicatory functions.

v. Persons authorized by a court of justice to perform duties related to the administration of justice, such as liquidators, receivers, or commissioners appointed by the court.

vi. Arbitrators or individuals appointed by a court of justice or competent public authority to decide or report on a cause or matter.

vii. Persons holding offices responsible for preparing, publishing, maintaining, or revising an electoral roll or conducting elections.

viii. Persons holding offices authorized or required to perform public duties.

ix. Office-bearers or employees of cooperative societies receiving financial aid from the government or government entities.

x. Members or employees of service commissions, boards, or selection committees appointed for conducting examinations or making selections on behalf of such commissions or boards.

xi. Vice-Chancellors, governing body members, professors, lecturers, or employees of universities or individuals whose services have been availed of by universities or public authorities for examination purposes.

xii. Office-bearers or employees of educational, scientific, social, cultural, or other institutions receiving financial assistance from the government or public authorities.

IMMUNITY FROM PROSECUTION:

Section 233 of the Insolvency and Bankruptcy Code, 2016 provides protection to resolution professionals (RPs) from criminal prosecution for acts performed in good faith. This section recognizes the challenges and risks faced by RPs while carrying out their duties during the insolvency process and aims to shield them from unwarranted legal action. The provision seeks to encourage resolution professionals to discharge their responsibilities diligently and without fear of being subjected to criminal proceedings.

The protection offered under Section 233 applies to acts performed by RPs in good faith during the course of the insolvency proceedings. Good faith implies that the resolution professional acted honestly, with due care, and in the best interests of the stakeholders involved. The provision aims to safeguard RPs from potential repercussions arising from their decision-making or actions taken within the scope of their role.

The inclusion of this protective provision recognizes the complex and challenging nature of the insolvency process, where RPs often face difficult decisions and may be required to take actions that could be subject to scrutiny. By providing legal protection, Section 233 aims to foster an environment of trust and enable resolution professionals to carry out their duties without the fear of criminal prosecution for bona fide acts performed during the insolvency proceedings.

It is important to note that the protection granted under Section 233 is subject to certain conditions. The provision does not shield resolution professionals from liability for acts performed with malice, dishonesty, or fraudulent intent. If an RP engages in criminal activities or commits intentional wrongdoing, they would not be entitled to the immunity provided by this section. The protection is intended to cover acts undertaken in good faith, in line with the objectives of the insolvency process

CASE LAW ANALYSIS:

In the case of Sanjay Kumar Agarwal v. Central Bureau of Investigation, Anti-Corruption Bureau, Dhanbad (2023), the petitioner was appointed as the Interim Resolution Professional in two CIRPs. However, he was caught accepting illegal gratification during the proceedings. The petitioner argued that as a resolution professional, he did not fall under the definition of a public servant, and therefore, the Prevention of Corruption Act was not applicable to him.

The High Court examined the arguments presented by both the petitioner and the Central Bureau of Investigation (CBI). The crucial question before the High Court in the case of Sanjay Kumar Agarwal v. Central Bureau of Investigation was whether a resolution professional can be considered a public servant under the Prevention of Corruption Act.

The petitioner, who was appointed as an interim resolution professional in two corporate insolvency resolution processes, was accused of demanding bribes and accepting illegal gratification in connection with his duties as a resolution professional. The petitioner argued that he should not be prosecuted under the Prevention of Corruption Act as he did not qualify as a public servant.

The Central Bureau of Investigation (CBI) countered the petitioner's argument and contended that the resolution professional's duties fall within the definition of a public servant under the Act.

To resolve the issue, the High Court first examined the definition of "public servant" as provided in Section 2(c) of the Prevention of Corruption Act. The definition includes various categories of individuals, such as government employees, local authority employees, employees of government-controlled corporations, and individuals authorized by a court or competent public authority to perform public duties.

The Court noted that the appointment of a resolution professional under the Insolvency and Bankruptcy Code is made by the Adjudicating Authority or the Committee of Creditors, and the professional is not directly employed or remunerated by the government or any government entity. Therefore, the Court analyzed whether the duties performed by a resolution professional could be considered public duties within the meaning of the Act.

The Court observed that resolution professionals play a vital role in the insolvency resolution process, which involves the management and administration of the corporate debtor's affairs. Their duties include maximizing the value of the debtor's assets and ensuring a fair resolution for all stakeholders involved. However, the Court noted that these duties do not directly involve the discharge of public functions or the exercise of government authority.

The Court further considered the provisions of the Insolvency and Bankruptcy Code, specifically Section 233, which provides protection to resolution professionals from criminal prosecution for acts done in good faith. The Court emphasized that this protection does not apply to cases where a resolution professional is caught red-handed accepting bribes, as in the present case.

After careful analysis, the High Court concluded that resolution professionals do not fall within the definition of a public servant under the Prevention of Corruption Act. The Court reasoned that their appointment is not based on government employment, and their duties, although important, are not performed in a government capacity or involving the exercise of government authority. Therefore, the Court held that the petitioner, as a resolution professional, cannot claim immunity from prosecution under the Prevention of Corruption Act.

In summary, the High Court's detailed examination and analysis led to the conclusion that resolution professionals are not considered public servants under the Prevention of Corruption Act. This decision clarifies the legal status of resolution professionals and affirms that they can be held accountable under the Act if involved in corrupt practices during the insolvency resolution process.

CONCLUSION:

Based on the analysis of the case law, it can be concluded that a resolution professional appointed under the Insolvency and Bankruptcy Code may be treated as a public servant under the Prevention of Corruption Act. This interpretation is supported by the wide-ranging definition of 'public servant' under the Act, which includes individuals authorized by a court to perform duties connected to the administration of justice. The immunity granted to resolution professionals under Section 233 of the Code is limited to acts performed in good faith and does not protect them from prosecution for bribery or corrupt practices.

 

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Article Compiled by:-

Mayank Garg

(LegalMantra.net Team)

+91 9582627751

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, RBI etc.

 

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