The Delhi High Court recently stepped in to correct what it called a disproportionate penalty imposed by the Disciplinary Committee of the Insolvency and Bankruptcy Board of India (IBBI) on an Insolvency Professional (IP). The Court, in a detailed judgment delivered on April 3, 2025, reduced the two-year suspension of Sandeep Kumar Bhatt to the period he had already undergone — nearly 1 year and 4 months.
Background of the Case
The case arose out of the insolvency proceedings against GTHS Retails Pvt. Ltd., where Sandeep Kumar Bhatt was appointed as the Interim Resolution Professional (IRP) on August 3, 2017. He was confirmed as the Resolution Professional (RP) on December 20, 2017, and discharged when liquidation began in October 2019.
Later, concerns were raised about discrepancies in the asset valuations during the liquidation process. The IBBI initiated an investigation based on an NCLT order dated January 17, 2023. This investigation ultimately led to a two-year suspension imposed by the IBBI’s Disciplinary Committee on November 1, 2023.
According to the Show Cause Notice issued by IBBI on August 25, 2023, Bhatt was accused of:
- Failure to recover security deposits and work-in-progress (WIP)
- Failure to take control of the bank accounts of the corporate debtor
- Delay in filing Corporate Insolvency Resolution Process (CIRP) forms
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These were said to be violations of several provisions of the Insolvency and Bankruptcy Code (IBC), including Sections 25(1), 25(2)(a), (b), 208(2)(e), and related regulations and codes of conduct.
Appearing for the appellant, Advocate Mohit Nandwani argued that the Disciplinary Committee's conclusions were based on incorrect and inconsistent data. He contended:
“The Disciplinary Committee used data from the Show Cause Notice rather than the Investigation Report or Auditor’s Report, leading to factual errors.”
- Regarding recovery of security deposits, he said the figures cited were different across the SCN, investigation report, and auditor’s findings, creating confusion.
- On WIP recovery, the auditor’s report showed the appellant recovered over ₹86 lakhs, against an expectation of ₹79.54 lakhs, indicating successful recovery.
- Regarding control of bank accounts, he stated that the IRP had taken all steps under IBC and with Committee of Creditors (CoC) approvals, including communicating with banks and appointing a CEO.
Bhatt's counsel also pointed out that while procedural lapses may have occurred, none warranted a two-year suspension, which he termed “draconic.”
“The penalty imposed is equivalent to a civil death for a professional,” the counsel submitted, urging the court to consider proportionality and reduce the suspension.
Representing IBBI, Advocate Amrita Singh defended the penalty, stating that:
“The appellant cannot challenge findings of fact in an appeal under Article 226 of the Constitution.”
She further argued that:
- The IP failed to prevent adjustments of security deposits during moratorium — a clear violation.
- He did not provide adequate information to valuers before liquidation.
- The late submission of CIRP forms disrupted the regulatory oversight.
She also opposed the argument on proportionality, noting:
“The penalty imposed is based on the seriousness and nature of infractions, each case being judged on its own merit.”
The Division Bench of Chief Justice Devendra Kumar Upadhyaya and Justice Tushar Rao Gedela observed that while writ courts do not normally interfere with disciplinary actions, they may intervene in cases where the penalty:
“Shocks the conscience of the Court, or that which no prudent man would reach.”
Citing the Supreme Court's decision in Union of India v. K.G. Soni, the Court reiterated that punishment must be proportional and not based on factual errors or procedural lapses alone.
“Even the Investigating Authority’s Report vindicated the stand taken by the appellant, while the DC proceeded on erroneous figures,” the Court noted.
On the WIP recovery, the Court emphasized that the Auditor’s Report showed more funds were recovered than expected. It said:
“The document should have been examined rather than dismissed as an ‘afterthought’.”
Regarding control over bank accounts, the Court noted that the appellant had followed due procedures and obtained CoC approvals.
The Court concluded that:
“Material aspects were overlooked by the Disciplinary Committee, and considered from this perspective, a lesser penalty could have been imposed.”
Given that Bhatt had already served 1 year and 4 months of suspension, the Court deemed it unnecessary to remand the matter back to the IBBI. The penalty was reduced to the time already undergone, effectively ending the suspension from the date of the judgment.
“The penalty imposed of two years is reduced to the period already undergone, and the suspension of the appellant shall be deemed to have come to an end from the date of this order.” – Delhi High Court, April 3, 2025
Case Title: Sandeep Kumar Bhatt vs. Insolvency & Bankruptcy Board of India & Ors.
Case Number: LPA 1054/2024, CM APPL. 61894/2024 & CM APPL.1284/2025
For the Appellant : Mr. Mohit Nandwani, Advocate with CMA Kamal Deep Tyagi.
For the Respondents : Ms. Amrita Singh and Mr. Ankit Gupta, Advocates for R-1.
Date of Judgment: 03.04.2025
