Pendency of criminal proceedings u/s 498A of IPC makes a person not fit and proper to become IP

Pendency of criminal proceedings u/s 498A of IPC makes a person not fit and proper to become an Insolvency Professional.

ABCAUS Case Law Citation:
ABCAUS 2839 (2019) (03) IBBI

In the instant case, the Insolvency and Bankruptcy Board of India (IBBI/Board) rejected the application for registration as an insolvency professional on account of pendency of criminal proceedings under section 498A of IPC

An application was submitted to the Insolvency and Bankruptcy Board of India (IBBI/Board) under regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 (Regulations), seeking certificate of registration as an Insolvency Professional (IP).

The IPA forwarded the application to the Board.

While considering the said application for registration, the Board observed that a case under section 498 of the Indian Penal Code, 1860 (IPC) was pending against the applicant. On verification, the Board found that a charge sheet was filed under section 498A of IPC, not section 498 as stated in the application, along with sections 3 and 4 of the Dowry Prohibition Act, 1961 (DPA), against the applicant.

The Board noted that as per regulation 4(g) of the Regulations, no individual shall be eligible to be registered as an IP if he is not a fit and proper person. Among others, integrity, reputation and character are considered to determine if an individual is a fit and proper person.

In view of the charge sheet, the Board formed a prima facie opinion that the registration ought not be granted to the applicant, as he was not a fit and proper person to be registered as an IP.

The Board provided an opportunity to the applicant to explain as to why his application should be accepted. The applicant, vide e-mail submitted that he had no further explanations and would not avail the opportunity of being heard.

The Board noted that applicant had been charge sheeted under the provisions of section 498A of the IPC and sections 3 and 4 of the DPA. Section 498A of the IPC relates to husband or relative of husband of a woman subjecting her to cruelty and attracts imprisonment for a term up to three year. Section 3 of the DPA relates to giving or taking dowry and attracts imprisonment of not less than five years. Section 4 of the DPA relates to demanding dowry and attracts imprisonment of not less than six months.

The Board noted that the charges if established, would attract imprisonment of the durations stated in the respective sections.

The Board was thus faced with the question whether a charge sheet with such allegations affect integrity, reputation and character of the applicant?

According to the Board, that purpose of the Code and the role of an IP therein is essentially to provide a market determined and time bound mechanism for orderly resolution of insolvency, wherever possible, and ease of exit, wherever required.

The Board pointed out that an IP plays an important role in resolution, liquidation and bankruptcy processes of companies, and individuals. In a corporate insolvency resolution process when a company undergoes this process, an IP is vested with the management of the affairs of the company. He exercises the powers of its board of directors. Such company could be one of the largest companies in India. He becomes the custodian of the property of such a company and manages the affairs of the company as a going concern. Further, he examines each resolution plan to confirm that it does not contravene any of the provisions of the law for the time being in force. These responsibilities require the highest level of integrity, reputation and character. In sync with the responsibilities, the Regulations require the Board to take into account integrity, reputation and character of an individual for determining if an applicant is a fit and proper person.

The Board noted that while dealing with regulation 3 of the Securities and Exchange Board of India (Criteria for Fit and Proper Person) Regulations, 2004, the Hon’ble Securities Appellate Tribunal examined the amplitude of fit and proper person as under:

“Good reputation and character of the applicant is a very material consideration which must necessarily weigh in the mind of the Board (SEBI) in this regard. Reputation is what others perceive of you. In other words, it is the subjective opinion or impression of others about a person and that, according to the Regulations, has to be good.”. Therefore, the reputation and character of the applicant is a material consideration. What is material is what others feel about the applicant who has criminal proceedings of the nature stated above pending against him. Does such a person inspire confidence of the stakeholders who can entrust him with property and management of the company under corporate insolvency resolution process? The answer is ‘No’.

The Board opined that it is important to keep a person, which antecedents are doubtful, away from this noble profession.

It was noted that the Hon’ble Supreme Court held that verification of the character and antecedents is one of the important criteria to test whether the selected candidate is suitable to a post under the State. The Court opined that what would be relevant is the conduct or character of the candidate to be appointed to and not the actual result thereof. If the actual result happened to be in a particular way, the law will take care of the consequences.

The IBBI held that pendency of criminal proceedings under section 498A of IPC against the applicant adversely impacted his reputation and made him a person not fit and proper to become an IP.

Therefore, in exercise of the powers conferred on the Board under regulation 8(3)(b) of the Regulations, it rejected the application for registration as an insolvency professional.

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