Resolution professional under insolvency code not a public servant , Delhi HC holds

RP not a public servant under PC act, Delhi HC says

The Delhi High Court on December 18 held that a Resolution Professional (RP) under the Insolvency and Bankruptcy Code (IBC), 2016 is not a public servant under the Prevention of Corruption Act 1988 (PC).

The Delhi HC has differed from a 2023 Jharkhand HC's decision wherein it was held that the RP is a public servant under the Prevention of Corruption Act.

An RP under the Insolvency and Bankruptcy Code (IBC), 2016 is entrusted with the task of administering the affairs of a company that has been admitted to the corporate insolvency resolution process.  Essentially, an RP is a substitute for the board of directors/management of the company. RP is appointed by the National Company Law Tribunal (NCLT) when it passes an order admitting a company to the insolvency process. Furthermore, an RP collects claims from creditors of the company and presents them to the committee of creditors, mainly comprising banks.

The PC Act was passed by the government in 1988 to eliminate corruption in government agencies and public sector undertakings. Punishable offences under the act include taking bribes for performing one's duty and taking bribes to influence a public servant, through illegal and corrupt means among others. The act gives a very broad definition of who is a 'public servant' amenable under the law. The Central Bureau of Investigation (CBI) is empowered to handle cases about the PC Act.

The judgment was passed in a case where allegations of corruption were made against the RP of a company for taking bribes, subsequently, the CBI had taken control of the case. The RP moved a plea

What was argued in the court?

It was contended in the court that an RP is a person who is appointed by the NCLT, even if the name is proposed by the creditor/corporate debtor/applicant, the nature of the duties which the RPs are required to perform, clearly shows that the same are “Public Duty” having a “Public Character”.

It was also contended that the responsibilities of an RP reflect that he is a part of the judicial delivery system, working in furtherance of the judicial dispensation, and hence is squarely covered under the definition of “Public Servant” under the PC act.

Challenging these submissions, it was argued that Parliament chose to amend the provisions of the PC Act in 2018, two years after the introduction of the IBC in 2016, however, no amendment was made to include an RP or any other authority under the IBC within the purview of the act. It was argued that the IBC was intended to be a complete code with regards to all matters relating to insolvency and this would also include the creation of the position of RP as well as the regulations of those persons.

Court's order:

The HC noted that the Supreme Court had on many occasions analysed the role of an RP and had conferred the role of a public servant to an RP. According to the court, IBC is a culmination of all previous insolvency laws such as the Provincial Insolvency Act, of 1909, the Insolvency Act, of 1920 and many other laws which were codified to form IBC. The court noted that despite the roles and duties ascribed to the insolvency professional under these laws, the government chose not to classify them as a public servant.

Thus the court allowed the plea and quashed the complaint against the RP under the PC Act.