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The Dichotomy of Resolution Professionals as Public Servants: Public Duty vis-à-vis Public Character

[Avantika is a student at Campus Law Centre, Faculty of Law, Delhi University.]


In a recent landmark judgment, the Delhi High Court delivered a significant verdict in the matter of Dr Arun Mohan v. Central Bureau of Investigation (Arun Mohan), challenging the status of a resolution professional appointed under the Insolvency and Bankruptcy Code 2016 (IBC). The court held that such professionals overseeing the corporate insolvency resolution process (CIRP) are not deemed to be 'public servants' and are thereby exempt from liability under the Prevention of Corruption Act 1988 (PC Act). This ruling stands in contrast to the decision of the Jharkhand High Court in Sanjay Kumar Agarwal v. Central Bureau of Investigation (Sanjay Kumar), where a resolution professional under IBC was categorized as a 'public servant' under the PC Act. A special leave petition appealing the Jharkhand High Court judgment is currently pending before the Supreme Court of India.


While the Delhi High Court disagreed with the Jharkhand High Court's stance, its reasoning in the Arun Mohan decision raises a plethora of questions and presents a fresh perspective. This divergence in viewpoints has set the stage for a captivating legal discourse with respect to the nature of resolution professionals’ functions.


Public Character vis-à-vis Public Duty


The reasoning of the Delhi High Court is based on differentiating between a duty that appears to be a “public duty” and one that inherently holds a “public character”. The court acknowledged that certain duties, even if broadly defined as "public duty", may not necessarily embody a "public character".


In the legal and the administrative realms, the terms "public duty" and "public character" hold distinct significance. “Public duty” encompasses the obligations and responsibilities borne by individuals or institutions in relation to the public, often in an official capacity. Public officers, for instance, are obligated by a sense of public duty, requiring their commitment to serving the community and upholding legal standards. Conversely, actions or behaviors are attributed a “public character” when they exert a substantial impact on the broader public. The term denotes implications that extend beyond individual or immediate concerns. The crux of the distinction lies in recognizing that while all duties performed with a "public character" can be categorized as "public duties", the inverse does not always hold true. This is crucial because "public character" implies a broader impact on the public, reaching beyond the immediate scope of designated duties. To illustrate, consider a government clerk responsible for processing paperwork. While such a role inherently involves a public duty to ensure accurate and efficient document handling, these routine tasks may not possess a "public character" as they may not directly affect the larger public. It was observed by the Delhi High Court that:


With the ever evolving laws and roles and duties cast upon various individuals under such enactments, the responsibilities of individuals and in some cases, institutions may have overlapping character and may be intertwined with “public duty” but that by itself would not be a legally determined benchmark to categorise all such individuals or institutions, as the case may be, as “public servants” for the purposes of Section 21 [of the] Indian Penal Code 1860 or Section 2(c) [of the] PC Act.


Drawing guidance from landmark precedents such as Swiss Ribbons Private limited and Another v. Union of India and Others (Swiss Ribbons) and ArcelorMittal India Private Limited v. Satish Kumar Gupta and Others (ArcelorMittal), the Delhi High Court in the present matter defined the role of a resolution professional as a mere "facilitator".


In ArcelorMittal, the Supreme Court of India underscored the constraints on the resolution professional's actions. It emphasized that a resolution professional cannot independently make decisions without obtaining explicit approval from the committee of creditors under Section 28 of the IBC. Furthermore, the court clarified that a resolution professional's role is not to make decisions but to ensure the completeness of the resolution plans before submission to the committee. This reference to ArcelorMittal, coupled with insights from the Swiss Ribbons decision, forms the foundation for the Delhi High Court's conclusion that the role of a resolution professional is essentially that of a "facilitator" in the resolution process.


However, asserting that the role of a resolution professional is merely that of a facilitator, and using this as a basis to argue against categorizing them as public servants, appears to be flawed. While it is true that the role of a resolution professional is primarily to facilitate the process and ensure that the resolution plans submitted are complete, it is important to note that this role carries significant responsibility. The role of a resolution professional involves managing the insolvency process for companies that may employ hundreds or thousands of people and have numerous creditors. The outcome of these processes can have significant implications for these stakeholders and, by extension, the public interest. Further, they are accountable not just to their clients, but also to the court, the creditors, and in a broader sense, to the public. This accountability is a key aspect of their public character.


In Sanjay Kumar, the Jharkhand High Court notably observed that the functions and obligations of resolution professionals, as delineated in Section 208 of the IBC, inherently carry a public nature. The court held that these functions pertain to matters concerning loans extended by banks, constituting investments from the public at large.


Additionally, even though a resolution professional does not make the final decision on the resolution plans, their actions can significantly influence the outcome. If a resolution professional were to accept bribes to favor a particular party, it would undermine the fairness and transparency of the process. This could lead to biased decisions that are not in the best interest of all stakeholders involved.


Tracing the Legislative Intent


The Delhi High Court's meticulous examination of legislative intent formed a crucial aspect of its reasoning. The focus on Section 21 of the Indian Penal Code 1860 (IPC) and Section 2(c) of the PC Act laid the groundwork for the court's interpretation. Notably, the court delved into Section 232 of the IBC, which provides that the Chairperson, Members, Officers, and other employees of the Insolvency and Bankruptcy Board of India (IBBI) are deemed to be 'public servants' when acting in pursuance of IBC provisions. This omission of a resolution professional from the definition, according to the court, was deliberate and hinged on the notion that only those specifically mentioned in Section 232 are deemed to be public servants. Further, Section 233 of the IBC expressly mentions "an insolvency professional or liquidator". The court astutely observed that the minute gap between Sections 232 and 233, seemingly clarified the deliberate exclusion of resolution professionals from the 'public servant' category.


However, if this reasoning is followed, it raises a question regarding why a liquidator, who is often the same individual as the resolution professional in case of a failed CIRP, is deemed a 'public servant' despite the omission in Section 232 of the IBC. Moreover, the court's reasoning could face scrutiny when compared with other legislations such as the Multi Cooperative Societies Act 2002, which expressly deems a liquidator a ‘public servant’. If the court's logic is applied consistently, it implies that the omission of the term 'liquidator' in Section 232 reflects a legislative intent to exclude liquidators too from the public servant category. A counterargument could arise concerning the inclusion of the term 'liquidator' in the definition of 'public servant' in Section 21 of the IPC. However, it is to be noted that this term was added through an amendment in 1964, against the backdrop of the enactment of the Companies Act 1956, which was the principal regime under which an 'official liquidator' could be appointed by a company court. Thus, when this amendment was enacted, the draftsmen did not have the benefit of the IBC’s framework, where liquidators are appointed from the repository of professionals maintained by the IBBI.


Conclusion


In light of the conflicting rulings from the Jharkhand and the Delhi High Courts concerning the status of resolution professionals as 'public servants', the impending decision by the Supreme Court of India assumes increased significance. Narrow interpretation of the definition of ‘public servant’ is concerning due to its potential implications, particularly in terms of accountability and the risk of fostering corruption. It is interesting to see how the Supreme Court of India will decide on this issue, considering the different viewpoints. The decision will not only address the specific issue at hand but may also set a crucial precedent for future cases involving the accountability of professionals in similar roles.

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