Are resolution professionals under the bankruptcy code ‘public servants’? Duty–character semantics holds the key

The author explains how a recent judgment of the Delhi High Court conflicts with an earlier ruling of the Jharkhand High Court on the question of resolution professionals being categorised as public servants under the Prevention of Corruption Act, 1988. 

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THE Delhi High Court has delivered a significant verdict in the matter of Dr Arun Mohan versus Central Bureau of Investigation, challenging the status of a resolution professional appointed under the Insolvency and Bankruptcy Code, 2016 (IBC).

The court held that professionals overseeing the corporate insolvency resolution process (CIRP) are not 'public servants' and are thereby exempt from liability under the Prevention of Corruption Act, 1988 (PC Act).

This ruling stands in contrast to the conflicting decision of the Jharkhand High Court in the matter of Sanjay Kumar Agarwal versus Central Bureau of Investigation, where a resolution professional under the IBC was categorised 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.

While the Delhi High Court respectfully disagreed with the Jharkhand High Court's stance, its rationale and reasoning in Arun Mohan raises a plethora of questions and presents a fresh perspective.

This divergence in viewpoints has set the stage for a captivating legal discourse, making the narrative even more intriguing.

Public character vis-à-vis public duty

The court's rationale hinges on the distinction between a duty having the colour of 'public duty' and whether it inherently possesses a 'public character'.

The court acknowledged that certain duties, even if broadly defined as 'public duty', may not necessarily embody a 'public character'.

Also read: Will Jharkhand's expansive new high court complex expand the delivery of justice?

In the legal and administrative realms, the terms 'public duty' and 'public character' hold distinct significance. A nuanced understanding of these terms is pivotal in comprehending their implications within various contexts.

'Public duty' encompasses the obligations and responsibilities borne by individuals or institutions in relation to the public, often in an official capacity. Conversely, actions or behaviors are attributed to a 'public character' when they exert a substantial impact on the broader public.

'Public character' on the other hand is when actions or behaviours exert a significant impact on the wider public. The term denotes implications that extend beyond individual or immediate concerns.

The crux of the distinction lies in recognising that while all duties performed with a 'public character' can be categorised as 'public duties', the inverse does not always hold.

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 has been observed 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 or Section 2(c) PC Act, 1988."

Drawing guidance from landmark precedents such as Swiss Ribbons Pvt. Ltd. versus Union of India and Arcelor Mittal India Pvt. Ltd. versus Satish Kumar Gupta & Ors., the Delhi High Court in the present matter defined the role of a resolution professional as a mere 'facilitator'.

In the ArcelorMittal case, the court underscored the constraints on a resolution professional's actions. It emphasised 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 Arcelor Mittal, 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 categorising 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.

Also read: What is the debate on personal guarantors in insolvency proceedings?

In Sanjay Kumar Agarwal, 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 intricately 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 favour 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 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 upon the notion that only those specifically mentioned in Section 232 are deemed to be public servants.

Further, Section 233 of IBC, explicitly 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 explicitly 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.

Also read: Corruption by a public servant is an offence against the State and the society at large: Supreme Court

A counter-argument could arise concerning the inclusion of the term 'liquidator' in the definition of 'public servant' in the fourth description under 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 in 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 Delhi high courts concerning the status of resolution professionals as 'public servants', the impending decision by the Supreme Court assumes paramount significance.

The divergent perspectives of the two high courts, coupled with the intriguing development of the enactment of the Bharatiya Nyaya Samhita, 2023, which also deliberately omits the mention of a resolution professional in the definition of a 'public servant', inject a layer of complexity into the legislative landscape.

It is interesting to see how the Supreme Court will decide on this issue, considering the different viewpoints.