RESOLUTION PROFESSIONAL IS A PUBLIC SERVANT LIABLE TO BE PROSECUTION UNDER THE PREVENTION OF CORRUPTION ACT, 1988

[Mr. M. GOVINDARAJAN]

The Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides the procedure for the conducting of corporate insolvency resolution process (‘CIRP’ for short) that may be filed by the financial creditor or operational creditor against the corporate debtor.  The Code provides that the Adjudicating Authority shall appoint the Interim Resolution Professional under Section 16 of the Code.  The resolution professional shall be proposed by the Financial Creditors.  The operational creditor as well as corporate debtor may propose or may not propose the interim resolution professional.  In such a situation the Adjudicating Authority may direct the Insolvency and Bankruptcy Board (‘IBBI’ for short) to nominate a person for this purpose.  After getting the information from the IBBI the Adjudicating Authority shall appoint the resolution professional.

The resolution professional may act as a resolution professional under section 22 of the Code or he may be replaced by another insolvency professional by the Committee of Creditors.  The Adjudicating Authority shall appoint such insolvency professional as resolution professional.

Issue

The issue to be discussed in this article is as to whether the resolution professional may be treated as a public servant under the Prevention of Corruption Act and he can be prosecuted if he gets bribes in the course of CIRP with reference to the decided case law.

Definition of ‘public servant’

Section 2(c) defines the expression ‘public servant’ as-

1. any person in the service or pay of the Government or remunerated by the Government by fees or commission for the performance of any public duty;
2. any person in the service or pay of a local authority;
3. any person in the service or pay of a corporation established by or under a Central, Provincial or State Act, or an authority or a body owned or controlled or aided by the Government or a Government company as defined in section 617 of the Companies Act, 1956;
4. any Judge, including any person empowered by law to discharge, whether by himself or as a member of any body of persons, any adjudicatory functions;
5.  any person authorized by a court of justice to perform any duty, in connection with the administration of justice, including a liquidator, receiver or commissioner appointed by such court;
6. any arbitrator or other person to whom any cause or matter has been referred for decision or report by a court of justice or by a competent public authority;
7. any person who holds an office by virtue of which he is empowered to prepare, publish, maintain or revise an electoral roll or to conduct an election or part of an election;
8. any person who holds an office by virtue of which he is authorised or required to perform any public duty;
9. any person who is the president, secretary or other office-bearer of a registered co-operative society engaged in agriculture, industry, trade or banking, receiving or having received any financial aid from the Central Government or a State Government or from any corporation established by or under a Central, Provincial or State Act, or any authority or body owned or controlled or aided by the Government or a Government company as defined in section 617 of the Companies Act, 1956; 
10. any person who is a chairman, member or employee of any Service Commission or Board, by whatever name called, or a member of any selection committee appointed by such Commission or Board for the conduct of any examination or making any selection on behalf of such Commission or Board;
11. any person who is a Vice-Chancellor or member of any governing body, professor, reader, lecturer or any other teacher or employee, by whatever designation called, of any University and any person whose services have been availed of by a University or any other public authority in connection with holding or conducting examinations;
12. any person who is an office-bearer or an employee of an educational, scientific, social, cultural or other institution, in whatever manner established, receiving or having received any financial assistance from the Central Government or any State Government, or local or other public authority.

Immunity from prosecution

Section 233 of the Code provides protection to a resolution professional from criminal prosecution for acts in good faith. 

Case law

In SANJAY KUMAR AGARWAL VERSUS CENTRAL BUREAU OF INVESTIGATION, ANTI CORRUPTION BUREAU, DHANBAD - 2023 (4) TMI 1139 - JHARKHAND HIGH COURT, the Adjudicating Authority appointed the petitioner as Interim Resolution Profession in two corporate insolvency resolution process (‘CIRP’ for short) - one filed by State Bank of India against Adi Ispat Private limited and the other by Damodar Valley Corporation as an operational creditor against Bir Ispat Private Limited.  The petitioner was appointed as Resolution Professional by the Committee of Creditors in both of the two cases.

The Director of Adi Ispat Private Limited filed a complaint against the appellant under the Prevention of Corruption Act, 1988. In the complaint it was alleged the petitioner demanded a bribe of Rs.2 lakhs per month to show leniency in the CIRP from 9 months to 2 years and also demanded Rs.20 lakhs for obtaining favorable forensic audit/valuation report from his chosen Forensic Auditor/Valuer.  The petitioner also offered the complainant that the complainant was entitled to participate in the auction proceeding of the bank and if he met the demands he would prepare his report in his favor enabling him to re-possess his company.

The petitioner was caught red handed on 11.02.2020 in the presence of independent witnesses accepting the illegal gratification from the complainant.  The petitioner filed the present petition with the prayer to quash the FIR filed against him.  The petitioner contended that the Section 7 of the Prevention of Corruption Act will not be applicable to the petitioner in the capacity of resolution professional since resolution professional is not a public servant within the meaning of section 2(c) of the Prevention of Corruption Act.   The petitioner further put forth the following submissions before the High Court-

• The petitioner is neither a public servant not he is appointed by any Court or is performing any public duty.
• The petitioner was appointed by the Committee of Creditors under Section 22 of the Code.
• The functions performed by the petitioner under Section 25 of the Code are not in the nature of public duty as contemplated under Section 2(c)(viii) of the Prevention of Corruption Act.
• The Code is a self contained Code and specific provisions have been provided for redressal of grievance of any party.
• The Chairperson, Members, Officers and other employees of the Board shall be deemed  when acting or purporting to act under the provisions of the code, to be public servants. 
• Section 21 of Indian Penal Code which gives a list of persons who are public servant does not include the resolution professional.
• Section 233 gives protection to resolution professional, insolvency professional from any criminal prosecution or other legal action for the act done in good faith.

The CBI submitted the following before the High Court-

• The instant matter involves a case where the petitioner was caught red handed by the trap team constituted by the CBI while accepting Rs.2 lakhs as illegal gratification in connection with discharge of his duty as resolution professional from the complainant.
• It is not correct to say that the Adjudicating Authority has no role in the appointment of resolution professional.
• The resolution professionals are appointed by the Adjudicating Authority.  The duties performed by the resolution professional in administration of justice and therefore his office will come within the meaning of ‘public servant’ under the provisions of Prevention of Corruption Act which provides that any person authorized by a Court of Justice to perform any duty, in connection with the transmission of justice, including a liquidator, receiver or commission by such court.

The High Court considered the submissions of the complainant and the resolution professional.  The issue to be discussed in this case is as to whether resolution professional as defined under section 22 of the Code will come within the meaning of ‘public servant’ under section 2(c) of the Prevention of Corruption Act.

The High Court observed that the definition of the expression ‘public interest’ under the Prevention of Corruption Act is very wide and expansive.  Apart from the list of functionaries given in Section 2(c) the definition also lays down the functional criteria to include within its fold discharging public duty or any duty authorized by a Court of justice, in connection with the administration of justice. 

The High Court held that the appointment of resolution professional is made during the resolution process before the National Company Law Tribunal with its approval he will be a public servant under Section 2(c)(v) of the Prevention of Corruption Act. 

The High Court next considered the question as to whether the functions of a resolution professional partakes the character of a ‘public duty’.  The functions of the resolution professional under the Code are public in nature.  The functions intimately relate to matters relating to loans extended by the banks which is investments from public at large and therefore will come within the meaning of public duty as provided under section 2(c)(viii) of the Prevention of Corruption Act. 

The High Court observed that Section 233 of the Code gives protection to a resolution professional from criminal prosecution for acts in good faith, and not where he has been apprehended red handed with the bribe amount.  The Code does not cover the matters like the present where a resolution professional takes bribes in order to favor a party for which Prevention of Corruption Act is squarely applicable.  Section 232 does not exclude the operation of Prevention of Corruption Act.  Therefore the High Court held that the plea of the petitioner that he is not a public servant and was immune from criminal prosecution under the Prevention of Corruption Act is not tenable. 

The High Court further held that from the nature of assignment and duty to be performed the office of the petitioner are in the nature of public duty and therefore will come within the meaning of ‘public servant’ both under Sections 2(c)(v) and (viii) of the Prevention of Corruption Act.  The High Court rejected the petition filed by the petitioner.