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Delhi HC Emphasizes the Significance of Good Reputation in Appointing Insolvency Professionals under Insolvency Law

Delhi HC Emphasizes the Significance of Good Reputation in Appointing Insolvency Professionals under Insolvency Law

The Delhi High Court emphasized the critical significance of a strong reputation and character in the selection of an Insolvency Professional under the insolvency law. It highlighted that past actions play a crucial role in assessing suitability for the position, underlining the importance of evaluating one's history in determining fitness for the job.

The court made these remarks in the context of rejecting a petition filed by a banker. The petition contested the decision of the Insolvency and Bankruptcy Board of India, which declined to register her as an Insolvency Professional (IP). This refusal was based on her previous conviction for breaching Securities and Exchange Board of India (SEBI) regulations in 2015.

The petitioner argued that she shouldn't face lifelong condemnation for the events of 2015, especially considering she has already paid the penalties imposed for those violations.

In a recent ruling, the court highlighted the discretionary authority granted to the Board, emphasizing its role in maintaining the integrity and transparency of the corporate insolvency process.

"Discretion has been given to the Board to ensure that the corporate insolvency process is clean and free.  A person's reputation and character carry significant weight in the selection of an Insolvency Professional. The assessment of someone's fitness for this role relies on the Board's subjective evaluation," the court emphasized

The court underscored the pivotal role of an insolvency professional, likening them to the "heart and brain" of a company undergoing insolvency resolution. It emphasized that appointing someone with even a minor disqualification could vitiate the entire purpose of the Insolvency and Bankruptcy Code, potentially undermining the entire process.

The court observed that in the specific case, the petitioner was implicated in fraudulent activities that compromised market integrity. The Board's refusal to allow her to serve as an Insolvency Professional, despite meeting the eligibility criteria, was deemed not arbitrary by the court.

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