“A Landmark Ruling on Disciplinary Proceedings and Ongoing Assignments: NCLAT Clarifies Impact of AFA Suspension on Resolution Professionals”

Introduction

The National Company Law Appellate Tribunal (NCLAT) has delivered a significant judgment in the case of Girish Siriram Juneja v. Soneko Marketing Pvt. Ltd. and Ors. (decided on July 8, 2025), which has far-reaching implications for insolvency professionals operating under the Insolvency and Bankruptcy Code, 2016 (IBC). The ruling addresses a critical question that has been the subject of conflicting interpretations across various High Courts: whether the suspension of Authorization for Assignment (AFA) under Bye-Law 23A automatically disqualifies a Resolution Professional (RP) from continuing with ongoing Corporate Insolvency Resolution Processes (CIRP).

Background and Legal Framework

The dispute arose from the CIRP proceedings of Hindustan National Glass & Industries Ltd., where Mr. Girish Siriram Juneja was serving as the Resolution Professional. Following the Supreme Court’s judgment dated January 29, 2025, which set aside the previously approved resolution plan of AGI Greenpac Pvt. Ltd. due to lack of Competition Commission of India (CCI) approval, disciplinary proceedings were initiated against the RP by the IBBI on January 30, 2025.

Under Bye-Law 23A of the IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016, the RP’s Authorization for Assignment stood automatically suspended upon initiation of these disciplinary proceedings. This suspension triggered a legal debate about whether the RP could continue with the existing CIRP or was required to step down immediately.

The Conflicting Judicial Interpretations

The NCLT’s Initial Position

The Judicial Member at the NCLT, Kolkata Bench, in his opinion dated April 30, 2025, held that the suspension of AFA debars the RP from continuing with any assignment, including pending CIRPs. This view was supported by the operational creditor (Soneko Marketing Pvt. Ltd.), who relied on Bye-Law 23A and the Madras High Court judgment in CA V. Venkata Sivakumar v. IBBI.

High Court Divergence

The legal landscape was complicated by conflicting interpretations from different High Courts:

1. Madras High Court in CA V. Venkata Sivakumar v. IBBI upheld the constitutional validity of Bye-Law 23A and confirmed that suspension is automatic upon initiation of disciplinary proceedings. However, it did not specifically address whether such suspension precludes continuation in ongoing assignments.
2. Bombay High Court in Kairav Anil Trivedi v. IBBI went further, accepting the IBBI’s position that while an RP is barred from accepting new assignments during suspension, there is no bar on continuing with existing ones.
3. Delhi High Court in HNG Industries Thozhilalar Nala Sangam v. IBBI recorded the IBBI’s express statement that suspension of AFA pursuant to disciplinary proceedings does not prevent continuation in existing CIRPs.

NCLAT’s Comprehensive Analysis

Statutory Framework Examination

The NCLAT conducted a thorough analysis of the relevant statutory provisions, including:

1. Regulation 7A of the IBBI (Insolvency Professionals) Regulations, 2016: Introduced on July 23, 2019, this regulation prohibits insolvency professionals from accepting new assignments without a valid AFA but crucially carves out an exception for assignments already being undertaken at the time of suspension or expiry.
2. Regulation 13(6) of the IBBI (Inspection and Investigation) Regulations, 2017: This provision explicitly allows the Disciplinary Committee to permit the RP to continue discharging existing obligations even after suspension or cancellation.

Key Legal Reasoning

The NCLAT’s reasoning was based on several critical observations:

1. Legislative Intent: The statutory scheme under Regulations 7A and 13(6) clearly contemplates that existing assignments remain unaffected by AFA suspension.
2. IBBI’s Own Position: The regulatory body itself had consistently maintained across multiple judicial forums that suspension only restricts new assignments, not ongoing ones.
3. Practical Considerations: The Tribunal noted that removing an RP mid-process without legal justification could disrupt ongoing proceedings and prejudice stakeholders.
4. Incorrect Legal Foundation: The NCLT had erroneously relied on Sections 97 and 98 of the IBC, which pertain to personal insolvency under Part III and are not applicable to corporate insolvency proceedings under Part II.

The NCLAT’s Definitive Ruling

Primary Holdings

The NCLAT conclusively held that:

1. No Automatic Disqualification: The suspension of AFA under Bye-Law 23A does not result in automatic debarment of the RP from continuing with existing or pending CIRPs.
2. Limited Scope of Restriction: The suspension only restricts the RP from taking on new assignments.
3. Statutory Support: This interpretation is supported by the statutory scheme under the IBC and its allied regulations, the stance of the IBBI itself, and judicial precedents from the Bombay and Delhi High Courts.

Procedural Clarity

The Tribunal also addressed important procedural issues:

1. Majority Opinion Requirement: The NCLAT clarified that there was no majority opinion on the question of RP replacement, as the Third Member had not expressed any view on the merits of the removal prayer.
2. Reference Mechanism: The judgment provides guidance on the proper application of the reference mechanism under the Companies Act when there are divergent opinions between Judicial and Technical Members.

Impact on Insolvency Professionals and the Operating Environment

Immediate Implications

1. Operational Continuity: RPs facing disciplinary proceedings can now continue with their existing assignments without automatic removal, providing much-needed stability to ongoing processes.
2. Stakeholder Confidence: The ruling enhances stakeholder confidence by preventing arbitrary disruptions to resolution processes based solely on initiation of disciplinary proceedings.
3. Regulatory Clarity: The judgment provides clear guidance on the scope and effect of AFA suspension, reducing uncertainty in the insolvency ecosystem.

Broader Systemic Impact

1. Due Process Protection: The ruling strengthens due process protections for insolvency professionals by ensuring that disciplinary proceedings do not automatically result in professional incapacitation.
2. Balancing Regulatory Oversight: The judgment strikes a balance between maintaining regulatory oversight through disciplinary mechanisms while ensuring continuity of critical insolvency processes.
3. Harmonization of Judicial Views: The NCLAT’s ruling helps harmonize conflicting judicial interpretations, providing a unified approach to AFA suspension issues.

Practical Considerations for Insolvency Professionals

Best Practices

1. Proactive Communication: RPs should maintain transparent communication with stakeholders when facing disciplinary proceedings to address any concerns about their continued involvement.
2. Documentation: Maintaining proper documentation of all decisions and actions becomes even more critical when operating under disciplinary scrutiny.
3. Professional Standards: The ruling underscores the importance of maintaining high professional standards to avoid disciplinary action in the first place.

Risk Management

1. Stakeholder Management: RPs should be prepared to address stakeholder concerns about their ability to complete processes effectively while under disciplinary proceedings.
2. Timeline Compliance: Given that disciplinary proceedings may continue during the resolution process, RPs must ensure strict adherence to statutory timelines and court directions.

Future Implications and Recommendations

For Regulatory Framework

1. Clarity in Regulations: The IBBI may consider providing explicit clarification in its regulations regarding the scope of AFA suspension to prevent future confusion.
2. Expedited Disciplinary Proceedings: Given that RPs continue with assignments during disciplinary proceedings, there should be emphasis on expediting such proceedings to provide certainty.

For Legal Practice

1. Precedential Value: This judgment will serve as a key precedent for similar cases involving the scope of disciplinary measures against insolvency professionals.
2. Strategic Considerations: Legal practitioners representing various stakeholders in insolvency proceedings should factor in the continuity principle established by this judgment.

Conclusion

The NCLAT’s judgment in Girish Siriram Juneja v. Soneko Marketing Pvt. Ltd. represents a watershed moment in insolvency jurisprudence. By clarifying that AFA suspension does not automatically disqualify RPs from continuing with ongoing assignments, the Tribunal has provided much-needed certainty to the insolvency ecosystem.

The ruling demonstrates a nuanced understanding of the legislative intent behind the IBC’s regulatory framework, balancing the need for disciplinary oversight with the imperative of process continuity. For insolvency professionals, this judgment provides significant protection against arbitrary removal while maintaining the regulatory framework’s integrity.

The decision also highlights the importance of harmonized judicial interpretation in specialized areas of law. By reconciling conflicting High Court views and providing definitive guidance, the NCLAT has contributed to the maturation of India’s insolvency and bankruptcy jurisprudence.

Moving forward, this judgment will likely influence how disciplinary proceedings against insolvency professionals are conducted and how their impact on ongoing processes is assessed. It reinforces the principle that due process and natural justice must be maintained even within the time-sensitive environment of corporate insolvency resolution processes.

The ruling ultimately serves the broader objective of the IBC by ensuring that resolution processes can proceed without unnecessary disruptions while maintaining appropriate checks and balances through the regulatory framework. This balance is crucial for the continued development and effectiveness of India’s insolvency and bankruptcy ecosystem.