"Insolvency Professionals Acting Like Scavengers Must Be Dealt With Severely": Delhi High Court Slams Practitioner's Misconduct
The Delhi High Court recently slammed the conduct of a senior insolvency professional, warning that such individuals must not become “predators” of companies already in financial distress. In a scathing judgment, the Court said professionals under the Insolvency and Bankruptcy Code (IBC) must uphold the highest ethical standards and 'even a single act of negligence' is sufficient for...
The Delhi High Court recently slammed the conduct of a senior insolvency professional, warning that such individuals must not become “predators” of companies already in financial distress.
In a scathing judgment, the Court said professionals under the Insolvency and Bankruptcy Code (IBC) must uphold the highest ethical standards and 'even a single act of negligence' is sufficient for a disciplinary action
The judgment, delivered by Justice Subramonium Prasad on September 9, contained strong remarks against the petitioner, Savan Godiawala, a chartered accountant and registered insolvency professional.
“The Insolvency Professional itself cannot become a predator of a company which itself is in the dire financial strains. Such professionals who act more like scavengers of a dead body for their own ulterior motives have to be dealt with severely as they strike at the heart rather the very object of the IBC,” the Court observed.
It further added, “The Resolution Professional is therefore obliged to maintain the highest standard of professional ethics and even a single act of negligence, omission, or commission is sufficient for the Board to take action against the Resolution Professional/ Liquidator under Section 217-220 of the IBC after following the due procedure”
Godiawala had served as Interim Resolution Professional, Resolution Professional, and later Liquidator for Lanco Infratech Limited. He was also appointed as IRP/RP in the insolvency process of Shirpur Power Private Limited.
The Insolvency and Bankruptcy Board of India (IBBI) initiated an inspection into his conduct in October 2020. A show-cause notice followed in June 2022.
He was accused of taking over ₹83 lakh in excess fees during the liquidation of Lanco Infratech. He also appointed Deloitte Touche Tohmatsu India LLP (where he was a partner) for liquidation work without getting approval from the Committee of Creditors. In the Shirpur Power case, he allegedly delayed filing an avoidance application required under the insolvency process.
Godiawala defended his actions by claiming that the excess fee withdrawal was a bona fide mistake based on his interpretation of the regulations. He returned the money in February 2022 and cited an IBBI circular from September 2023 that waived action against professionals who refunded excess fees before October that year.
He also claimed that Deloitte was brought in due to the complexity and scale of the Lanco liquidation, and that lenders had supported this engagement. On the delay in the SPPL filing, he blamed the Covid-19 pandemic and limited access to company data, arguing that other professionals had received only a caution for similar delays.
The IBBI rejected these explanations, arguing that the refund came only after the Board pointed out the violation and that the circular was not meant to shield professionals who acted only after being caught.
The Board also said the work given to Deloitte, such as claim verification, custody of assets, and asset evaluation, was clearly the Liquidator's responsibility under the regulations and did not require external expertise.
Moreover, in the SPPL matter, the Court noted that the transaction audit had already been completed when Godiawala admitted to delays in acting, and he failed to approach the NCLT to compel cooperation from the management, which he was entitled to do under law.
The Court found no merit in Godiawala's challenge. It upheld the disciplinary order, which had suspended his registration for two years from September 16, 2022, and directed him to refund half the fees paid to Deloitte to the Consolidated Fund of India.
“The act of the Petitioner refunding the excess fee only after the said contravention was pointed out by the Respondent does not absolve the Petitioner rather it points out to the culpability of the Petitioner.,” the Court held.
On the engagement of Deloitte, the Court said, “The liquidator can seek assistance of professionals for services which are not in his domain exclusively. Services such as claim verification, taking custody or control of assets, evaluating the assets, inviting and settling claims of creditors, etc. will fall in these services where the liquidator has the expertise and they do not fall in the domain of another professional.”
Dismissing the petition, the Court extended the deadline to deposit the penalty by six weeks but refused to interfere with the disciplinary authority's decision.
Case Title : SAVAN GODIAWALA V. INSOLVENCY AND BANKRUPTCY BOARD OF INDIA
Case Number: W.P.(C) 4951/2024 & CM APPL. 35954/2024
Apperanaces:
For Petitioner: Senior Advocate Sandeep Sethi with advocates Manmeet Singh, Yashvardhan Bandi, Saru Sharma
For Respondent: Senior Advocate Madhavi Divan, with advocates Sahil Monga, Alekhya Sattigeri