Ca.V.Venkata Sivakumar vs IBBI & ors.
Writ Petition Nos.16650 of 2020 and 14448 of 2021 & W.M.P.No.24548 of 2020
Issue: Whether the provisions of Chapter III of the Insolvency and Bankruptcy Code, 2016, more particularly, Section 204 (a) (b) (c) (d) and (e) of the Act, as ultra vires, the provisions of Article 14, 19 (1) (g) and 21 of the Constitution, manifestly arbitrary, substantively unreasonable, excessive legislation and repugnant to the objectives of Insolvency and Bankruptcy Code, 2016?
Arguments:
Petitioner:
1.Counsel submitted that Regulation 23A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 grant uncontrolled powers to the Board and the Agency thereby depriving the member from carrying out his profession, damaging the professional standing resulting to huge financial loss. The member is also not given any opportunity, notice or opportunity of being heard and thus the impugned regulation has a far reaching consequence which cannot be repaired or rectified later, if the member is found to be innocent.
2.Counsel submitted that regulation violates the fundamental rights, is manifestly arbitrary, and substantively unreasonable. It was submitted that Section 204 (a) enables collection of fees for the services rendered by the Insolvency Professional Agencies such as the third respondent. It is waste of resource, because the same is already done by IBBI. Secondly, Section 204 (c)which empowers the Insolvency Professional Agencies to monitor the Insolvency professional is again repetitive and irrational.
3.Counsel submitted that Over all, the entire Section which places the Insolvency Professional under the control of dual agencies viz., the IBBI and IPA’s is illegal and would result in double jeopardy as the persons such as the petitioners are punished twice for the same acts. It would only result in parallel proceedings and different conclusions drawn by different agencies in respect of the same delinquency.
4.It was submitted that There are no checks and balances in the exercise of power and the Insolvency Professional such as the petitioner suffer irreparable damage and the opportunities once lost cannot be made good. The disciplinary authorities are always biased and once the Insolvency Professional is suspended then they will be more interested in covering up, even if they had erroneously initiated disciplinary proceedings.
5.It was submitted that providing multiple agencies would lead to multiple legal proceedings and therefore would increase the cost of accessing justice. Further the impugned Section 204 of the IBC also liable to be declared as unconstitutional on the principle of delegata potestas non potest delegari, repugnance and colourable exercise of power by a sub-delegate such as the IPA and prone to abuse of the power granted under the Section
Respondent:.
1.Counsel submitted that the Regulation intended to strengthen the regulatory control over the insolvency professionals. It is not violative of any fundamental right and there is no illegality in the said provision. Already the petitioner challenged the vires of the Regulation vide W.P.No.13229 of 2020 and the same is dismissed by a Division Bench of this Court on 03.11.2020. Once again, one more Regulation cannot be challenged by way of a separate Writ Petition.
2.Counsel submitted that IBC has an exponential impact on the ease of doing business. The contention of the petitioner that IPA’s had to be dispensed with to achieve the goals set in the IBC is erroneous. The IPA’s are expected to grant membership to qualified persons and to lay down the standards of conduct for them.
3.Counsel submitted that only ground raised is that it exposes Resolution Professionals to irreversible consequence. Hardship cannot be a ground to strike down any provision as unconstitutional. The provision is in the nature of ad-interim suspension. As far as the Writ Petition challenging the Section 204 of IBC is concerned, the twin tire structure is perfectly in order.
Decision: Hon’ble HC dismissed the writ petition and uphold the validity of the Section 204 of the Code and Regulation 23A.
Rationale:
1.Hon’ble HC noted that The power of ad-interim suspension has always been held to be a valid and natural exercise of power and the only requirement there must be an express rule enabling the same.
2.It held that there is no discretion vested with the IPAs and the suspension is automatic, once the disciplinary proceedings are initiated. Therefore, it can neither be termed as manifestly arbitrary nor be challenged on the ground of any confirmation of unguided/unbridled power.
3.It noted that the purpose of suspension is to immediately keep the erring person away from the office, so that the relevant materials and evidences which are on record be properly collected and that there is an impartial and fair enquiry in the issue. Therefore, the requirement of issuance of show cause notice cannot be read into a provision of ad-interim suspension.
4.It held that the very provision of the twin tire control will not give rise to illegality or the presumption of double jeopardy. Even in the case of the petitioner, finding that the petitioner has been punished for the same delinquency by the IIIPI, IBBI dropped the proceedings. It further hled that Regulations and Bye-laws which are framed under Section 204 of the IBC clearly provide checks and balances.
5.The procedure for taking disciplinary action and the appellate remedies are provided. Therefore, it cannot be said to be confirmation of excessive or unbridled power. Section 204 of IBC is only an enabling provision and therefore, we see no constitutional infirmity in any of the provisions under Section 204 (a) (b) (c) (d) and (e) of IBC.
Order:
