2020 (8) TMI 58 - HC - Insolvency and Bankruptcy

Court upholds constitutionality of IBBI Regulation 7(2)(ca) on insolvency professionals' fees

CA. Venkata Siva Kumar Versus Insolvency and Bankruptcy Board of India (IBBI), IPA/ICAI (The Institute of Chartered Accountants of India), The Union of India

The Court dismissed the writ petition challenging the constitutionality of Regulation 7(2)(ca) of the Insolvency and Bankruptcy Board of India (Insolvency ... Vires of Section 196 of the IBC - power of IBBI to levy fees on IP - excessive delegation - whether Regulation 7(2)(ca) is ultra vires Section 196 and 207 of the IBC? - HELD THAT:- Section 196(1)(a) expressly confers power on the IBBI to register insolvency professional agencies and IPs, and to renew, withdraw, suspend and cancel such registration. Section 196(aa) expressly empowers the IBBI to regulate the working of IPs, insolvency professional agencies and information utilities and Section 196(c) thereof expressly empowers the IBBI to levy fees or other charges including for registration of insolvency professional agencies and IPs and for the renewal of such registration. In addition, it is found that Section 207(1) mandates that every IP should register himself with the IBBI within such time, in such manner, and on payment of such fee as may be specified by regulations. Moreover, Section 240 is the general regulation making power of the IBBI and Section 240(1) does not impose any restraints on the powers of the IBBI, except that regulations should be consistent with the IBC and the rules thereunder and should be for the purposes of carrying out the provisions of the IBC - thus, there can be no question whatsoever with regard to the powers of the IBBI to frame regulations with regard to the fee payable by IPs and insolvency professional agencies. As regards the charging of fees as a percentage of remuneration, it is noted that the fee making power is not subject to any fetters except that it should be for carrying out the purposes of the IBC. Given this statutory framework, it is concluded that the IBBI is duly empowered under Sections 196 and 207 of the IBC to levy a fee on IPs, including as a percentage of the annual remuneration as an IP in the preceding financial year. Whether quid pro quo is absent in the levy of fees as a percentage of the annual remuneration/turnover and whether Regulation 7(2)(ca) is liable to be set aside for such reason? - HELD THAT:- In this case, it is evident that Parliament enacted the IBC by drawing on the BLRC Report and the bill prepared by the BLRC. In both the FSLRC and BLRC Reports, it was recommended that the regulator should be self-sufficient at least with regard to operational expenses by collecting fees to finance its activities. When viewed in this context, it is clear that Section 196(1)(c) and 207 of the IBC and the IP Regulations are intended to fulfil the object and purpose of the IBC as regards the functioning of the IBBI - Under Section 28(4) and (5), if the RP acts without seeking the approval of the CoC, the CoC is entitled to report the matter to the IBBI for taking necessary action against the RP. The IBBI does provide significant services, including in relation to IPs and that there is broad correlation between fees and services. Given the fact that direct or arithmetical correlation as between the fee received and service rendered is not necessary especially in the context of regulatory fees, Regulation 7(2)(ca) of the IP Regulations does not suffer from any constitutional infirmity on account of the absence of quid pro quo. Whether Regulation 7(2)(ca) suffers from excessive delegation? - HELD THAT:- The IBC contains adequate safeguards to ensure that the Parliament effectively supervises all rules and regulations with the power to modify or even annul the same. Likewise, adequate safeguards are in place to ensure that the funds of the IBBI are utilized for the purposes of fulfilling the role of the IBBI under the IBC. Thus, the delegate has not been vested with unfettered power - Therefore, it cannot be said that there is excessive delegation to the IBBI. Petition dismissed. Issues Involved:1. Constitutionality of Regulation 7(2)(ca) and 13(2)(ca) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016.2. Ultra vires challenge to Section 196 and 207 of the Insolvency and Bankruptcy Code, 2016 (IBC).3. Excessive delegation of legislative powers.4. Absence of quid pro quo in the levy of fees.5. Violation of Articles 14, 19, and 21 of the Constitution.Issue-wise Detailed Analysis:1. Constitutionality of Regulation 7(2)(ca) and 13(2)(ca):The Petitioner, a registered insolvency professional (IP), challenged the amendments to Regulation 7(2)(ca) and 13(2)(ca) of the IP Regulations, which mandate a fee of 0.25% of the professional fee earned or turnover of the preceding financial year. The Petitioner argued that these regulations violate Articles 14, 19, and 21 of the Constitution.2. Ultra vires Challenge to Section 196 and 207 of the IBC:The Petitioner contended that Section 196 does not empower the IBBI to levy fees based on annual remuneration or turnover. The Court examined Sections 196 and 207 of the IBC, which confer powers on the IBBI to levy fees for registration and renewal of IPs and insolvency professional agencies. The Court concluded that the IBBI is empowered to levy such fees, including as a percentage of annual remuneration.3. Excessive Delegation of Legislative Powers:The Petitioner argued that the regulation suffers from excessive delegation, relying on judgments like State of Tamil Nadu v. K. Shyam Sunder and Avinder Singh v. State of Punjab. The Court noted that Section 240 of the IBC provides general regulation-making power to the IBBI, consistent with the IBC and its purposes. The Court found adequate safeguards in the IBC, including parliamentary supervision over rules and regulations and audit provisions under Sections 222 and 223. Thus, the Court held that there is no excessive delegation.4. Absence of Quid Pro Quo in the Levy of Fees:The Petitioner claimed that the IBBI has not provided services to IPs to justify the fee. The Court referred to the judgment in BSE Brokers' Forum v. SEBI, which held that quid pro quo is not a condition precedent for regulatory fees. The Court found that the IBBI provides significant services related to insolvency resolution, including recommending resolution professionals and confirming appointments. The Court concluded that there is a broad correlation between the fees charged and the services provided, satisfying the requirement for regulatory fees.5. Violation of Articles 14, 19, and 21 of the Constitution:The Petitioner argued that the regulations violate his constitutional rights. The Court, however, found that the regulations are within the powers conferred by the IBC and are intended to fulfill its objectives. The Court held that the regulations do not suffer from any constitutional infirmity.Conclusion:The Court dismissed the writ petition, upholding the validity of Regulation 7(2)(ca) of the IP Regulations and declining to examine Regulation 13(2)(ca) due to the Petitioner's lack of locus standi. The Court found that the IBBI is empowered to levy fees, there is no excessive delegation, and the fees are justified as regulatory fees with a broad correlation to services provided. The regulations do not violate Articles 14, 19, and 21 of the Constitution.