Status as on- 08/07/2021
Brief Facts of the case
- Venkata Siva Kumar, the petitioner, is a chartered accountant who has registered as an IP with the IBBI. In his writ petition, he claimed that the IBBI (Insolvency Professionals) Regulations, 2016 are in violation of Articles 14, 19, and 21 of the Constitution and should be overturned.
- The petitioner raised three main points. The first was that Section 196 of the IBC does not authorize IBBI to levy fees based on the annual remuneration or annual turnover of the IP or IPE, and that a registration fee of 10,000 is charged every five years after the certificate of registration is granted.
- His second contention was there is excessive delegation and therefore the regulation is liable to be struck down.
- The third argument was that because the IBBI has not provided services to IPs, there is no reason to charge fees as a percentage of annual remuneration/turnover.
HELD
- The division bench of Chief Justice A.P. Sahi and Justice Senthilkumar Ramamoorthy held that it is clear that Sections 196(1)(c) and 207 of the IBC and the IP Regulations are intended to fulfil the IBC’s object and purpose in terms of the IBBI’s operation.
- “The IBC contains adequate safeguards to ensure that Parliament effectively supervises all rules and regulations, with the power to modify or even annul them,” the bench stated.
- “The IBBI does provide significant services, including those related to intellectual property, and there is a strong correlation between fees and services.” Given that a director arithmetical correlation between the fee received and the service rendered is not required, particularly in the context of regulatory fees, we believe that Regulation 7(2) (ca) of the IP Regulations does not suffer from any constitutional infirmity due to the absence of a quid pro quo,” the bench observed.
- The Madras High Court concluded that the Insolvency and Bankruptcy Board of India (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.
- The Madras High Court ruled that the IBBI’s authority to frame regulations on the fees payable by IPs and insolvency professional agencies is unassailable.
Impact of this Case
According to the High Court, the IBBI has the authority to draught Regulation 7A of the IP Regulations and Regulation 12A of the Model Bye-Laws IPA Regulations. In turn, the IPAs, including the IIIPI, are authorised to draught bye-laws that are consistent with the model bye-laws. Given that the IBBI drafted the Model Bye-laws IPA Regulations and IPAs, such as the IIIPI, drafted byelaws in accordance with the model bye-laws, it is impossible to argue that there is excessive delegation.
Indeed, Section 205 of the IBC expressly states that, after obtaining the IBBI’s approval, an IPA should frame bye-laws that are consistent with the model bye-laws framed by the IBBI, subject to the provisions of the IBC and rules and regulations thereunder.
Section 238A of the IBC only applies to IBC proceedings before the Adjudicating Authority, as well as IBC proceedings before the NCLT, NCLAT, DRT, and DRAT. As a result, Section 238 A of the IBC did not apply in this case.
It was also argued that the time limit under Regulation 12 A (7) of the Model Bye-Laws IPA Regulations clearly runs from the date of receipt of the order, and the Petitioner would be entitled to reckon limitation from 16.07.2020 if that was the date of receipt of the order of rejection as alleged. More importantly, unlike a withdrawal of registration or loss of professional membership as an IP, the rejection of an AFA application is not final, and aside from the appellate remedy, the IP concerned is always free to remedy the non-compliance, as cited in the order of rejection, and re-apply.
Conclusion
Regulation 12A was found not to be unconstitutional. Nonetheless, the IBBI may revisit the time limit prescribed in Regulation 12A (7) by considering an appropriate amendment either providing for a longer time limit or conferring power to condone delay for sufficient cause.
Concerning quid pro quo, the High Court stated that because a direct or arithmetic correlation between the fee received and the service rendered is not required, particularly in the context of regulatory fees, the relevant IP regulation does not suffer from any constitutional infirmity due to the lack of quid pro quo.
The Supreme Court decision in the BSE Brokers’ Forum case was cited to highlight that quid pro quo is not a prerequisite for the imposition of regulatory fees and that it is sufficient if there is a broad correlation between the services provided and the fee charged. The Madras High Court also ruled that there is no over-delegation to the IBBI. Taking all of this into account, the Madras High Court ruled that the writ petition had failed and dismissed it.
Source- CA V. Venkata Sivakumar V/s Insolvency and Bankruptcy Board of India (IBBI)
(Madras High Court Judgment dated 03.11.2020 in W.P.No.13229 of 2020)
Disclaimer– The above article is based on the interpretation of related laws which may differ from person to person. The readers are expected to take legal advice before placing reliance on it. For more information, please reach at support@centrik.in
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