On Monday, the Madras High Court affirmed the constitutional validity of Section 204 within the Insolvency and Bankruptcy Code (IBC). This provision grants authority to the Insolvency and Bankruptcy Board of India (IBBI) and the Insolvency Professional Agencies to oversee Resolution Professionals (RPs) and commence disciplinary proceedings against them in cases of alleged misconduct.
Chief Justice SV Gangapurwala and Justice D Bharatha Chakravarthy, sitting on the bench, rejected a petition that aimed to declare Section 204 of the Insolvency and Bankruptcy Code (IBC) and Regulation 23A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 (IBBI Regulations) as arbitrary and in violation of constitutional provisions.
A common order was delivered by the bench comprising Chief Justice SV Gangapurwala and Justice D Bharatha Chakravarthy, who were presiding over the hearing of two writ petitions filed by chartered accountant V Venkata Sivakumar.
Sivakumar contended that Regulation 23A, allowing the immediate temporary suspension of a Resolution Professional (RP) under disciplinary proceedings, and Section 204 of the Insolvency and Bankruptcy Code (IBC), which empowers both the Insolvency and Bankruptcy Board of India (IBBI) and the Insolvency Professional Agencies (IPAs) to exert supervisory control and initiate disciplinary proceedings against RPs, granted excessive leeway for potential misuse.
Furthermore, the petitioner asserted that assigning such powers to multiple agencies was legally flawed.
The court observed that although Section 204 of the Insolvency and Bankruptcy Code (IBC) confers authority on both the Insolvency and Bankruptcy Board of India (IBBI) and the Insolvency Professional Agencies (IPAs), they are not authorized to concurrently conduct disciplinary proceedings against a Resolution Professional. In essence, the Resolution Professional is safeguarded against facing dual repercussions for a single violation.
“Moreover, mere conferment of authority on IBBI and IPAs for supervision control and disciplinary proceedings by themselves cannot be held to be conferring of unbridled power. The Regulations and Bye-laws which are framed under Section 204 of the IBC clearly provide checks and balances. 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 the 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,” the High Court said.
Therefore, the Court proceeded to dismiss both writ petitions.
CA V Siva Kumar appeared as the petitioner-in-person.
Additional Solicitor General R Sankaranarayanan appeared for the Indian Institute of Insolvency Professionals of the ICAI.
Deputy Solicitor General Rajesh Vivekandandan appeared for the IBBI.
Advocates K Subburanga Bharathi and M Sathyan appeared for the Union of India.
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