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TMI Blog2024 (1) TMI 1284X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 1.1 The W.P.No.14480 of 2021 is filed for declaring the Regulation 23 A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016, which was subsequently amended by the 2nd respondent vide Notification No.IBBI/2016-17/GN/REG0001 dated 23.07.2019 as ultra vires the Constitution and consequentially direct the 1st and 2nd respondents to pay compensation for the financial loss and mental agony suffered by the petitioner which may be paid to Tamil Nadu "Chief Minister's Public Relief Fund" (CMPRF). 1.2 Since both the Writ Petitions are filed by the same writ petitioner and interlinked the same are taken up and disposed by this common order. 1.3 In these Writ Petitions since the ranking of the respondents differ, the Insolvency and Bankruptcy Board of India is referred as 'IBBI', the Indian Institute of Insolvency Professional of ICAI is referred as 'IIIPI' and the Union of India, Ministry of Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- "The authorization for assignment shall stand suspended upon initiation of disciplinary proceedings by the Agency or by the Board, as the case may be." 2.3 It is the case of the petitioner that the said regulation grants 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. According to the petitioner, regulation violates the fundamental rights, is manifestly arbitrary, and substantively unreasonable. It is also excessive and repugnant to the objectives of IBC and Regulations. There is a huge scope for abuse and colourable exercise of power. Therefore, he prays that the Regulation 23 A be declared unconstitutional. 2.4 Section 204 of the IBC reads thus, "Sec 204. An insolvency professional agency shall perform the following functions, namely:- a. Grant membership to persons who fulfill all requirements set out in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 3. The Writ Petitions are resisted by filing a separate counter affidavits by the UoI and IBBI. The summary of their case of is that the IBC itself was enacted based on the Bankruptcy Law Reform Committee Report (BLRC) dated 04.11.2015 and is modeled on similar laws in various other countries and the UNCITRAL legislative guide on insolvency law. In the BLRC report, the importance of the Insolvency Professionals, the regulatory superstructure, the role of the IPA's and their functions are all indicated in various parts of the report. The report clearly envisages twin tire regulatory frame work of the Insolvency Professionals. The Insolvency Professionals are required to hold an AFA as per the Regulation 7A. Correspondingly, the manner of issuance / renewal of AFA by the Insolvency Professional Agencies is laid down in Article 12A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. Similarly, the impugned Regulation 23 A, provides for suspension of AFA upon initiation of disciplinary proceedings by the Board or by the Agencies. The effect is that if the Board or the Agency has initiated di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inistrative or quasi judicial in nature. He would further rely upon the Judgment of the Hon'ble Supreme Court in K.I.Shephard and Ors. Vs. Union of India and Ors., (1987) 4 SCC 431 to contend that there is no justification to throw the Insolvency Professional out of employment and then give them an opportunity of representation. He would rely upon the case of H.L.Trehan and Ors. Vs. Union of Inda and Ors., (1989) 1 SCC 764 (Caltex Oil Refinery (India) Ltd.,) to submit that when the impugned rule results in altering the condition of the professionals to their prejudice, not granting an opportunity of hearing would be illegal. Alternatively imposition of exemplary costs would be a check on arbitrary power and therefore, the power of suspension of AFA cannot be automatic. 4.2 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. Thus th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d contend that the previous petition was filed in different context and therefore, by relying upon the Judgment in Lal Chand (Dead) by LRs and Ors., Vs.Radha Krishan (1977) 2 SCC 88 he would contend that the present petition would not be barred by resjudicata. When the legislation is illegal, by merely pleading the judicial hands off policy qua economic legislation, the same cannot be sustained. The fact that the legislation is just enacted by the Parliament and is in experimental stage by itself is a ground for a more strict scrutiny of law. 4.8 He would further rely upon the Judgment of the Hon'ble Supreme Court in State of West Bengal Vs. Anwar Ali Sarkar, (1952) 1 SCC 1 to contend that if the legislation provision gives a wide power to the executive without indicating the policy, it has to be set aside as violative of equality. Placing reliance in Maganlal Chhaganlal (P) Ltd., Vs. Municipal Corporation of Greater Bombay and Ors., (1974) 2 SCC 402 he would contend that any law which gives differential treatment to Government or other public bodies is necessarily prone to challenge on the ground of discrimination. He would submit that any law which is so arbitrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner and the same was negatived. The challenge on the ground of excessive delegation is not maintainable in as much as it is not a delegated legislation, but the plenary legislation. The procedural safeguard contained in Article 20 (2) of the Constitution of India on the ground of subsequent or second prosecution cannot be a ground to challenge the present Section. The provisions are not manifestly arbitrary. On the other hand it was an outcome of an active and purposeful deliberation on the BLRC Report dated 04.11.2015. Fair procedure is mandated by the Model Bye Laws and the disciplinary authorities have to follow the same. In respect of the IPA's there is also an appellate mechanism. Therefore, there are adequate options to prevent any arbitrary issuance of show cause notices. 4.12 The learned ASGI would submit that already the petitioner's challenge to Regulation 7 A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 was repelled by a Judgment dated 03.11.2020 in W.P.No.13229 of 2020. In paragraph No.12 of the said Judgment, the said question has been specifically considered and reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is repeatedly approaching the Courts of law, with ulterior motives and the petitions are without any merits. E. The Questions: 5. We have considered the rival submissions made on either side and perused the material records of the case. 5.1 The following questions arise for consideration, (i) Whether Regulation 23 A is liable to be struck down as (a)manifestly arbitrary; (b) conferring unbridled, excessive power on IPAs and (c) for violation of principles of natural justice ? (ii) Whether Section 204 of IBC is: (a) violative of Article 20(2) of the Constitution of India, in as much as it provides for disciplinary proceedings by two agencies; (b) is manifestly arbitrary and prevents access to justice and (c) is illegal for confirming unbridled and excessive powers to the agencies ? (iii) Whether the present Writ Petitions are maintainable in law ? F. Question No.(i): 6. Regulation 23 A has already been extracted supra. It can be seen that it only lays down that the AFA shall remain suspended once the disciplinary proceedings are initiated. As a matter of fact, Regulation 12 A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Constitution of India is extracted hereunder:- "20. Protection in respect of conviction for offences.-(1) No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the Act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. (2) No person shall be prosecuted and punished for the same offence more than once. (3) No person accused of any offence shall be compelled to be a witness against himself" 7.1 The grievance of the petitioner is that the IBBI as well as the IPAs initiate parallel proceedings in respect of the same action and if punishment imposed twice, the same would be double jeopardy. Applying the principles in disciplinary proceedings, on the basis of the rule of issue estoppel and lack of authority under the relevant Service Rules, a second punishment for the self same charge would be bad in law. But 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory framework defined, act as self-regulating professional bodies that will focus on developing the IP profession for their role under the Code. They will induct IPs as their members, develop professional standards and code of ethics under the Code, audit the functioning of their members, discipline them and take actions against them if necessary. These actions will be within the standards that the Board will define. The Board will have oversight on the functioning of these agencies and will monitor their performance as regulatory authorities for their members under the Code. If these agencies are found lacking in this role, the Board will take away their registration to act as IP agencies. 4.4.4 The role of the IP agencies: The IP agencies will be formed according to the guidelines laid out by the Board. The agencies must be given legal powers to ensure they are financially autonomous. This must be done by ensuring that the agencies have the power to collect fees from their members for supporting their operations. The Committee is also of the opinion that the regulatory structure be so designed such that competition is promoted amongst the multiple IP agencies to help achiev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the IP agencies can carry out any supervision or adjudication function, they have the responsibility to lay down, in clear and unambiguous terms, the behaviour they expect from member IPs. In doing so, the agencies need to follow a standardised, and structured framework such that all stake-holders are fully informed of the process which in turn would help establish credibility and confidence in the overall IP system. Thus, IP agencies specify bye-laws governing specific areas of IP conduct....." "Quasi-judicial functions of IP agencies In exercise of their supervisory powers, IP agencies need to assess whether or not an IP has adequately complied with the provisions of the bye-laws. In case of any detected breach, the agency has the power to impose appropriate penalties. The Committee therefore recommends that each professional IP agency will have an independent quasi-judicial wing that will be responsible for hearing complaints against IPs of that specific agency. In their quasi- judicial jurisdiction, IP agencies will have the power to impose penalties for non-compliance on IPs and will perform this function impartially....". 7.3 Thus, it can be seen that it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to appear in court was upheld in cases such as Mahipal Singh Rana v. State of Uttar Pradesh (2016) 8 SCC 335. Therefore, the existence of more than one authority with regulatory or disciplinary control over a professional is per se not a ground to hold that the impugned regulations are unconstitutional. In the specific context of IPs, the registration of an enrolled professional member as an IP and the cancellation of such registration are within the domain of the IBBI, whereas the grant of or cancellation of membership and the issuance, renewal and cancellation of an AFA are within the domain of the IPA, which functions under the supervisory control of the IBBI. Indeed, we note that paragraph 4.4.3 of the BLRC Report recommended such a two-tiered regulatory structure. Hence, we conclude that the challenge on this basis is untenable." 7.5 Moreover mere conferment of authority on IBBI and IPAs for supervision control and disciplinary proceedings by itself 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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