{"id":312222,"date":"2024-01-25T15:30:56","date_gmt":"2024-01-25T10:00:56","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=312222"},"modified":"2024-02-06T10:41:44","modified_gmt":"2024-02-06T05:11:44","slug":"madras-high-court-upholds-constitutional-validity-of-section-204-ibc","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2024\/01\/25\/madras-high-court-upholds-constitutional-validity-of-section-204-ibc\/","title":{"rendered":"Explained| Madras High Court verdict on constitutionality of Section 204 of the Insolvency and Bankruptcy Code"},"content":{"rendered":"
\n

Madras High Court:<\/span> In writ petition filed for declaring that Section 204(a), (b), (c), (d) and (e)<\/a> of the Insolvency and Bankruptcy Code, 2016<\/a>, (‘IBC’) as ultra vires, the provisions of Article 14<\/a>, 19(1) (g)<\/a> and 21<\/a> of the Constitution<\/a>, being manifestly arbitrary, substantively unreasonable, excessive legislation and repugnant to the objectives of IBC, the division bench of R.Sanjay V. Gangapurwala, CJ. D. Bharatha Chakravarth *<\/span>, J. upheld the constitutional validity of the Regulation 23A of the IBBI (Model Byelaws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. Further, it held that Section 204 of IBC is only an enabling provision and therefore, there is no constitutional infirmity in any of the provisions under Section 204 (a) (b) (c) (d) and (e) of IBC.<\/p>\n

Section 204 IBC confers powers on the Insolvency and Bankruptcy Board of India (IBBI) and the Insolvency Professional Agencies (‘IPAs’) to supervise Resolution Professionals (‘RP’) and initiate disciplinary proceedings against them on allegations of misconduct.<\/p>\n

Issues and Analysis:<\/p>\n

(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?<\/p>\n

The Court took note of Regulation 23 A, which lays down that the Authorisation for Assignment (‘AFA’) shall remain suspended once the disciplinary proceedings are initiated. Further, it noted that the Regulation 12 A of the Insolvency and Bankruptcy Board of India (Model Byelaws and Governing Board of Insolvency Professional Agencies) Regulations, 2016, categorically provides that the Resolution Professionals should not have any disciplinary proceedings pending against them. If that is the case, it is only logical that there is an ad-interim suspension of AFA if any disciplinary proceedings are initiated subsequently also. 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.<\/p>\n

The Court said that there is no discretion vested with the IPA 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.<\/p>\n

The Court added that the power of suspension is not a punishment and is an ad interim measure, and if one must be issued with show cause notice, then the purpose of ad-interim suspension is lost. In as much as ultimate punishment is imposed only on the conclusion of the disciplinary proceedings it cannot be said that any substantial or vested right of the Resolution Professional is violated. On the contrary, the purpose of suspension is to immediately keep the erring person away from the office, so that the relevant materials and evidence which are on record be properly collected and that there is an impartial and fair enquiry into the issue. Therefore, the requirement of issuance of show cause notice cannot be read into a provision of ad-interim suspension. Any suspension, if prolonged, without any inquiry being proceeded with, would cause stigma. But the larger public interest and the laudable purpose behind the rule of suspension and the relative hardship had to be balanced.<\/p>\n

The Court added that, only to avoid hardships, normally swift and prompt completion of the process of disciplinary proceedings is insisted upon. Therefore, the petitioner or any other aggrieved professional can only insist upon prompt completion of the proceedings and the hardship cannot be a ground for challenging the very regulation itself.<\/p>\n

Therefore, finding no infirmity, the Court upheld the constitutional validity of the Regulation 23A of the IBBI (Model Byelaws and Governing Board of Insolvency Professional Agencies) Regulations, 2016.<\/p>\n

(ii) Whether Section 204 of IBC is: (a) violative of Article 20(2)<\/a> of the Constitution of India<\/a>, 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?<\/p>\n

While noting the grievance of the petitioner 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. The Court referred to Article 20(2)<\/a> of the Constitution of India<\/a>.<\/p>\n

Applying the principles in disciplinary proceedings, based on the rule of issue estoppel and lack of authority under the relevant Service Rules, the Court said that 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.<\/p>\n

It added that finding that the petitioner has been punished for the same delinquency by the IIIPI, IBBI dropped the proceedings. Further, for the very same action, it may be possible that both IBBI and IPAs can initiate action. Even under Criminal Law, there can be prosecution and punishment by different agencies or more than one penal provision of law, if the gravamen of the charge differs. If only gravamen of the charge is self-same, double jeopardy arises. Thus, the Court held that if for a particular act of delinquency, for the very same charge, if any individual is punished twice or the second proceedings are initiated, then such second punishment or proceedings alone can be challenged and, on that ground, the provision of law itself cannot be challenged.<\/p>\n

Thus, the Court said that 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 Byelaws framed under Section 204 IBC clearly provide checks and balances. Therefore, it cannot be said to be confirmation of excessive or unbridled power. Section 204 of IBC is only an enabling provision and therefore, there is no constitutional infirmity in any of the provisions under Section 204 (a) (b) (c) (d) and (e) of IBC.<\/p>\n

(iii) Whether the present writ petitions are maintainable in law?<\/p>\n

The Court noted that as regards the challenge to Regulation 23 A, earlier, the petitioner challenged Section 7 A of the Regulation, including on the self-same ground of twin tier control. Further, it said that when it comes to the constitutional validity of the self-same regulations, the petitioner cannot pick and choose the particular regulation, one after the other on the same grounds or different grounds and repeatedly file writ petitions. If aggrieved, the petitioner should have challenged the vires of the Regulation 23 A also when he filed the earlier petition, challenging the other provisions of the self same regulations as filing of the repeated Writ Petitions would be barred by the principles of constructive res judicata.<\/p>\n

The Court added that the entire provisions of IBC were upheld by the in Swiss Ribbons (P) Ltd.<\/span> v. Union of India<\/span>, (2019) 4 SCC 17<\/a> and the constitutional validity of Sections 96 to 100 of IBC was upheld in Dilip B. Jiwrajka<\/span> v. Union of India<\/span>, 2023 SCC OnLine SC 1530<\/a>.<\/p>\n

[CA V. Venkata Sivakumar v IBBI, 2024 SCC OnLine Mad 156<\/a>, Order dated 22-01-2024<\/span>]<\/p>\n\n

Advocates who appeared in this case :<\/p>\n

For the Petitioner:<\/span> Advocate CA.V. Venkata Sivakumar<\/p>\n

For the Respondents:<\/span> ASGI Sankaranarayanan, Advocate C.V.Ramachandramurthy, Rajesh Vivekanandan, Advocate K.Subburanga Bharathi, ACGSC M. Sathyan<\/p>\n

Buy Constitution of India  HERE<\/a><\/h3>\n

\"Constitution<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

“Regulations and Byelaws framed under Section 204 IBC clearly provide checks and balances. Therefore, it cannot be said to be confirmation of excessive or unbridled power”<\/p>\n","protected":false},"author":67512,"featured_media":298865,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,10],"tags":[30315,35442,6131,31911,8731,30344,29471,64701,30361,6121,64700,64699],"class_list":["post-312222","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-highcourts","tag-arbitrary","tag-article-14-of-constitution","tag-bankruptcy","tag-constitutional","tag-constitutional-validity","tag-ib-code","tag-ibbi","tag-ibbi-regulation","tag-ibc","tag-insolvency","tag-regulation-23a","tag-section-204-ibc"],"yoast_head":"\nMadras High Court upholds constitutional validity of Section 204 IBC | SCC Blog<\/title>\n<meta name=\"description\" content=\"Madras High Court upheld the constitutionality of 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