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2022 (12) TMI 149 - HC - Insolvency and Bankruptcy


Issues Involved:
1. Validity of Regulation 36A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
2. Jurisdiction and power of the National Company Law Tribunal (NCLT) to declare regulations as ultra vires.
3. The role and powers of the Insolvency and Bankruptcy Board of India (IBBI) under the Insolvency and Bankruptcy Code (IBC), 2016.

Detailed Analysis:

1. Validity of Regulation 36A:
The primary issue in this case revolves around the validity of Regulation 36A, which pertains to the invitation of resolution plans during the Corporate Insolvency Resolution Process (CIRP). The NCLT in its order dated 5th September 2018, declared Regulation 36A as ultra vires Section 240(1) of the IBC. The NCLT reasoned that the process of inviting an expression of interest (EOI) before seeking resolution plans impeded the speed of the resolution process, which is a fundamental aspect of the IBC. The NCLT stated, "By use of the words 'expression of interest' the speed is retarded and time is wasted."

However, the High Court noted that the NCLT overstepped its jurisdiction by declaring Regulation 36A ultra vires without a specific challenge to the regulation being presented before it. The court emphasized that the regulation was enacted by the IBBI within its powers under Section 240 of the IBC, which allows the Board to make regulations consistent with the Code.

2. Jurisdiction and Power of the NCLT:
The High Court examined whether the NCLT had the jurisdiction to declare regulations as ultra vires. It was highlighted that the NCLT's powers are defined under Section 60 of the IBC, which includes adjudicating applications and proceedings related to insolvency resolution and liquidation. However, the court clarified that the NCLT's jurisdiction does not extend to declaring regulations framed under the IBC as ultra vires. The court cited the judgment in M/s Mohan Gems & Jewels Pvt. Ltd., which stated, "The legality of propriety of any Regulation/ Notification / Rules / Act cannot be looked into by NCLT or NCLAT."

Additionally, the court referred to the Supreme Court's judgment in BSNL v. Telecom Regulatory Authority of India, which held that regulatory bodies like the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) do not have the jurisdiction to entertain challenges to the regulations framed by the regulatory authorities.

3. Role and Powers of the IBBI:
The High Court underscored the IBBI's role and powers under the IBC. The IBBI is entrusted with various functions, including the registration and supervision of insolvency professionals and the issuance of regulations. The court noted that Section 196(1)(t) empowers the IBBI to make regulations and guidelines on matters relating to insolvency and bankruptcy. Furthermore, Section 240 of the IBC grants the IBBI the authority to make regulations consistent with the Code.

The court emphasized that the IBBI's regulations are subject to parliamentary oversight as per Section 241 of the IBC, which requires every rule and regulation made under the Code to be laid before both Houses of Parliament.

Conclusion:
The High Court concluded that the NCLT did not have the power to declare Regulation 36A as ultra vires. The court set aside the NCLT's order to the extent it held Regulation 36A as ultra vires. The court clarified that no challenge on the merits of Regulation 36A was raised before it. Consequently, the writ petition was disposed of, and all pending applications were also disposed of.

Summary:
The High Court addressed the validity of Regulation 36A, the jurisdiction of the NCLT, and the powers of the IBBI. It concluded that the NCLT overstepped its jurisdiction by declaring Regulation 36A as ultra vires and emphasized the IBBI's authority to issue regulations under the IBC. The court set aside the NCLT's order and disposed of the writ petition.

 

 

 

 

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