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2022 (12) TMI 149 - HC - Insolvency and BankruptcyConstitutional validity - Regulation 36A of IBC - splitting of the CIRP into inviting expression of interest and then seeking resolution plans - Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - ultra vires of Section 240(1) of the Insolvency and Bankruptcy Code, 2016 or not - HELD THAT - A perusal of the IBC would show that Section 3(1) of the IBC defines Board as the Insolvency and Bankruptcy Board of India established under Section 188(1) of the IBC. The Board is inter alia, entrusted the functions of registration of insolvency professional agencies, promotion and development of such agencies, supervision of insolvency professional agencies and insolvency professionals, investigation for insolvency professionals, the maintenance and publication of information and data as may be provided in the regulations, conduct periodic studies, alliances with other statutory authorities etc. The IBC also specifies a mechanism for issuing Regulations after doing a public consultation process - A perusal of the powers and functions of the Board shows that the overall supervision and functions under the IBC are to be carried out by the Board. Section 196(2) of the IBC also vests with the Board, the power to make model bylaws to be adopted by the insolvency professional agencies. The Board s power to issue Regulations are recognized in Section 240 of the IBC. Insofar as the present case is concerned, there was no challenge to Regulation 36A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 before the NCLT. Therefore, in an application seeking extension of time to complete the CIRP process, the NCLT has gone ahead and declared the Regulation 36A as ultra vires. In the present case, a conjoint reading of the provisions of the IBC clearly shows that the NCLT is the adjudicating authority under the IBC. Under Section 60(5) the categories of cases which can be adjudicated have been clearly enumerated. The jurisdiction to deal with the validity and legality of the Regulations framed under the IBC is not conferred upon the NCLT. The NCLT being a creature of the IBC, cannot assume to itself the power of declaring any provisions of the IBC or the Regulations as illegal or ultra vires. This is the clear view even of the NCLAT in M/s Mohan Gems Jewels Pvt. Ltd. 2021 (8) TMI 1000 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI . Since Regulation 36A has been amended and passed in accordance with law by the IBBI, the NCLT did not have the power to declare the same as being ultra vires merely on the ground that the two stage process provided in it i.e., of inviting an expression of interest first and then the financial bids, would be contrary to the speedier resolution of the Insolvency Resolution Process - Petition disposed off.
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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