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2024 (1) TMI 1284 - HC - Insolvency and BankruptcyConstitutional Validity of Chapter III of the Insolvency and Bankruptcy Code, 2016, more particularly, Section 204 (a) (b) (c) (d) and (e) of the Act - ultra vires the provisions of Article 14, 19 (1) (g) and 21 of the Constitution or not - Whether Regulation 23 A is liable to be struck down as manifestly arbitrary, conferring unbridled, excessive power on IPAs and for violation of principles of natural justice? - Whether Section 204 of IBC is violative of Article 20(2) of the Constitution of India, in as much as it provides for disciplinary proceedings by two agencies, is manifestly arbitrary and prevents access to justice and is illegal for confirming unbridled and excessive powers to the agencies? - Challenge to Regulation 23A - principles of constructive res judicata. Whether Regulation 23 A is liable to be struck down asmanifestly arbitrary, conferring unbridled, excessive power on IPAs and for violation of principles of natural justice? - HELD THAT - There is no discretion vested with the IPAs 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 - The power of suspension is not a punishment and is an adinterim measure and if one has to be issued with show cause notice, then the very 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. Of course, 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. 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. The constitutional validity of the Regulation 23A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 upheld. Whether Section 204 of IBC is violative of Article 20(2) of the Constitution of India, in as much as it provides for disciplinary proceedings by two agencies, is manifestly arbitrary and prevents access to justice and is illegal for confirming unbridled and excessive powers to the agencies? - HELD THAT - It is a result of due consideration of an expert report and cannot be termed arbitrary, much less manifestly arbitrary. When a new legislation such as the IBC carrying out major reforms in the field is brought up, as held by the Hon'ble Supreme Court in Pioneer Urban Land and Infrastructure Limited 2019 (8) TMI 532 - SUPREME COURT , the legislature must be given a free play in the joints and there must be room for experimentation and correction also. Therefore, when with the proper application of mind, provision has been incorporated in the IBC for subjecting the Resolution Professionals to be under monitoring and control of two tier system, the same by itself cannot be termed as arbitrary. Even if there is a likelihood of hardship to an individual Resolution Professional, the provision itself cannot be held to be blocking free access to justice. 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 remedies are provided. Therefore, it cannot be said to be confirmation of excessive or unbridled power. Section 204 of 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. Challenge to Regulation 23A - principles of constructive res judicata - HELD 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 ought to have challenged the vires of the Regulation 23 A also when he filed the earlier W.P.No.13229 of 2020, challenging the other provisions of the self same regulations and filing of the repeated Writ Petitions would be barred by the principles of constructive res judicata. More specifically, the issue of twin control has been specifically decided by this Court qua the same parties. The entire provisions of IBC were upheld by the Hon ble Supreme Court of India in Swiss Ribbons (P) Ltd. v. Union of India 2019 (1) TMI 1508 - SUPREME COURT . The petition is barred by the principles of res judicata and the same is also without any merits as it is declared the Regulation 23 A to be intra vires and without any merit and another unsuccessful successive challenge to the Constitutional vires of IBC. The Writ Petitions are dismissed.
Issues Involved:
1. Constitutional Validity of Regulation 23A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. 2. Constitutional Validity of Section 204 of the Insolvency and Bankruptcy Code (IBC), 2016. 3. Maintainability of the Writ Petitions. Summary: Issue 1: Constitutional Validity of Regulation 23A Regulation 23A states that "The authorization for assignment shall stand suspended upon initiation of disciplinary proceedings by the Agency or by the Board, as the case may be." The petitioner argued that this regulation grants uncontrolled powers to the Board and the Agency, depriving the member of carrying out his profession without notice or opportunity of being heard, thus violating fundamental rights and being manifestly arbitrary and substantively unreasonable. The court held that Regulation 23A is not manifestly arbitrary nor does it confer unbridled power. The suspension of Authorization for Assignment (AFA) upon initiation of disciplinary proceedings is an ad-interim measure, not a punishment, and does not violate principles of natural justice. The court upheld the constitutional validity of Regulation 23A. Issue 2: Constitutional Validity of Section 204 of IBCSection 204 outlines the functions of an insolvency professional agency, including granting membership, laying down standards of professional conduct, monitoring performance, safeguarding rights, and suspending or canceling membership. The petitioner contended that Section 204 enables multiple disciplinary agencies, leading to parallel proceedings and repetitive punishments, thus violating Article 20(2) of the Constitution of India and being manifestly arbitrary and substantively unreasonable. The court found that the twin-tire regulatory structure is based on the Bankruptcy Law Reform Committee Report and is intended to ensure effective regulation and development of the insolvency profession. The existence of more than one authority with regulatory or disciplinary control does not inherently violate constitutional principles. The court upheld the constitutional validity of Section 204 of IBC. Issue 3: Maintainability of the Writ PetitionsThe petitioner had previously challenged the vires of Regulation 7A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016, which was dismissed. The court held that the petitioner cannot challenge different regulations of the same statute in separate writ petitions on the same grounds, as it would be barred by the principles of constructive res judicata. The court dismissed the writ petitions as barred by res judicata and without merit. Conclusion:The writ petitions challenging the constitutional validity of Regulation 23A and Section 204 of IBC were dismissed. The court upheld the constitutional validity of both provisions, finding no merit in the petitioner's arguments.
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