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2020 (11) TMI 357 - HC - Insolvency and BankruptcyEligibility to become insolvency professional - it became necessary for IPs to obtain a valid AFA - Rejection of application for AFA - Constitutional validity of Regulation 7A of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 (the IP Regulations) read with Bye-Law 12A of the Insolvency and Bankruptcy Board of India (IBBI) (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 - power to frame the impugned regulations and bye-laws - excessive delegation or not - HELD THAT - It is clear that the said regulations were framed under the power conferred by Sections 196, 207 and 208 read with 240 of the IBC. In an earlier judgment, namely, V. Venkata Sivakumar v. IBBI, 2020 (8) TMI 58 - MADRAS HIGH COURT , this Court rejected a challenge by the Petitioner herein to Regulation 7(2)(ca) of the IP Regulations as regards the power of the IBBI to charge a fee from IPs by using the annual turnover as a measure, including the allegation that there was excessive delegation. In this case, in addition to Regulation 7A of the IP Regulations, Regulation 12A of the Model Bye-Laws IPA Regulations is under challenge. On perusal of the Model Bye-Laws IPA Regulations, we find that the said regulations were framed by the IBBI under the power conferred by Sections 196, 203 and 205 read with Section 240 of the IBC. Given the fact that the IBBI has framed the Model Bye- Laws IPA Regulations and IPAs, such as the IIIPI, have framed bye-laws in consonance with the model bye-laws, it cannot be said that there is excessive delegation. Indeed, Section 205 of the IBC expressly stipulates that, subject to the provisions of the IBC and rules and regulations thereunder, after obtaining the approval of the IBBI, an IPA should frame bye-laws that are consistent with the model bye-laws framed by the IBBI - as regards the criteria for accepting or rejecting an application for an AFA, Regulation 12A(2) of the Model Bye-Laws IPA Regulations stipulates the criteria. Therefore, it certainly cannot be said that principles or norms have not been laid down in respect of the exercise of power by IPAs. Whether the impugned regulations violate Article 14, 19 and 21 of the Constitution of India - primary ground on which the regulations are assailed is that it subjects registered IPs to the added requirement of obtaining an AFA from the IPA - HELD THAT - 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 - Whether the equality clause is violated by the impugned regulations is, however, a separate matter to be examined. IPs perform a distinct function in insolvency resolution and liquidation under the IBC and the regulations framed thereunder. Therefore, they indubitably constitute a distinct class. The admitted position is that there are only three IPAs in India, and the Petitioner has admittedly obtained membership from the IIIPI. Accordingly, as per Regulation 12A of the Model Bye-Laws IPA Regulations, he is required to apply for and obtain the AFA from the IIIPI - Section 238 A of the IBC does not apply in this situation. The time limit under Regulation 12 A(7) of the Model Bye-Laws IPA Regulations clearly runs from the date of receipt of the order, and the Petitioner would be entitled to reckon limitation from 16.07.2020 if that were indeed the date of receipt of the order of rejection as alleged. More importantly, in contrast to a withdrawal of registration or loss of professional membership as an IP, the rejection of the application for an AFA is not final and apart from the appellate remedy, it is always open to the IP concerned to remedy the non-compliance, as cited in the order of rejection, and re-apply - Regulation 12A is not unconstitutional - thus, the time limit prescribed in Regulation 12A(7) may be revisited by the IBBI by considering an appropriate amendment either providing for a larger time limit or by conferring power to condone delay for sufficient cause. The Petitioner has failed to make out a case to declare the impugned regulations as unconstitutional - Petition dismissed.
Issues Involved:
1. Constitutional validity of Regulation 7A of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016. 2. Constitutional validity of Bye-Law 12A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. 3. Alleged violation of Articles 14, 19, and 21 of the Constitution of India. 4. Alleged excessive delegation of powers. 5. Reasonableness of the seven-day time limit for filing an appeal under Regulation 12A(7). Detailed Analysis: 1. Constitutional Validity of Regulation 7A and Bye-Law 12A: The Petitioner challenged the constitutional validity of Regulation 7A and Bye-Law 12A, arguing that these regulations impose an undue burden on insolvency professionals (IPs) by requiring them to obtain an Authorization for Assignment (AFA) annually. The court examined the powers conferred on the Insolvency and Bankruptcy Board of India (IBBI) under Sections 196, 207, 208, and 240 of the Insolvency and Bankruptcy Code (IBC) and found that the IBBI is empowered to frame such regulations. The court concluded that the delegation of power to IPAs to issue AFAs is valid and does not constitute excessive delegation. 2. Alleged Violation of Articles 14, 19, and 21: The Petitioner argued that the impugned regulations violate Articles 14, 19, and 21 of the Constitution by imposing additional requirements on registered IPs. The court noted that IPs perform a distinct function and constitute a distinct class, and the regulations treat all IPs alike. The court also found that the criteria for obtaining an AFA are not arbitrary or unreasonable but are intended to ensure high standards among IPs. Therefore, the court concluded that the impugned regulations do not violate Articles 14, 19, and 21. 3. Alleged Excessive Delegation of Powers: The Petitioner contended that the IBBI's delegation of power to IPAs to issue AFAs constitutes excessive delegation. The court examined the relevant sections of the IBC and found that the IBBI is expressly empowered to frame model bye-laws and that IPAs are authorized to frame bye-laws consistent with the model bye-laws. The court concluded that the delegation of power is not excessive and is in line with the principles laid down in judgments such as P.K. Roy and Nargesh Meerza. 4. Reasonableness of the Seven-Day Time Limit for Filing an Appeal: The Petitioner argued that the seven-day time limit for filing an appeal under Regulation 12A(7) is arbitrary and unreasonable. The court noted that a right of appeal is purely statutory and must be exercised in accordance with the conditions prescribed by statute. The court also observed that the rejection of an application for an AFA is not final, and the IP can remedy the non-compliance and re-apply. However, the court suggested that the IBBI may consider revisiting the time limit to provide for a larger time limit or to confer power to condone delay for sufficient cause. Conclusion: The court found that the Petitioner failed to make out a case to declare the impugned regulations as unconstitutional. The court dismissed the writ petition but noted that the Petitioner could prosecute the pending appeal regarding the rejection of his AFA application or submit a fresh application upon remedying the stated defects.
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