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TMI Blog2020 (8) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... such manner, and on payment of such fee as may be specified by regulations. Moreover, Section 240 is the general regulation making power of the IBBI and Section 240(1) does not impose any restraints on the powers of the IBBI, except that regulations should be consistent with the IBC and the rules thereunder and should be for the purposes of carrying out the provisions of the IBC - thus, there can be no question whatsoever with regard to the powers of the IBBI to frame regulations with regard to the fee payable by IPs and insolvency professional agencies. As regards the charging of fees as a percentage of remuneration, it is noted that the fee making power is not subject to any fetters except that it should be for carrying out the purposes of the IBC. Given this statutory framework, it is concluded that the IBBI is duly empowered under Sections 196 and 207 of the IBC to levy a fee on IPs, including as a percentage of the annual remuneration as an IP in the preceding financial year. Whether quid pro quo is absent in the levy of fees as a percentage of the annual remuneration/turnover and whether Regulation 7(2)(ca) is liable to be set aside for such reason? - HELD THAT:- In this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptcy Code, 2016 (the IBC). Regulation 7 of the IP Regulations provides that the registration of the IP with the IBBI is subject to the conditions stipulated therein. Regulation 7(2)(ca) thereof stipulates the requirement that the IP should pay a fee calculated at 0.25% of the professional fee earned for services rendered as an IP in the preceding financial year to the IBBI. Regulation 12 of the IP Regulations provides for the recognition of a company, registered partnership firm or a limited liability partnership as an insolvency professional entity (IPE) subject to the conditions set out therein. Regulation 13(2)(ca) stipulates payment of a fee at 0.25% of the turnover of the IPE in the preceding financial year to the IBBI. Both Regulation 7(2)(ca) and 13(2)(ca) are under challenge in this writ petition whereby the Petitioner seeks a declaration that the said IP Regulations violate Articles 14, 19 and 21 of the Constitution and are, therefore, liable to be struck down. 2. The power to levy fees on IPs is conferred on the IBBI under Section 196 and 207 of the IBC. In Section 196, Sub-section (1)(a), (aa) and (c) are relevant and are set out below: "(1) The Board shall, subject t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y professionals shall- (ca) pay to the Board, a fee calculated at the rate of 0.25 percent of the professional fee earned for the service rendered by him as an insolvency professional in the preceding financial year, on or before the 30th April every year, along with a statement in Form E of the Second Schedule. Provided that for the financial year 2019-2020, an insolvency professional shall pay the fee under this clause on or before the 30th June, 2020." Regulation 13(2) (ca) is as under: "Recognition shall be subject to the conditions that the insolvency professional entity shall- (ca) pay to the Board, a fee calculated at the rate of 0.25 percent of the turnover from the services rendered by it in the preceding financial year, on or before the 30th of April every year, along with a statement in Form G of the Second Schedule. Provided that for the financial year 2019-2020, an insolvency professional entity shall pay the fee under this clause on or before the 30th June, 2020." 3. By circular dated 12.04.2019, all registered IPs and all recognized IPEs were informed about the necessity to comply with the requirement of paying a fee calculated at the rate of 0.25 percent of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents of the Hon'ble Supreme Court in the State of Tamil Nadu v. K. Shyam Sunder, AIR 2011 SC 3471 (Shyam Sunder), and Avinder Singh v. State of Punjab, AIR 1979 SC 321 (Avinder Singh), wherein it was held that conferring unfettered powers on the delegate would be an abdication of legislative responsibility, and that essential legislative functions cannot be delegated. His third contention was that the IBBI has not provided services to IPs and, therefore, there is no quid pro quo to justify the charging of fees as a percentage of the annual remuneration/turnover. In support of this submission, he referred to the request for information under the RTI Act. In specific, he pointed out that in response to the question as to the information/documents/legal opinion, if any, on the basis of which the decision was taken to charge a fee of 0.25 percent of the remuneration received by the IP, the reply was as under: "Please refer to the information available on the meetings of Governing Board of IBBI held on 15.03.2018, 26.06.2018 and 28.09.2018 as available on IBBI website" Similarly, in response to the question as to the purposes for which the fee would be utilized, the response was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient and funded through the collection of fees levied. For this purpose, he referred to page 26 of the said Report. He pointed out that the recommendations in the FSLRC Report, inter alia, formed the basis for providing for a regulator under the IBC, i.e. the IBBI, which is self sufficient at least with regard to operational expenses. He also referred to the Report in November 2015 of the Bankruptcy Law Reforms Committee (the BLRC Report). In particular, he pointed out that paragraph 4.1.13 of this Report provides as follows: "Insolvency and bankruptcy regulation, especially for individuals, is likely to be a resource intensive function. The Board should be equipped with the capability and the resources required to perform a wide range of function and is responsible for building and maintaining the credibility of the bankruptcy and insolvency resolution process. There is need for financial independence which allows the Board to have the required flexibility and human resources that are more difficult to achieve within a traditional Government setup." The draft insolvency and bankruptcy bill was drafted by the aforesaid BLRC and the IBBI was therefore designed to be self-sufficie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 7(2)(ca) and, therefore, we propose to examine the constitutional and statutory challenge to Regulation 7(2)(ca). Although Regulations 7(2)(ca) and 13(2)(ca) are substantially in pari materia, different considerations could arise as regards Regulation 13(2)(ca) and we do not propose to examine the same in this proceeding. 11.The first question to be examined is whether Regulation 7(2)(ca) is ultra vires Section 196 and 207 of the IBC. On examining the IBC, we find that Section 196(1)(a) expressly confers power on the IBBI to register insolvency professional agencies and IPs, and to renew, withdraw, suspend and cancel such registration. Section 196(aa) expressly empowers the IBBI to regulate the working of IPs, insolvency professional agencies and information utilities and Section 196(c) thereof expressly empowers the IBBI to levy fees or other charges including for registration of insolvency professional agencies and IPs and for the renewal of such registration. In addition, we find that Section 207(1) mandates that every IP should register himself with the IBBI within such time, in such manner, and on payment of such fee as may be specified by regulations. Moreover, Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered and services rendered to the industry as a whole. If we apply the test as laid down by this Court in the abovesaid judgments to the facts of the case in hand, it can be seen that the statute under Section 11 of the Act requires the Board to undertake various activities to regulate the business of the securities market which requires constant and continuing supervision including investigation and instituting legal proceedings against the offending traders, wherever necessary. Such activities are clearly regulatory activities and the Board is empowered under Section 11(2)(k) to charge the required fee for the said purpose, and once it is held that the fee levied is also regulatory in nature then the requirement of quid pro quo recedes to the background and the same need not be confined to the contributories alone." By applying the said standard, in the context of the charging of a regulatory fee on stockbrokers as a percentage of annual turnover, the Hon'ble Supreme Court concluded that the amount collected under the impugned levy is being used by the SEBI on various activities relating to the securities market, with which the Petitioners therein were concerned. On that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erely as a measure of the tax; it does not alter the nature or character of the levy. It still remains a tax on land or building. There is no set pattern of levy of tax on lands and buildings - indeed there can be no such standardisation. There cannot be uniform levy unrelated to the quality, character or income/yield of the land. Any such levy has been held to be arbitrary and discriminatory. No one can say that a tax under a particular entry must be levied only in a particular manner, which may have been adopted hitherto. The legislature is free to adopt such method of levy as it chooses and so long as the character of levy remains the same, i.e., within the four corners of the particular entry, no objection can be taken to the method adopted." The above judgment was cited and followed subsequently in State of Tamil Nadu v. Tvl. South Indian Sugar Mills Association (2015) 13 SCC 748. 12. In this case, it is evident that Parliament enacted the IBC by drawing on the BLRC Report and the bill prepared by the BLRC. In both the FSLRC and BLRC Reports, it was recommended that the regulator should be self-sufficient at least with regard to operational expenses by collecting fees to fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit all grants, fees and charges received by it into the fund of the IBBI. The said section 222 reads as follows: "222. Board's Fund (1) There shall be constituted a Fund to be called the Fund of the Insolvency and Bankruptcy Board and there shall be credited thereto- (a) all grants, fees and charges received by the Board under this Code; (b) all sums received by the Board from such other sources as may be decided upon by thee Central Government; (c) such other funds as may be specified by the Board or prescribed by the Central Government. (2) The Fund shall be applied for meeting- (a) the salaries, allowances and other remuneration of the members, officers and other employees of the Board; (b) the expenses of the Board in the discharge of its functions under section 196; (c) the expenses on objects and for purposes authorised by this code; (d) such other purposes as maybe prescribed." Moreover, Section 223 provides for the maintenance of accounts by the IBBI and for the audit thereof by the Comptroller and Auditor General of India. Section 223 is as under: "223. Accounts and audit (1) The Board shall maintain proper accounts and other relevant records ..... X X X X Extracts X X X X X X X X Extracts X X X X
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