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TMI Blog2024 (1) TMI 1284X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - THE HON'BLE MR.SANJAY V.GANGAPURWALA, CHIEF JUSTICE AND THE HON'BLE MR.JUSTICE D.BHARATHA CHAKRAVARTHY For the Petitioner : Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtain Authorisation for Assignment (hereinafter referred to as 'AFA') from the Insolvency Professional Agencies, the petitioner made an application to the IIIPI on 31.12.2019. By an order dated 14.01.2020, the said application was rejected by the IIIPI. The petitioner also challenged the constitutional validity of the Regulations 7A and 13 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulation 2016, by W.P.No.9132 of 2020. By an order dated 28.07.2020, the said Writ Petition was dismissed upholding the validity of the Regulations. Thereafter, the petitioner filed an appeal on 20.07.2020 as against the rejection of his application for AFA. The petitioner also filed a second application before the IIIPI on 01.08.2020 praying for AFA. Once again this application AFA was rejected by IIIPI by an order dated 25.08.2020. Aggrieved by the same, another appeal was preferred before the Membership Committee on 25.08.2020. 2.1 Whileso, on 28.08.2020, a show cause notice was issued by the IBBI, calling upon the petitioner to show cause as to why suitable disciplinary action cannot be taken against him for contravention of Section 208 (2) (a) and 208 (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 204 (a) enables collection of fees for the services rendered by the Insolvency Professional Agencies such as the third respondent. It is waste of resource, because the same is already done by IBBI. Secondly, Section 204 (c)which empowers the Insolvency Professional Agencies to monitor the Insolvency professional is again repetitive and irrational. Repeated information is sought from the Insolvency Professionals without any basis or knowledge about their functioning, which results in harassment to the professionals. The Insolvency Professional, who steps into the shoes of the promoters is the key person who should not just be the person complying the procedure, but should be clubbed with entrepreneurial skills and the information which are sought by these agencies should take into account the ground realities. 2.6 Even though Section 204 (d) states to safeguard the rights, privileges and interests of the Insolvency Professionals, it only results in harassment. Over all, the entire Section which places the Insolvency Professional under the control of dual agencies viz., the IBBI and IPA's is illegal and would result in double jeopardy as the persons such as the petitioners a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an exponential impact on the ease of doing business. The contention of the petitioner that IPA's had to be dispensed with to achieve the goals set in the IBC is erroneous. The IPA's are expected to grant membership to qualified persons and to lay down the standards of conduct for them. They are also responsible for monitoring the performance of the members while safeguarding their interests. They are also empowered to suspend or cancel the membership of Insolvency Professionals in accordance with their bye-laws. They are also expected to address the grievances against the Insolvency Professionals. The Scheme of IBC suggests that the IBBI need not engage itself directly with these functions and expects the IPAs to carry out these functions. Merely because dual control is provided, the same by itself would not render Section 204 as unconstitutional. D. The Submissions: 4. We heard Mr.CA.V.Venkata Siva Kumar, Petitioner-in-Person and Mr.Sankaranarayanan, learned Additional Solicitor General of India learned Senior Counsel appearing on behalf of IIIPI. Mr.Rajesh Vivekandandan, learned Dy.SG appearing on behalf of IBBI, Mr.K.Subburanga Bharathi, learned counsel and Mr.M.Sathyan, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... create multiple agencies with same power. 4.4 Mr.CA.V.Venkata Siva Kumar, would rely upon the Judgment of the Hon'ble Supreme Court in Mahipal Singh Rana Vs. State of Uttar Pradesh (2016) 8 SCC 335 . He would also rely upon the Judgment in N.Sampath Ganesh Vs. Union of India (2020) SCC Online Bom 782. 4.5 The second contention of the petitioner is that providing multiple agencies would lead to multiple legal proceedings and therefore would increase the cost of accessing justice. Relying upon the Judgment of the Hon'ble Supreme Court in Anita Kushwaha Vs. Pushap Sudan (2016) 8 SCC 509 , he would submit that access to justice is an invaluable human right and a very much part of Article 21 of the Constitution of India and therefore, the impugned Section 204 of IBC is violative of the fundamental right to life. 4.6 The next contention of the petitioner is that the impugned provision is manifestly arbitrary and substantively unreasonable and therefore has to be struck down as violative of Article 14 of the Constitution of India. In this context, the petitioner would rely upon the Swiss Ribbons Pvt. Ltd., and Anr Vs. Union of India and Ors., (2019) 4 SCC 17 . There is irrational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V.Sholapur Spinning Weaving Co. Ltd., and Ors., 1954 AIR 119 . By placing reliance on the Judgment of the Hon'ble Supreme Court in Subramanian Swamy Vs. Director, Central Bureau of Investigation and Anr. (2014) 8 SCC 682 he would submit that a legislation would also be liable to be struck down, if it is discriminatory or manifestly arbitrary. The principles of reasonableness has been spelt out by the Supreme Court in Municipal Committee Kareli Vs. State of M.P. and if the test of reasonableness laid down therein if applied, the impugned enactment again will not stand scrutiny of the law. 4.10 The impugned Section 204 of the IBC also liable to be declared as unconstitutional on the principle of delegata potestas non potest delegari, repugnance and colourable exercise of power by a sub-delegate such as the IPA and prone to abuse of the power granted under the Section. Therefore, the petitioner would contend that the impugned provision is liable to be struck down as unconstitutional. 4.11 Per contra, Mr.Sankara Narayanan, the learned Additional Solicitor General of India, would submit that the petitioner has failed to make out any constitutional infirmity with reference to Regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Anr, (2023) 8 SCC 56. 4.13 Further, in the case of the petitioner, the first show cause notice was issued by IBBI on 28.08.2020 and thereafter on 31.08.2020. The IIIPI issued another show cause notice on 31.08.2020. The IIIPI conducted the disciplinary proceedings and decided the issue on 01.12.2020 and the petitioner was subject to punishment by way of imposition of fine. Thereafter, taking note of the same, the IBBI disposed of the show cause notice without further action. 4.14 The learned ASGI placing reliance on the case of Pioneer Urban Land and Infrastructure Limited and Anr Vs. Union of India and Ors., (2019) 8 SCC 416 would submit that in respect of economic legislation like, the IBC, the legislature must be given a free play in the joints and the provisions cannot be challenged on the ground of arbitrariness. Adequate safeguards have been provided in the bye-laws in respect of the disciplinary actions. The grievance redressal committee has a detailed procedure to follow under bye-laws 21 and 22, while dealing with the complaint. Bye-law 24 also mandates that the IPAs should have a disciplinary policy which should prescribe the manner in which the show cause notices ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led power. 6.2 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. On the contrary, the purpose of suspension is to immediately keep the erring person away from the office, so that the relevant materials and evidences which are on record be properly collected and that there is an impartial and fair enquiry in the issue. Therefore, the requirement of issuance of show cause notice cannot be read into a provision of ad-interim suspension. 6.3 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiated, then such second punishment or proceedings alone can be challenged and on that ground, the provision of law itself cannot be challenged. 7.2 As stated by the respondents, there is a purpose for which two agencies, viz., IBBI and IPAs are pressed into service for monitoring and regulating the Insolvency Professionals. The relevant portion of the BLRC Report dated 04.11.2015 as reproduced in the counter affidavit is extracted hereunder:- 4.4 The Insolvency Professionals: .......... 4.4.3 IP Regulatory Structure: ........... The Committee deliberated on the question of regulation versus development. The Indian experience on self-regulating professional bodies (such as Institute of Chartered Accountants of India (ICAI), Bar Council of India and Institute of Company Secretaries (ICSI)) has been reasonably positive in the development of their respective professions and professional standards. However, the experience on their role in regulating and disciplining their members has been mixed. In comparison, financial regulators (such as SEBI and RBI) have had greater success in preventing systemic market abuse and in promoting consumer protection. Thus, the Committee believes that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and codes of conduct through bye-laws, that are made public and are binding on all members; 2. Executive functions monitoring, inspecting and investigating members on a regular basis, and gathering information on their performance, with the over-arching objective of preventing frivolous behavior and malfeasance in the conduct of IP duties; 3. Quasi-judicial functions-addressing grievances of aggrieved parties, hearing complaints against members and taking suitable actions. There is a need for clear separation of these functions, and in performing these functions, the IP agencies must at all times follow the regulations and guidelines laid out by the Board..... ......Regulatory functions of IP agencies The primary function of the professional IP agencies is to set minimum standards of behavior expected from all Ips..... Multiple regulatory instruments with similar outcomes might have different regulation- making processes thereby resulting in undesired confusion among the parties affected. Hence the Committee recommends that the IP agencies should be empowered to issue only bye-laws. The Committee believes that the process of framing bye-laws should be directly overseen by the boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.4 The very question of the existence of more than one authority with regulatory or disciplinary control over Resolution Professionals is considered in the earlier Writ Petition filed by the petitioner himself in W.P.No.13229 of 2020 and it is essential to extract paragraph No.12, which reads as follows:- 12. This leads to the next question as to whether the impugned regulations violate Article 14, 19 and 21 of the Constitution of India. The 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. Therefore, the question arises as to whether the imposition of the AFA requirement violates the aforesaid provisions of the Constitution. Chartered Accountants are subject to the regulatory and disciplinary control of the Institute of Chartered Accountants of India. In the exercise of audit functions, they are also subject to the supervisory control of the National Financial Reporting Authority under Section 132 of the Companies Act, 2013 (CA 2013) and, in the event of the commission of or abetment of fraud, they may be removed by the NCLT even suo motu under Section 140(5) of CA 2013. Upon challeng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nging 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) 4 SCC 17 . It is essential to reproduce paragraph 120, which reads thus: 120. The Insolvency Code is a legislation which deals with economic matters and, in the larger sense, deals with the economy of the country as a whole. Earlier experiments, as we have seen, in terms of legislations having failed, trial having led to repeated errors , ultimately led to the enactment of the Code. The experiment contained in the Code, judged by the generality of its provisions and not by so-called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster. To stay experimentation in things economic is a grave responsibility, and denial of the right to experiment is fraught with serious consequences to the nation. We have also seen that the working of the Code ..... X X X X Extracts X X X X X X X X Extracts X X X X
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