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TMI Blog2024 (8) TMI 1154X X X X Extracts X X X X X X X X Extracts X X X X ..... y proceedings. The validity of Clause 23A was questioned before the Madras High Court in CA V. Venkata Sivakumar [ 2024 (1) TMI 1284 - MADRAS HIGH COURT] . After considering the challenge in detail, the Division Bench held that Clause 23A of the 2016 Regulations was valid and there was no illegality in providing for suspension of an AFA on initiation of disciplinary proceedings. It is found that (a) the 2016 and 2017 Regulations have been framed pursuant to the power conferred by the provisions of the Code and especially Sections 196 and 217 to 220 read with Section 240 of the Code. The same having been laid before both the Houses of the Parliament, they have got statutory force thus empowering the IBBI to take necessary action in accordance therewith. The power includes issuance of a show cause notice by the IBBI for taking any action under Section 220 of the Code. (b) the show cause notices dated 26th October 2023 and 10th April 2024 were preceded by reports of the investigating authority which undertook investigation after being duly authorised by orders passed under Section 218 of the Code. (c) Clause 23A of the 2016 Regulations as well as Clause 23A of the Bye-laws framed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulations ). In the show cause notice, reference was made to an investigation report that was submitted by the Investigating Authority. On the basis of the said investigation report, the petitioner was called upon to show cause why action should not be taken to cancel the petitioner s registration as an IP. The petitioner submitted his reply to the said show cause notice and denied the allegations made therein. Further proceedings in that regard are pending. 4. Thereafter on 10th April 2024, the IBBI, through its Deputy General Manager issued another show cause notice to the petitioner under Section 219 of the Code read with Regulations 11 and 12 of the Regulations of 2017, calling upon the petitioner to show cause why suitable actions under Section 220 of the Code should not be taken against the petitioner. Reference in the show cause notice was made to the investigation report dated 8th March 2024 and the same was made the basis of the show cause notice. The petitioner submitted his reply to the said show cause notice and denied the allegations made therein. 5. With the issuance of the aforesaid show cause notices, the Authorization for Assignment ( AFA ) of the petitioner came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied with the principles of natural justice. Exclusion of the principles of natural justice before effecting suspension of the AFA rendered Clause 23A bad in law. Merely for the reason that the requirement of complying with the principles of natural justice was not stipulated in Clause 23A, the same could not be dispensed with. It was necessary to comply with the principles of natural justice before suspending the AFA since substantial rights of the petitioner were affected. (c) The 2016 Regulations as well as the 2017 Regulations did not have the force of law and they travelled beyond the scope conferred by the Code. In fact, Section 240 of the Code did not confer any power on the IBBI to make Regulations that could curtail the right of IP s to function pending adjudication of the show cause notices. Relying upon the decisions in Bharathidasan University and Anr. Vs. All-India Council for Technical Education and Ors, (2001) 8 SCC 676 and Kerala State Electricity Board and Ors, Vs. Thomas Joseph alias Thomas M.J. and Ors, (2023) 11 SCC 700 it was urged that the aforesaid Regulations could not be given effect to since they travelled beyond the power conferred under the Code and wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1996 (3) SCC 364 and State of Maharashtra and Ors. Vs. Sajjad Ali Mohammad Ali and Ors, 2011 (2) Mh.L.J. 392 in that regard. Referring to the provisions of Section 241 of the Code, it was submitted that the 2016 Regulations and the 2017 Regulations had been laid before each House of Parliament and hence they had the necessary statutory support for being implemented. Reference was made to the Bulletin published by the Rajya Sabha and the Lok Sabha in that regard. The IBBI having acted in accordance with the statutory provisions which had the force of law, the challenge as raised to its validity was misconceived. The validity of Clause 23A of the 2016 Regulations had been upheld by the Madras High Court in CA V. Venkata Sivakumar Vs. Insolvency and Bankruptcy Board and Ors, Writ Petition No.16650 of 8.2020 decided on 22nd January 2024. (c) The 2016 Regulations as well as the 2017 Regulations had been framed by the IBBI pursuant to such powers being conferred by Sections 196 and 217 to 220 read with Section 240 of the Code. The said Regulations having been laid before the Parliament as required by Section 241 of the Code and no objections whatsoever having been received, the same ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drop the proceedings. It is only if an order imposing a penalty or taking some action is passed that the noticee can complain of his rights being affected. Notwithstanding this position, the Court may interfere with the issuance of show cause notice if it is found to be issued without any jurisdiction or if it is for any other reason wholly illegal. It is to this limited extent that the challenge as raised by the petitioner to the impugned show cause notices would require examination. 9. At the outset reference to the relevant provisions of the Code would be necessary. Under Section 196 (1) (t), the IBBI has been conferred the power to make regulations and guidelines on matters relating to insolvency and bankruptcy as may be required under the Code. Chapter VI of the Code deals with inspection and investigation against any Insolvency Professional Agency or its member. A person aggrieved by the functioning of an IP can make a complaint to the Board under Section 217. On receiving such complaint under Section 217, if the Board has reasonable grounds to believe that any IP has contravened any of the provisions of the Code or the Rules or Regulations, it can by an order in writing dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the form of subordinate legislation become part of the principal enactment. Reference in this regard can be made to the decision in Premachandran Keezhoth and Anr. (supra). The learned counsel for the petitioner sought to rely upon the decisions in Bharathidasan University and Anr. and Kerala State Electricity Board and Ors. (supra) to contend that notwithstanding the aforesaid, if the Regulations travelled beyond the parent Act, they would suffer from the vice of being ultra vires. There can be no dispute with this proposition. In the present case, it can be seen that Chapter VI of the Code lays down in detail the manner in which inspection and investigation against an IP can be undertaken. For doing so, the IBBI has relied upon the Regulations framed in exercise of powers conferred by Section 240 (2)(zzz) and (zzza). Since the 2016 Regulations and 2017 Regulations have been shown to have been placed before each House of Parliament, the legal fiction contemplated by Section 241 of the Code would come into play and the said Regulations would become part of the Code for being enforced. The 2016 Regulations and the 2017 Regulations seek to carry out the provisions of the Code. We d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such orders prior to issuance of the show cause notices. It would be open for the petitioner while contesting the show cause notices to contend that the material on the basis of which such order was passed appointing an Investigating Authority was insufficient in the circumstances of the case. We are thus satisfied that the investigation was undertaken consequent to an order in writing issued by the IBBI under Section 218(1) of the Code. The show cause notices therefore cannot be faulted on the ground that the Investigating Authority submitted its report in the absence of any prior order in writing as contemplated by Section 218(1) of the Code. 12. While questioning the show cause notices, the petitioner has raised a challenge to the validity of Clause 23A of the 2016 Regulations as being ultra vires. According to him there is no power conferred by the Code on the IBBI to direct suspension of the AFA pending consideration of the show cause notices. The Regulations are thus excessive in nature. Clause 23A provides for suspension of the AFA on initiation of disciplinary proceedings by the agency or by IBBI as the case may be. The Explanation to Clause 23A states that the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice 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 insist upon prompt completion of the proceedings and the hardship cannot be a ground for challenging the very regulation itself. 6.4Accordingly, finding no infirmity, we uphold 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. 14. We are inclined to agree with the view taken by the Division Bench of the Madras High Court in CA V. Venkata Shivakumar (supra). It has been found in the said decision that suspension by itself cannot be treated as a penalty and it is only an ad-interim measure that is to operate till the disciplinary proceedings are concluded. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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