Constitutional Validity of IBC Section 204 and IBBI Regulations Regulation 23A

Last Updated on January 23, 2024 by News Desk

Issue: In a recent ruling, the Madras High Court addressed the constitutionality of Section 204 of the Insolvency and Bankruptcy Code (IBC) and Regulation 23A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 (IBBI Regulations). The case featured two writ petitions that V Venkata Sivakumar, a chartered accountant, brought to challenge the previously listed regulations.

Facts of the Case: Regulation 23A, which permits an immediate temporary suspension of a Resolution Professional (RP) who is subject to disciplinary proceedings, and Section 204 of the Insolvency and Bankruptcy Board of India (IBBI) permitting IPAs and the IBBI to supervise RPs and take disciplinary action, according to Sivakumar, allow for an excessive amount of room for misuse. According to the petitioner, it was illegal to provide different authorities such authority.

Arguments Presented by Parties: By giving IBBI and IPAs simultaneous authority, the petitioner feared that RPs would be subject to arbitrary disciplinary measures and expressed worries about possible abuse. Justice D Bharatha Chakravarthy and Chief Justice SV Gangapurwala, however, dismissed these arguments from the court. The court emphasised that IBBI and IPAs could not prosecute an RP simultaneously for the same offence under Section 204.

Judgement Delivered by the Court: Regulation 23A and Section 204’s constitutionality were maintained by the High Court. The statement emphasised that Section 204’s enabling legislation was supplemented by regulations and bye-laws that served as checkpoints. The regulations included processes for disciplinary action and appeal remedies, therefore the court rejected the claim that giving IBBI and IPAs autonomy amounted to unchecked power.

In support of its ruling that Regulation 23A is necessary to deter wrongdoing, the court also justified it. Referencing Regulation 12A, which forbids RPs from having disciplinary actions pending, it emphasised that ad-interim suspension during disciplinary proceedings constituted a lawful use of authority.

Case Title: Venkata Sivakumar vs IBBI

Written By: Nikita Shankar @nikitaashankar