Bombay High Court seeks Attorney General response in challenge to IBC provisions on IRP appointment

The Bombay High Court recently issued notice to Attorney General for India R Venkataramani in a petition challenging the constitutional validity of provisions of the Insolvency and Bankruptcy Code (IBC) which deal with the appointment of insolvency resolution professionals (IRPs)..A Bench of Justices BP Colabawalla and MM Sathaye ordered,“Since the constitutional validity of Sections 7(5) and 9(5) of the IBC are also challenged in the present Petition, notice is issued to the Attorney General of India returnable on September 27, 2023.".Insolvency professional Poonam Basak, who was suspended for three years from the Insolvency and Bankruptcy Board of India (IBBI), has moved the Court with this petition.Basak pointed out that the suspension created an illegibility against her from accepting any new appointment as IRP.The embargo that effectively suspends her ability to take up any assignment immediately upon issuance of a show cause notice, presupposes that the allegations are true until proven false, Basak argued in her petition.“It is submitted that the embargo would amount to an unreasonable restriction on the fundamental right to practice a business/profession of one’s choice and would be in clear violation of articles 14, 19 and 21 of the constitution,” the plea highlighted..The provisions under challenge are Sections 7(5), 9(5), 16(2), 16(3), 16(4), 27(5), 82(1), 89(3), 97(1), 98(3), 98(5), 125(1), and 145(5). These provide for suspension of an insolvency professional without hearing, upon issuance of show cause notice. “There are also rules, regulations, circulars, and notifications flowing from these sections of the IBC, which have the effect of suspension of the insolvency professional from the date of issuance of a show cause notice. Such a suspension/embargo is in violation of the well-established principles of natural justice. This also violated the settled law that a person is innocent till proven guilty,” the petition underscored..Another issue raised in the petition is whether the Chairperson of the IBBI is a de facto Whole Time Member of the Board, and is thus entitled to pass such orders suspending IRPs. On this aspect, the Court recorded in its order,"Prima facie, on reading these provisions we are unable to agree with the Mr. Vijayan, that the Chairperson is a de-facto Whole Time Member. We say this because the nomination of the Whole Time Members is to be done by the Central Government under Section 189 (1) (d) whereas the appointment of the Chairperson is under Section 189 (1)(a). If we were to accept the submission of Mr. Vijayan, it would effectively mean that instead of 5 Whole Time Members, the Board would consist of 6 Whole Time Members, which would be contrary to the provisions of Section 189."As such, the Court found that the order under challenge was prima facie passed by an authority which lacked jurisdiction. In this light, the Bench stayed the operation of the order and show cause notice issued against Basak..Senior Advocate Sharan Jagtiani with Advocates Nirman Sharma, Ansh Karnawat, G Aniruth Purusothaman and Parth Shah appeared for Basak. Advocate Pankaj Vijayan appeared for IBBI..[Read order]