Bombay High Court upholds 0.25 percent IBBI regulatory fee on resolution plans under IBC

The Bombay High Court has held that the Insolvency and Bankruptcy Board of India (IBBI) possesses full statutory power to levy a 0.25 percent regulatory fee on approved resolution plans as part of Corporate Insolvency Resolution Process (CIRP) costs [Hazel Mercantile Limited & Ors v.Insolvency and Bankruptcy Board of India & Ors.]

A division bench of Justices Manish Pitale and Shreeram V Shirsat upheld the validity of Regulation 31A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The provision governs the mandatory regulatory fee payable to the IBBI during CIRP.

The Court dismissed a batch of petitions challenging the fee as an unauthorised tax.

The Bench held that the levy falls squarely within the statutory framework of the Insolvency and Bankruptcy Code (IBC). It observed that IBBI functions as a broad regulatory authority overseeing the entire CIRP ecosystem.

The bench ruled that a strict, mathematical quid pro quo is not required for a regulatory fee.

“It is no longer necessary for the authority imposing a fee, particularly a regulatory fee, to strictly demonstrate the exact service rendered as quid pro quo for the fee charged from certain entities. It would be enough for the respondent Board to show generalized and broad-based quid pro quo services provided to the stakeholders in the process of the CIRP under the IBC,” the Court held.

The petitions before the Court were filed by successful resolution applicants alongside individual homebuyers and bank depositors.

The petitioners challenged a September 2022 notification introducing Regulation 31A. The rule levies a 0.25 percent fee on the realisable value to creditors for plans approved on or after October 1, 2022. 

The petitioners argued that the IBBI provides no direct service to resolution applicants. This absence of service rendered the fee an illegal tax imposed without authority, they claimed. 

They further contended that applying the fee to plans already approved by Committees of Creditors (CoCs) was unconstitutionally retrospective.

The IBBI emphasised that financial independence and self-sufficiency are vital to its regulatory integrity. It claimed that the fee helped maintain the statutory and procedural ecosystem for CIRP, benefiting all stakeholders generally.

The Court held that Regulation 31A is neither ultra vires the parent statute nor arbitrary under Article 14 of the Constitution. It rejected claims that the levy was excessive.

"Introduction of the regulatory fee by way of Regulation 31A of the IBBI Regulations is a step in the direction for ensuring financial independence of the Board as a regulatory authority," the Court noted.  

The Court also rejected claims to strike down Regulation 31A on the ground that it has retrospective application.

The Court held that application of Regulation 31A to resolution plans pending NCLT approval on or after October 1, 2022, is purely prospective and does not disturb any settled or vested rights.

Senior Advocates Ravi Kadam and Vikram Nankani with advocates Sumeet Nankani, Amir Arsiwala, Vaishnavi Dhure, Khushboo D Rohra, Rohan Kelkar, Meghna Talwar, Princi Jaiswal, Janhavi Hirlekar, Kanishk Khetan and Sonal Verma appeared for petitioners.

Senior advocate Darius J Khambata with advocates Tushar Hathiramani and Ashish Mehta briefed by Ethos Legal Alliance appeared for IBBI.

Advocates Ashok R Varma, Vinit Jain and DP Singh appeared for Union of India.

[Read Judgment]