Madras High Court upholds validity of Section 204 IBC

The Madras High Court on Monday upheld the constitutional validity of Section 204 of the Insolvency and Bankruptcy Code (IBC) which confers powers on the Insolvency and Bankruptcy Board of India (IBBI) and the Insolvency Professional Agencies to supervise Resolution Professionals (RP) and initiate disciplinary proceedings against them on allegations of misconduct..A bench of Chief Justice SV Gangapurwala and Justice D Bharatha Chakravarthy dismissed a petition which sought a declaration that Section 204 of the 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) were arbitrary and in breach of constitutional provisions..The bench was hearing two writ petitions filed by a chartered accountant, V Venkata Sivakumar, both of which were decided by a common order. .Sivakumar had claimed that Regulation 23A which provides for the immediate temporary suspension of a Resolution Professional (RP) facing disciplinary proceedings, and Section 204 of the IBC which permits both the IBBI and the Insolvency Professional Agencies (IPAs) to exercise supervisory control and initiate disciplinary proceedings against RPs, provided too much room for misuse..The petitioner also claimed that allocating such powers to more than one agency was bad in law..The bench however, disagreed..It noted that while Section 204 of the IBC grants powers both to the IBBI and the IPAs, both agencies are not permitted to carry out parallel disciplinary proceedings against a Resolution Professional. In other words, the RP would not face action twice for the same offence..“Moreover, mere conferment of authority on IBBI and IPAs for supervision control and disciplinary proceedings by itself cannot be held to be conferring of unbridled power. The Regulations and Bye-laws which are framed under Section 204 of the IBC clearly provide checks and balances. The procedure for taking disciplinary action and the appellate remedies are provided. Therefore, it cannot be said to be confirmation of excessive or unbridled power. Section 204 of IBC is only an enabling provision and therefore, we see no constitutional infirmity in any of the provisions under Section 204 (a) (b) (c) (d) and (e) of IBC,” the High Court said..The Court further said that while an RP may have apprehensions about disrepute and mental agony due to a suspension while facing disciplinary proceedings, the provisions of Regulation 23A of the IBBI were essential to check against misconduct.“As a matter of fact, Regulation 12 A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016, categorically provides that the Resolution Professionals should not have any disciplinary proceedings pending against them. If that be the case, it is only logical that there is an ad-interim suspension of AFA if any disciplinary proceedings are initiated subsequently also. The power of ad-interim suspension has always been held to be a valid and natural exercise of power and the only requirement there must be an express rule enabling the same,” the Court added..Therefore, the Court proceeded to dismiss both writ petitions. .CA V Siva Kumar appeared as the petitioner-in-person.Additional Solicitor General R Sankaranarayanan appeared for the Indian Institute of Insolvency Professionals of the ICAI.Deputy Solicitor General Rajesh Vivekandandan appeared for the IBBI.Advocates K Subburanga Bharathi and M Sathyan appeared for the Union of India..[Read Judgment]