Bombay High Court seeks response of AGI R Venkataramani on challenge to IBC provisions on IRP appointment

Bombay High Court seeks response of AGI R Venkataramani on challenge to IBC provisions on IRP appointment

The appeal was filed by Poonam Basak, suspended for three years from the Insolvency and Bankruptcy Board of India

The Bombay High Court has issued a 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 deals with the appointment of insolvency resolution professionals (IRPs).

A bench of Justice BP Colabawalla and Justice 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.”

The petition was filed by insolvency professional Poonam Basak, who was suspended for three years from the Insolvency and Bankruptcy Board of India (IBBI). She had pointed out that the suspension created an illegibility against her from accepting any new appointment as IRP.

Basak argued that the embargo effectively suspended her ability to take up any assignment immediately upon issuance of a show cause notice. It presupposed that the allegations against her were true until proven false.

She highlighted, “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 of India.”

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 upon issuance of show cause notice, without hearing.

The petition underscored, “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.”

Another issue raised in the petition was whether the chairperson of the IBBI was a de facto Whole Time Member of the Board and was entitled to pass such orders suspending IRPs.

Thus, the court held, “Prima facie, on reading these provisions we are unable to agree with 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.”

The bench observed that the order was passed by an authority, which lacked jurisdiction. Thus, it stayed the operation of the order and the show cause notice issued against Basak.

Senior Advocate Sharan Jagtiani, along with Advocates Nirman Sharma, Ansh Karnawat, G Aniruth Purusothaman, and Parth Shah appeared for Basak.

IBBI was represented by Advocate Pankaj Vijayan.