Madras High Court Rejects Petition Against IBC Over "Excessive Power" Granted for Disciplining Resolution Professionals

Madras High Court Rejects Petition Against IBC Over "Excessive Power" Granted for Disciplining Resolution Professionals

In a crucial move for the Insolvency and Bankruptcy Code (IBC), the Madras High Court on Monday upheld the constitutionality of Section 204. This section empowers the Insolvency and Bankruptcy Board of India (IBBI) and Insolvency Professional Agencies (IPAs) to oversee Resolution Professionals (RPs) and initiate disciplinary action against them for misconduct.

The Bench of Chief Justice SV Gangapurwala and Justice D Bharatha Chakravarthy dismissed a petition that aimed to invalidate Section 204 of the IBC and Regulation 23A of the IBBI Regulations. The petition claimed these provisions infringed upon constitutional rights by granting arbitrary powers to oversight bodies.

The Court considered two connected petitions filed by chartered accountant V Venkata Sivakumar and issued a single ruling addressing both.

Sivakumar argued that the ability to immediately suspend RPs under Regulation 23A and the overlapping disciplinary powers granted to IBBI and IPAs by Section 204 created too much opportunity for unfair treatment during misconduct investigations.

Dual agency oversight, claimed Sivakumar, was legally unsound and could create confusion.

Rejecting the petitioner's concerns, the Bench clarified that while Section 204 empowers both the IBBI and IPAs, their disciplinary procedures are not concurrent. This ensures an RP cannot be subjected to multiple proceedings for the same misconduct.

The Court dismissed concerns about unchecked power, stating that Section 204 only grants authority. Actual guidelines for supervision and disciplinary action are laid out in regulations and bylaws, with built-in safeguards like specific procedures and appeals. This prevents abuse and ensures the responsible use of these powers. The Court found no constitutional issues with Section 204 or its sub-sections.

The Court agreed that suspending an RP facing disciplinary action might be unpleasant, causing worries about their reputation and well-being. However, they ruled that Regulation 23A's temporary suspension powers were necessary to prevent and address misconduct quickly and effectively.

“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 observed and dismissed both writ petitions.

Sivakumar represented himself as the petitioner in the case. Representing the Indian Institute of Insolvency Professionals of the ICAI was Additional Solicitor General R Sankaranarayanan. Deputy Solicitor General Rajesh Vivekandandan appeared for the Insolvency and Bankruptcy Board of India (IBBI). Advocates K Subburanga Bharathi and M Sathyan represented the Union of India.