Madras High Court held that the automatic suspension of Insolvency Professionals during disciplinary proceedings is fair.
The Madras High Court bench of Chief Justice Sanjay V. Gangapurwala and Justice D. Bharatha Chakravarthy upheld Regulation 23A of IBBI regulations, affirming the automatic suspension of Insolvency Professionals (IPs) during disciplinary proceedings as fair. The Bench clarified that challenges against double jeopardy apply only if there's a second punishment. The High Court justified the two-tier regulatory system for Insolvency IPs, emphasizing the need for flexibility in economic legislation. It dismissed the writ petitions due to lack of merit and invoked the principle of res judicata, closing the case. Overall, it affirmed the constitutionality of the regulatory framework for IPs under the Insolvency and Bankruptcy Code.
The High Court considered two writ petitions, W.P. No. 16650 of 2020 and W.P. No. 14480 of 2021, filed by a practising Chartered Accountant challenging certain provisions of the Insolvency and Bankruptcy Code, 2016 (IBC), and the Insolvency and Bankruptcy Board of India (IBBI) regulations. The petitioner contended that the provisions were unconstitutional, manifestly arbitrary, and excessively conferred power on regulatory bodies.
In W.P. No. 16650 of 2020, the petitioner challenged Section 204 of the IBC, arguing that it conferred excessive powers to Insolvency Professional Agencies (IPAs) and violated fundamental rights. In W.P. No. 14480 of 2021, the petitioner contested Regulation 23A of the IBBI regulations, alleging it gave uncontrolled power to regulatory bodies and deprived professionals of due process.
The respondents, including the Union of India and IBBI, defended the provisions, asserting they were essential for regulatory control over insolvency professionals and were in line with international standards.
After hearing arguments from both sides, the High Court deliberated on the constitutionality of the challenged provisions. It considered whether Regulation 23A and Section 204 of the IBC were arbitrary, violated natural justice, and infringed upon fundamental rights. The court also assessed the maintainability of the writ petitions.
Ultimately, the court framed specific questions for consideration, including whether the regulations conferred excessive power, violated constitutional provisions, and if the writ petitions were legally tenable.
In the remaining portion of the High Court order, the court addressed several key questions regarding the constitutional validity of certain regulations in the context of disciplinary proceedings against Insolvency Professionals (IPs) under the Insolvency and Bankruptcy Code (IBC).
The High Court reiterated that the automatic suspension of Insolvency Professionals (IPs) upon initiation of disciplinary proceedings is a valid exercise of power to ensure fairness. It ruled that ad-interim suspension serves the purpose of keeping erring individuals away from their professional duties during the investigation, facilitating impartial inquiry and evidence collection.
Furthermore, the court addressed concerns regarding double jeopardy, clarifying that multiple authorities initiating proceedings or imposing punishment for the same offence can only be challenged if there is a second punishment or proceedings for the identical charge. It underscored the need for a balance between regulatory oversight and procedural fairness in the context of disciplinary actions against IPs.
The court justified the two-tier regulatory structure for IPs, citing expert reports and legal precedents, and emphasized the importance of experimentation and flexibility in economic legislation. It invoked the principle of constructive res judicata to dismiss repeated challenges against the same regulations, barring the petitioner from challenging Regulation 23 A separately after previously contesting related provisions.
Consequently, the court dismissed the writ petitions, asserting they lacked merit and were barred by principles of res judicata. It closed the connected miscellaneous petition, affirming the constitutionality of the regulatory framework governing IPs under the Insolvency and Bankruptcy Code (IBC).