The High Court affirmed the IBBI's authority in issuing show cause notices and suspending the Authorization for Assignment under the Insolvency and Bankruptcy Code.
The Division Bench of Bombay High Court comprising Justice A.S. Chandurkar and Justice Rajesh S. Patil reviewed a petition filed by an Insolvency Professional and observed that the Insolvency & Bankruptcy Board of India’s issuance of show cause notices and the suspension of the petitioner’s Authorization for Assignment were valid and within the jurisdiction, as the 2016 and 2017 Regulations, including Clause 23A, were properly enacted and adhered to statutory procedures.
In the recent high court judgment, the court examined the legality of two show-cause notices issued to the petitioner by the Insolvency & Bankruptcy Board of India (IBBI). The first notice was issued on October 26, 2023, and the second on April 10, 2024, each proposing actions based on alleged violations under the Insolvency and Bankruptcy Code, 2016 (the Code) and its regulations. The petitioner, an Insolvency Professional (IP), contested the notices, claiming that they were invalid due to jurisdictional issues and the alleged ultra vires nature of Clause 23A of the 2016 Regulations and the Bye-Laws of the ICSI Institute of Insolvency Professionals.
The petitioner’s primary arguments were that the IBBI lacked jurisdiction as there was no written order for investigation, as required under Section 218 of the Code. He also contended that the suspension of his Authorization for Assignment (AFA) was unjustified and violated principles of natural justice. Additionally, the petitioner challenged the validity of the 2016 and 2017 Regulations, arguing that they exceeded the authority conferred by the Code.
The High Court, however, upheld the IBBI’s actions, finding that the 2016 and 2017 Regulations had been properly laid before Parliament in compliance with Section 241 of the Code, thus gaining statutory force. The court referred to the precedent established in Premachandran Keezhoth and Anr., affirming that such regulations, once laid before Parliament, are part of the Code and must be adhered to. The court also found that Clause 23A of the 2016 Regulations did not exceed the powers granted by the Code and was valid. Similarly, the court upheld the validity of Clause 23A of the Bye-Laws based on the model Bye-laws outlined in the 2016 Regulations.
On the procedural front, the court noted that the show cause notices were preceded by investigation reports that were authorized by the IBBI, thus addressing the petitioner’s concerns about jurisdiction. The court aligned with the Madras High Court’s view in CA V. Venkata Sivakumar v. Insolvency and Bankruptcy Board and Others, REEDLAW 2024 Mad 01550, that the suspension of AFA under Clause 23A was an interim measure and not a penalty, thereby not violating natural justice principles.
Ultimately, the court determined that the issuance of the show cause notices and the suspension of the AFA were in accordance with the statutory framework. The rule was discharged, and no order as to costs was issued. The court's observations were confined to the validity of the notices and did not extend to the merits of the petitioner’s defence.
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