Bombay High Court upholds 0.25% IBBI regulatory fee on IBC resolution plans

No strict quid pro quo required for regulatory levy, court holds

The Bombay High Court has dismissed a batch of petitions challenging the validity of Regulation 31A of the Insolvency and Bankruptcy Board of India (CIRP) Regulations, 2016, which imposes a regulatory fee of 0.25% on the realisable value of resolution plans approved under the IBC.

A division bench of Justice Manish Pitale and Justice Shreeram V. Shirsat ruled that the fee falls well within IBBI's statutory powers under Section 196 of the IBC and does not amount to a tax masquerading as a fee, rejecting arguments that the Board provides no service to resolution applicants.

The Challenge: Ultra Vires and Arbitrary

Resolution applicants Hazel Mercantile Limited and Suraksha Realty Limited, along with individual petitioners Vineet Shrivastava and Yadubir Singh Sajwan, sought to strike down Regulation 31A, which took effect from October 1, 2022. They argued that the Board could not levy a fee on resolution plans because it only regulates three entities: insolvency professionals, insolvency professional agencies, and information utilities. The petitioners claimed the fee was actually a tax, lacking any quid pro quo, and was retrospective in operation since it applied to plans approved by the Committee of Creditors before the regulation’s effective date.

The Board countered that it performs a broad regulatory role throughout the corporate insolvency resolution process (CIRP), providing an ecosystem that benefits all stakeholders, including resolution applicants. It emphasised that financial independence was essential for it to function effectively as a regulator.

Court: Board’s Role Extends Far Beyond Three Entities

Rejecting the narrow construction of IBBI’s functions, the court observed that the Board "performs executive, quasi-judicial and quasi-legislative functions under the provisions of the IBC" and its role "is not restricted to regulating only the aforesaid three service providers." The bench pointed to Sections 196 and 240 of the IBC, which empower the Board to frame regulations on matters such as voting by the Committee of Creditors , conduct of meetings, preparation of information memoranda, and the contents of resolution plans.

"No Strict Quid Pro Quo Needed"

On the central question of whether the levy was a fee or a tax, the court held that a regulatory fee does not require exact equivalence between the amount collected and specific services rendered. Citing the evolution of law from Commissioner, Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar to recent decisions, the bench stated:

"It is no longer necessary for the authority imposing a fee, particularly a regulatory fee , to strictly demonstrate the exact service rendered as quid pro quo for the fee charged from certain entities. It would be enough for the respondent Board to show generalized and broad-based quid pro quo services provided to the stakeholders in the process of the CIRP under the IBC."

The court found that the Board provides a conducive ecosystem for efficient completion of CIRP, thereby satisfying the element of quid pro quo.

Retrospectivity Argument Fails

The petitioners argued that the fee applied retrospectively because their resolution plans had already been approved by the CoC before the regulation came into force. But the court held that the regulation is plainly prospective, taking effect from a specified date. It clarified that the "cast in stone" principle—where a resolution plan cannot be modified after CoC approval—applies only between the CoC and the resolution applicant, not to the adjudicatory authority, the National Company Law Tribunal. The NCLT retains power to ensure compliance with Section 30(2), which includes payment of insolvency resolution process costs, of which the regulatory fee now forms a part.

No Excessive Delegation or Colourable Exercise

The court also rejected allegations of excessive delegation , noting that Section 196(1)(c) empowers IBBI to levy fee "for carrying out the purposes of this Code," a guidance that prevents uncontrolled delegation. On the claim of colourable exercise of power, the bench observed that the fee—only 0.25% of realisable value—is neither excessive nor confiscatory, and the petitioners did not challenge the validity of the parent provisions under which the regulation was framed.

Decision: Petitions Dismissed

The court concluded that "the petitioners have not been able to make good their contentions with regard to the impugned Regulation 31A of the IBBI Regulations being either ultra vires the parent Statute i.e. IBC or the Regulation being arbitrary and hence violating Article 14 of the Constitution of India ."

All four writ petitions were dismissed, and the regulatory fee under Regulation 31A stands upheld as a valid exercise of the Board’s rule-making power.