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Upholds Under Regulation 31A on Resolution Plans
In a significant verdict that reinforces the regulatory framework of the , the has upheld the of Regulation 31A of the (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The provision imposes a 0.25% on the realisable value to creditors under a approved by the ).
A Division Bench of Justices Manish Pitale and Shreeram V. Shirsat dismissed four petitions challenging the regulation, holding that the ) acted within its powers under . The court rejected arguments that the fee was a tax disguised as a levy, arbitrary, or retrospective in operation.
The Genesis of the Challenge
The lead petition was filed by Hazel Mercantile Limited, a successful resolution applicant for Reliance Naval and Engineering Limited. The ) approved their plan on with a 94.86% vote share, but the approval came only on —after Regulation 31A came into effect on . The then demanded payment.
Similar circumstances arose for Suraksha Realty Limited, whose for Jaypee Infratech Limited was approved by the on but sanctioned by the on . The other two petitions were filed by depositor Vineet Shrivastava and homebuyer Yadubir Singh Sajwan, who argued the fee would undermine the IBC's objectives.
Arguments From Both Sides
, appearing for Hazel Mercantile, contended that the ’s regulatory role is limited to insolvency professionals, professional agencies, and information utilities. He argued that the Board provides no direct service to resolution applicants or the , making the levy a tax without . He also invoked the principle of to argue that could not be read to include a fee on approved plans.
, for Suraksha Realty, submitted that the fee violated the IBC’s object of maximising asset value and reviving corporate debtors. He argued that the fee, being part of costs, made resolution plans more expensive and could push debtors into liquidation.
, representing the , countered that the Board performs executive, , and functions throughout the resolution process. He emphasised that regulatory fees require only a broad correlation with services, not mathematical exactitude. He also highlighted the need for the Board’s financial self-sufficiency, citing the report and a study by the .
Court’s Analysis: A Broad and Integral Regulatory Role
The court extensively reviewed the provisions of the IBC and the BLRC report to delineate the ’s role. It observed that the Board “performs executive, and functions under the provisions of the IBC” and that limiting its role to the three specified entities would be “not in consonance with the scheme of the IBC.”
The Bench noted that the frames regulations on matters such as voting procedures, information memorandum, meeting conduct, and insolvency resolution process costs—all integral to the . By regulating these, the Board provides “a conducive ‘eco-system’ for efficient completion of .”
Tax versus Fee: The Test
Applying evolving jurisprudence, the court held that a does not require strict proof of direct service to each payer. Citing , the court stated that “for a , the requirement of recedes to the background.” The court found a sufficient general nexus between the fee and the Board’s services, noting that the provides “wide-ranging general service and in the process of to all the stakeholders, including the petitioners.”
The court also rejected the argument that the fee was excessive. It observed that mere surplus in the Board’s accounts after the levy was introduced did not amount to disproportionality. Financial independence of a regulator, the court noted, was a “” for effective performance.
Rejected: Role of Not Ministerial
One of the key challenges was that operated retrospectively. The petitioners argued that once the approved a plan, it was “” and could not be altered. The court disagreed, holding that the , as an , “cannot be reduced to a body performing a .” It held that the fee applied prospectively from and that the ’s approval by the did not prevent the regulation from applying to plans pending before the .
The Bench also noted that the petitioners themselves had agreed in their resolution plans to bear costs as per amendments to the IBC and regulations. “The petitioners cannot be permitted to wriggle out of the said obligation by raising the argument of ,” the court stated.
Precedents Cited and Distinguished
The petitioners relied on and to argue that the levy was a tax. The court distinguished these as cases where there was no service at all, unlike the present case where the performs a wide range of functions.
The court also relied on to note that “availability of indirect benefit and a general nexus between the persons bearing the burden of levy of fee and the services rendered out of the fee collected is enough to uphold the validity.”
On , the court distinguished , holding that the ’s role is not confined to a ministerial checklist. It cited to show that the can send a plan back for limited modifications.
Key Observations from the Judgment
The court made several pivotal observations:
“The provisions of the IBC, particularly after the amendments that have been introduced from time to time, indicate that the legislature itself has indicated that the role of the Board, as a regulator, is broad-based, far-reaching and has a crucial bearing on achieving the object of enactment of IBC.”
“It is no longer necessary for the authority imposing a fee, particularly a , to strictly demonstrate the exact service rendered as for the fee charged from certain entities.”
“The Courts have been relying on the respondent Board as a statutory regulator for various aspects of … the respondent Board is justified in claiming that it provides a conducive ‘eco-system’ for efficient completion of , in order to meet the goals for which the IBC has been enacted.”
“If the contentions raised on behalf of the petitioners with regard to the role of the as an under are to be accepted, it would reduce the to being a body merely performing ministerial acts.”
Conclusion and Implications
The court dismissed all four petitions, upholding Regulation 31A in its entirety. It held that the regulation is neither the IBC nor violative of .
The ruling provides clarity on the scope of the ’s regulatory power and affirms that a need not be directly tied to a specific service. For the insolvency ecosystem, this means that resolution applicants and creditors must factor the 0.25% fee into their financial calculations from the outset. The decision also reinforces the ’s adjudicatory flexibility, allowing it to ensure compliance with changing regulatory requirements even after approval.
The judgment is likely to have far-reaching implications for ongoing and future resolution processes, cementing the ’s role as a financially self-sufficient regulator capable of maintaining the IBC’s integrity.
