The Madras High Court has dismissed a writ petition that challenged and sought the striking down of Regulation 7(2)(ca), which stipulates the requirement that the Insolvency Professionals (IP) should pay a fee calculated at 0.25% of the professional fee earned for services rendered as an IP in the preceding financial year to the Insolvency and bankruptcy board of India (IBBI).
The petitioner, CA. Venkata Siva Kumar is a chartered accountant and has registered himself as an IP with the IBBI.
The regulations stipulated that the fee had to be paid to IBBI before April 30 every year. However, for the financial year 2019-20, an IP had to pay the fee on or before June 30.
The petitioner in the writ petition stated that the regulations of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 are violative of Articles 14, 19 and 21 of the Constitution and deserves to be struck down.
The petitioner had three main contentions.
Firstly, Section 196 of IBC does not empower IBBI to levy fees on the basis of the annual remuneration or the annual turnover of the IP or IPE and that a registration fee of Rs.10,000 is charged every five years after the certificate of registration is granted.
Secondly, there is excessive delegation and therefore the regulation is liable to be struck down.
Lastly, the IBBI has not provided services to IPs and therefore there is no quid pro quo to justify the charging of fees as a percentage of the annual remuneration/turnover.
The division bench headed by the Chief Justice, A.P. Sahi held that it is clear that Section 196(1)(c) and 207 of the IBC and the IP Regulations are intended to fulfill the object and purpose of the IBC as regards the functioning of the IBBI.
“The IBC contains adequate safeguards to ensure that the Parliament effectively supervises all rules and regulations with the power to modify or even annul the same,” the bench said.
“The IBBI does provide significant services, including in relation to IPs, and that there is a broad correlation between fees and services. Given the fact that director arithmetical correlation as between the fee received and service rendered is not necessary especially in the context of regulatory fees, we are of the view that Regulation 7(2)(ca) of the IP Regulations does not suffer from any constitutional infirmity on account of the absence of quid pro quo,” the bench observed.
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