S.204 IBC | Provision Of Twin Tier Control By IBBI And IPA By Itself Doesn't Give Rise To Presumption Of Double Jeopardy: Madras High Court

The bench of Chief Justice SV Gangapurwala and Justice Bharatha Chakravarthy observed that the conferment of powers to the IBBI and IPA by itself would not amount to conferring unbridled power as the regulation and bye-laws provided for checks and balances. Noting that there was no excessive power being granted, the court added that Section 204 was only an enabling provision and there was no constitutional infirmity in the provision.

“Applying the principles in disciplinary proceedings, on the basis of the rule of issue estoppel and lack of authority under the relevant Service Rules, a second punishment for the self same charge would be bad in law. But the very provision of the twin tire control will not give rise to illegality or the presumption of double jeopardy…Even under Criminal Law, there can be prosecution and punishment by different agencies or more than one penal provision of law, if the gravamen of the charge differs,” the court said.

The court was hearing two petitions filed by a Chartered Accountant, Venkata Sivakumar, challenging the constitutionality of Section 204 of the IBC and Regulation 23A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations 2016.

Regulation 23A states that the authorization for assignment shall be suspended upon initiation of disciplinary proceedings by the Agency or by the Board as the case may be. The petitioner stated that the regulation gave unbridled powers to the Board and the Agency, thereby depriving the member from carrying out his profession, damaging the professional standing resulting to huge financial loss. He added that the member was not given an opportunity of hearing and thus violated fundamental rights.

Regarding Section 204, Sivakumar stated that the provision empowers IPA to monitor the insolvency professionals which was repetitive and irrational. It was submitted that the provision placed insolvency professionals under the control of dual agencies – IBBI and IPA which was illegal and would result in double jeopardy.

The Board and the Government, submitted that the provision was intended to strengthen the regulatory control over the insolvency professionals and was not violative of any fundamental rights. It was submitted that hardship could not be ground to strike down any provision as unconstitutional. It was also submitted that in respect of economic legislations like IBC, the legislature must be given a free play in the joints and the provisions should not be challenged on the ground of arbitrariness. The respondents also informed the court that Sivakumar had previously challenged the vires of the regulations unsuccessfully and similar plea on the same ground was not maintainable.

The court noted that as per Regulation 12A of the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016, a resolution professional should not have any disciplinary proceedings against them. Thus, it was only logical that there was an ad-interim suspension upon initiation of disciplinary proceedings. The court thus opined that the Regulation was neither arbitrary not giving unbridled power.

The court added that the purpose of ad-interim suspension was not a punishment but to keep the erring officer out of the office so that the relevant materials and evidences could be properly collected and an impartial and fair enquiry could be made. Thus, the court observed that the requirement of issuance of show-cause notice could not be read into a provision of ad-interim suspension as it would defeat the very purpose.

The court also added that Sivakumar had previously challenged Regulation 7A including the ground of twin tier control. The court thus added that the petitioner could not pick and choose a particular regulation and challenge the same one after the other as it was barred by res judicata.

Thus, the court upheld the constitutionality of the two provisions and dismissed the pleas.

Counsel for the Petitioner: Mr.CA.V.Venkata Sivakumar, P-in-P

Counsel for the Respondents: Mr.Sankaranarayanan, ASGI Assisted by Mr.C.V.Ramachandramurthy for R2 Mr.Rajesh Vivekanandan, Dy.SG, Mr.K.Subburanga Bharathi, Mr.M.Sathyan, ACGSC

Citation: 2024 LiveLaw (Mad) 35

Case Title: CA V Venkata Sivakumar v The Insolvency and Bankruptcy Board of India (IBBI) and Others

Case No: Writ Petition Nos.16650 of 2020