Other-Constitutional challenge

Para 2.1 “Amount realized” and Para 2.5 “Period for calculation of fee” of IBBI Circular dated 28.09.2023 are struck down as being ultra vires the Liquidation Process Regulations and the IBC | Para 2.2 “other liquidation cost”, Para 2.3 “Amount distributed to stakeholders” and Para 2.4 “Amount of Realisation/Distribution” are upheld – Amit Gupta Vs. Insolvency and Bankruptcy Board of India and Anr. – Bombay High Court

In this landmark judgment, a division bench of the Hon’ble High Court of Bombay interpreted all five paras of the IBBI Circular issued on 28.09.2023.

The Hon’ble Bench also held that the very issuance of a show cause notice has the effect of stopping the IP from taking up new work by reason of Bye-Law 23A in the Model Bye-Laws that are statutorily specified in the Schedule. The Court takes judicial notice of the serious repercussions on IPs when the IBBI issues a show cause notice. The moment disciplinary proceedings are initiated, the IP’s authorisation to conduct his assignments stands suspended. Such a position enabled by subordinate law can have serious implications for IPs. This position may also have the effect making the IBBI reticent to issue show cause notices, considering the debilitating impact it can have on any IP. This situation deserves to be reviewed by the IBBI.

Para 2.1 “Amount realized” and Para 2.5 “Period for calculation of fee” of IBBI Circular dated 28.09.2023 are struck down as being ultra vires the Liquidation Process Regulations and the IBC | Para 2.2 “other liquidation cost”, Para 2.3 “Amount distributed to stakeholders” and Para 2.4 “Amount of Realisation/Distribution” are upheld – Amit Gupta Vs. Insolvency and Bankruptcy Board of India and Anr. – Bombay High Court Read Post »

High Court upholds the Constitutional Validity of Section 204 of IBC and Regulation 23A of IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 | Section 204 of IBC is only an enabling provision | Both IBBI and IPAs can initiate parallel proceedings – CA V.Venkata Sivakumar Vs. Insolvency and Bankruptcy Board of India and Ors. – Madras High Court

Hon’ble High Court holds that:
(i) There is no discretion vested with the IPAs and the suspension is automatic, once the disciplinary proceedings are initiated. Therefore, it can neither be termed as manifestly arbitrary nor be challenged on the ground of any confirmation of unguided/unbridled power.
(ii) The requirement of issuance of show cause notice cannot be read into a provision of ad-interim suspension.
(iii) Only to avoid hardships, normally swift and prompt completion of the process of disciplinary proceedings is insisted upon. Therefore, the petitioner or any other aggrieved professional can only insist upon prompt completion of the proceedings and the hardship cannot be a ground for challenging the very regulation itself.
(iv) Accordingly, finding no infirmity, we uphold the constitutional validity of the Regulation 23A of the IBBI (Model Bye-Laws and Governing Board of IPAs) Regulations, 2016.
(v) The very provision of the twin tire control will not give rise to illegality or the presumption of double jeopardy.
(vi) Further, in a given case, for the very same action, it may be possible that both IBBI and IPAs can initiate action. 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. If only gravamen of the charge is self same, double jeopardy arises.
(vii) The Regulations and Bye-laws which are framed under Section 204 of the IBC clearly provide checks and balances. The procedure for taking disciplinary action and the appellate remedies are provided. Therefore, it cannot be said to be confirmation of excessive or unbridled power. Section 204 of IBC is only an enabling provision and therefore, we see no constitutional infirmity in any of the provisions under Section 204 (a) (b) (c) (d) and (e) of IBC.

High Court upholds the Constitutional Validity of Section 204 of IBC and Regulation 23A of IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 | Section 204 of IBC is only an enabling provision | Both IBBI and IPAs can initiate parallel proceedings – CA V.Venkata Sivakumar Vs. Insolvency and Bankruptcy Board of India and Ors. – Madras High Court Read Post »

Landmark judgment on various provisions of IBC on Personal Insolvency | Provisions of Section 95 to Section 100 of the IBC are not unconstitutional – Dilip B Jiwrajka Vs. Union of India and Ors. – Supreme Court

Conclusion of the landmark judgment on personal insolvency as under:
(i) No judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99 of the IBC;
(ii) The resolution professional appointed under Section 97 serves a facilitative role of collating all the facts relevant to the examination of the application for the commencement of the insolvency resolution process which has been preferred under Section 94 or Section 95. The report to be submitted to the adjudicatory authority is recommendatory in nature on whether to accept or reject the application;
(iii) The submission that a hearing should be conducted by the adjudicatory authority for the purpose of determining ‘jurisdictional facts’ at the stage when it appoints a resolution professional under Section 97(5) of the IBC is rejected. No such adjudicatory function is contemplated at that stage. To read in such a requirement at that stage would be to rewrite the statute which is impermissible in the exercise of judicial review;
(iv) The resolution professional may exercise the powers vested under Section 99(4) of the IBC for the purpose of examining the application for insolvency resolution and to seek information on matters relevant to the application in order to facilitate the submission of the report recommending the acceptance or rejection of the application;
(v) There is no violation of natural justice under Section 95 to Section 100 of the IBC as the debtor is not deprived of an opportunity to participate in the process of the examination of the application by the resolution professional;
(vi) No judicial determination takes place until the adjudicating authority decides under Section 100 whether to accept or reject the application. The report of the resolution professional is only recommendatory in nature and hence does not bind the adjudicatory authority when it exercises its jurisdiction under Section 100;
(vii) The adjudicatory authority must observe the principles of natural justice when it exercises jurisdiction under Section 100 for the purpose of determining whether to accept or reject the application;
(viii) The purpose of the interim-moratorium under Section 96 is to protect the debtor from further legal proceedings; and
(ix) The provisions of Section 95 to Section 100 of the IBC are not unconstitutional as they do not violate Article 14 and Article 21 of the Constitution.

Landmark judgment on various provisions of IBC on Personal Insolvency | Provisions of Section 95 to Section 100 of the IBC are not unconstitutional – Dilip B Jiwrajka Vs. Union of India and Ors. – Supreme Court Read Post »

Chairperson of Insolvency and Bankruptcy Board of India (IBBI) is a separate and distinct category from a Whole-Time Member and a Disciplinary Order passed by the Chairperson against Insolvency Professional is without jurisdiction – Poonam Basak Vs. Union of India & Ors. – Bombay High Court

This Writ Petition is filed challenging an Order passed by the Disciplinary Committee of the Insolvency and Bankruptcy Board of India (IBBI). The impugned order was not passed by any Whole Time Member but passed by the Chairperson of IBBI.
The Petitioner submitted that the members of the Disciplinary Committee shall consist of Whole Time Members of the IBBI only.
Hon’ble High Court referred the Section 189 of the IBC and held that the ‘Chairperson’ is a separate and distinct category from a ‘Whole-Time Member’ and the Order impugned in the present Petition was passed by an Authority which lacked jurisdiction.

Chairperson of Insolvency and Bankruptcy Board of India (IBBI) is a separate and distinct category from a Whole-Time Member and a Disciplinary Order passed by the Chairperson against Insolvency Professional is without jurisdiction – Poonam Basak Vs. Union of India & Ors. – Bombay High Court Read Post »

Section 66(1) of IBC confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on NCLT to fix the liabilities on the persons responsible for conducting business of corporate debtor which is fraudulent or wrongful – Smt. Sudipa Nath Vs. Union of India – Tripura High Court

Hon’ble High Court held that in legislature wisdom and as apparent from the text of 66(1) it is clear that firstly it confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on NCLT to fix the liabilities on the persons responsible for conducting business of corporate debtor which is fraudulent or wrongful. Secondly section 66(1) contemplates an application thereunder only by the resolution professional and by none other. Thirdly section 66 (1) also restricts the power of NCLT subject to being satisfy with pre-requisite that any business of the corporate debtor has been carried on with intent to defraud creditors or the corporate debtors or for any fraudulent purpose and if satisfied it powers to pass an order is only against such person who are responsible for the conduct of such fraudulent business of the corporate debtor with mens rea to make them personally liable to make such contributions to the assets of the corporate debtor as it may deem fit.

Section 66(1) of IBC confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on NCLT to fix the liabilities on the persons responsible for conducting business of corporate debtor which is fraudulent or wrongful – Smt. Sudipa Nath Vs. Union of India – Tripura High Court Read Post »

The Promoter, if ineligible u/s 29A cannot make an application for Compromise & Arrangement u/s 230 of the Companies Act, 2013 – Arun Kumar Jagatramka Vs. Jindal Steel and Power Ltd. & Anr – Supreme Court

Hon’ble Supreme Court holds that the IBC has made a provision for ineligibility under Section 29A which operates during the course of the CIRP. A similar provision is engrafted in Section 35(1)(f) which forms a part of the liquidation provisions contained in Chapter III as well. In the context of the statutory linkage provided by the provisions of Section 230 of the Act of 2013 with Chapter III of the IBC, where a scheme is proposed of a company which is in liquidation under the IBC, it would be far-fetched to hold that the ineligibilities which attach under Section 35(1)(f) read with Section 29A would not apply when Section 230 is sought to be invoked. Such an interpretation would result in defeating the provisions of the IBC and must be eschewed.

The Promoter, if ineligible u/s 29A cannot make an application for Compromise & Arrangement u/s 230 of the Companies Act, 2013 – Arun Kumar Jagatramka Vs. Jindal Steel and Power Ltd. & Anr – Supreme Court Read Post »

Landmark judgment on filing of CIRP application under Section 7 of IBC by Homebuyers or allottees under RERA, 2016 – Manish Kumar Vs. Union of India and Another – Supreme Court

This judgment covers: A.1 Background. A.2 Grounds on which a law can be challenged. B.1 The Real Estate (Regulation and Development) Act, 2016 and its Scheme. B.2 Definition of “Real Estate Project” and “Allottee” for the purpose of Section 5(8)(f) of IBC. B.2.1 Real Estate Project Meaning [Section 2(zn) of RERA, 2016]. B.2.2 Allottee Meaning [Section 2(d) of RERA, 2016]. B.2.3 Allottees to be from same Real Estate Project?. B.2.4 Holdings by Family Members etc. and Joint Holdings of a Unit: Single Allottee?. B.2.5 What will be the total number of allottees and therefore what would constitute 1/10 of total number of allottees under proviso to Section 7(1) of IBC. B.2.6 Calculation of threshold under proviso to Section 7(1) of IBC. B.2.7 Meaning of allotment. B.3 CIRP application filing procedures issues. B.3.1 Calculation of default threshold amount for Sec. 4 of IBC in Real Estate Project Insolvency Application/Joint Application. B.3.2 Single or multiple CIRP application(s) would have to be filled-up, if there are 100 and more allottees?. B.3.3 If they have agreements, under which, the date of default is different, how is the application to be drafted and processed?. B.3.4 The Point of Time to comply with the threshold requirements: at the time of filing of an application u/s 7 of IBC? or till the date, it is admitted u/s 7(5)? B.3.5 The power of waiver, being denied, unlike the Companies Act. B.4 Order I Rule 8 of the Code of Civil Procedure, 1908 and Section 12 of the Consumer Protection Act, 1986. B.5 Are the Amendments violative of the ‘Pioneer Judgment’ in Pioneer Urban Land and Infrastructure Ltd. and another v. Union of India and others. B.6 Information Asymmetry: How Home Buyers to obtain the information of total allotment. B.7 The First and Second Provisos Classification Down Memory Lane: Article 14 and Reasonable Classification. B.8 Allottees vs. Operational Creditors. B.9 Debenture Holders/Security Holders: The Challenge to the First Impugned Proviso. B.10 3rd Proviso in Section 7 of IBC is retrospective or prospective. B.11 Clarity regarding withdrawal under the Third Proviso. C.1 Interpretation of Section 11 of IBC. C.2 Interpretation of Explanation-I to Section 11 of IBC. C.3 Interpretation of Explanation-II to Section 11 of IBC and nature of the explanation. C.4 The challenge to Explanation-II to Section 11 of the Code. C.4.1 The scope of an Explanation. C.4.2 Is Explanation-II violation of Fundamental Right under Article 14 of the Constitution?. D.1 Interpretation of Section 32A. D.2 Constitutional validity of Section 32A. E.1 Management of the affairs of the corporate debtor will vest with the IRP. E.2 Earlier Liquidation Order under Section 33(2). E.3 Section 14 of the Limitation Act, 1963. E.4 Retrospective Nature of a statue.

Landmark judgment on filing of CIRP application under Section 7 of IBC by Homebuyers or allottees under RERA, 2016 – Manish Kumar Vs. Union of India and Another – Supreme Court Read Post »

The RERA is to be read harmoniously with the Code | Home buyers under IBC | Definition of Financial Debt – Pioneer Urban Land and Infrastructure Limited and Anr. Vs. Union of India and Ors.-Supreme Court

This judgment covers: A. Background. B. IBC vis-à-vis RERA. C. The Article 14 Challenge (I): Discrimination. C.1 The Legislature’s right to experiment in matters economic. C.2 Allotee vs. Operational Creditor. C.3 Home buyers/allottees with other individual financial creditors like debenture holders and fixed deposit holders. C.4 Why are Home buyers not within “other creditors”? D. The Article 14 Challenge (II): Manifest arbitrariness; Article 19(1)(g) and Article 300A. D.1 The Code is a beneficial legislation. D.2 UNCITRAL Legislative Guide. E. Interpretation of Section 5(8)(f) of the Code. E.1 Meaning of Debt, Claim and Default. E.2 Disbursement and Time Value of Money under Section 5(8). E.3 Sub-clause (f) of Section 5(8) is residuary provision which is catch all in nature?. E.4 The expression “commercial effect” in Sub-clause (f) Section 5(8). E.5 The expression “means and includes” used in Section 5(8). E.6 Is Section 5(8)(f) to be construed noscitur a sociis with sub-clauses (a) to (e) and (g) to (i). E.7 The effect of a deeming fiction. E.8 Does an explanation enlarge the scope of the original section. F. Duty of NCLT in case of Allottee is himself a defaulter or a speculative investor and not a person who is genuinely interested in purchasing a flat/apartment. G. Timelines contained in the provisos to Section 7(5), Section 9(5) and Section 10(4) of the Code are all directory and not mandatory. H. Challenge to Section 21(6A) and 25A of the Code. I. Conclusion.

The RERA is to be read harmoniously with the Code | Home buyers under IBC | Definition of Financial Debt – Pioneer Urban Land and Infrastructure Limited and Anr. Vs. Union of India and Ors.-Supreme Court Read Post »

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