The Bombay High Court recently affirmed the authority of the Insolvency and Bankruptcy Board of India (IBBI) to impose a 0.25 percent regulatory fee on resolution plans approved during the Corporate Insolvency Resolution Process (CIRP). This decision came in the case of Hazel Mercantile Limited & Ors v. Insolvency and Bankruptcy Board of India & Ors, where a division bench comprising Justices Manish Pitale and Shreeram V Shirsat validated Regulation 31A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
Judicial Endorsement of Regulation 31A
The bench dismissed multiple petitions challenging the regulatory fee as an unauthorized tax, confirming that the levy is well within the statutory framework of the Insolvency and Bankruptcy Code (IBC). The judges noted that the IBBI serves as a comprehensive regulatory authority for the CIRP, and a precise quid pro quo is not essential for a regulatory fee.
The court 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.”
Petitioners’ Arguments and Court’s Rebuttal
The petitions were filed by successful resolution applicants, homebuyers, and bank depositors, who contested a September 2022 notification that introduced the 0.25 percent fee on the realisable value to creditors for plans approved on or after October 1, 2022. The petitioners argued that since the IBBI does not provide direct services to resolution applicants, the fee constituted an illegal tax. They also claimed that applying the fee to already approved plans was unconstitutionally retrospective.
In its defense, the IBBI emphasized the necessity of financial independence and self-sufficiency for its regulatory role, asserting that the fee supports the statutory and procedural framework of the CIRP, benefiting all stakeholders.
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The Court dismissed the argument that Regulation 31A is ultra vires or arbitrary under Article 14 of the Constitution, and it rejected claims of the fee being excessive. “Introduction of the regulatory fee by way of Regulation 31A of the IBBI Regulations is a step in the direction for ensuring financial independence of the Board as a regulatory authority,” the Court remarked.
Furthermore, the Court refuted claims of retrospectivity, clarifying that the regulation only applies to resolution plans pending approval by the National Company Law Tribunal (NCLT) on or after October 1, 2022, thereby maintaining prospective application without disrupting settled or vested rights.
Legal Representation
Senior Advocates Ravi Kadam and Vikram Nankani, along with a team of advocates, represented the petitioners. On behalf of the IBBI, Senior Advocate Darius J Khambata, supported by advocates from Ethos Legal Alliance, defended the regulation. Advocates Ashok R Varma, Vinit Jain, and DP Singh appeared for the Union of India.
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[Read Full Judgment]
