IBC – Circular dated 28.9.2023 of IBBI whether clarifies “liquidation costs” in Regulation 4(2)(b) of IBBI (Liquidation Process) Regulations, 2016 or in effect makes amendments?
The Petitioner – Chartered Accountant is registered as Insolvency Professional with the Insolvency and Bankruptcy Board of India.
On 14.3.2023, the show cause notice was issued to the petitioner for charging excessive fees in the course of liquidation of a company Hindustan Dorr Oliver Limited.
The petitioner had given reply and attended personal hearing on 11.4.2023. Instead of passing the final order, IBBI directed wider inspection of petitioner’s assigments. The inspection report dated 15.9.2023 was prepared.
However, on 28.9.2023, the impugned Circular in respect of computation of time periods applicable to fees for realization and distribution under Regulation 4(2)(b) of LP Regulations.
Thereafter, another show cause notice dated 4.12.2013 relying on the impugned circular dated 28.9.2023.
Fees for liquidation assignments charged prior to the impugned Circular dated 28.9.2023 are alleged to be violative as per the said Circular.
Regulation 4(2)(b) explicitly provides that the percentage fee must be computered on the amount realized net of other liquidation costs. The important element of said Regulation is as to how the liquidator must understand the term “liquidation costs” incurred during liquidation.
The important question raised by the Insolvency Professional for consideration of the Bombay High Court is whether the impugned Circular clarifies Regulation 4(2)(b) or whether it effects substantive amendments to the term “liquidation costs” under the garb of clarification.
Section 196 of IBC does not enable the IBBI to introduce new definitions in the garb of clarifying existing legislation.
In the exhaustive judgment of 60 pages, the Bombay High Court held that paragraph nos. 2.1 and 2.5 of the the impugned Circular are ultra vires LP Regulations and IBC. The validity of paragraphs 2.2, 2.3 and 2.4 is upheld.
Salutary observation that IBBI must examine serious effect of show cause notice given to any Insolvency Professional since it has the effect of stopping from taking new work by reason of Bye-law 23A of the Model Bye-laws of REgulations 2016. The moment disciplinary proceedings are initiated the authorisation of IP to conduct his assignments stands suspended. This situation deserves to be reviewd by the IBBI.
Judgment dated 4.4.2024 in W.P. (Lodging) No.34701 of 2023 of Amit Gupta Vs. IBBI and another
