IBBI Regulations carry a statutory flavour and are binding on the NCLT: MS Sahoo

Former Insolvency and Bankruptcy Board of India (IBBI) Chairperson MS Sahoo (in pic) shares his views on legal sanctity of IBBI Regulations in relation to the NCLT.

A regulator typically makes regulations and enforces them. The law provides for the procedure for these actions as well as for scrutiny of these actions. The legislature may modify or rescind the regulations and the judiciary may strike them down for procedural and substantive lapses. A tribunal typically acts as the appellate authority against the orders of the regulator. It may strike down or modify an order of the regulator on procedural and substantive grounds. Such a decision of the tribunal is binding on the regulator until it is reversed on further appeal. The law does not empower a tribunal to scrutinise regulations, an exclusive domain of the courts. An aggrieved person may challenge the validity of the regulations by filing an appropriate petition before the High Court.

The Insolvency and Bankruptcy Code, 2016 (IBC) does not envisage a typical relationship between a regulator and a tribunal. It provides for a regulator, IBBI, to make regulations relating to resolution processes. It designates the National Company Law Tribunal (NCLT) as the Adjudicating Authority to adjudicate matters in relation to corporate insolvency proceedings. The market participants and insolvency professionals conduct processes in accordance with the IBC and the regulations and submit them to the NCLT for adjudication. However, there are instances where the NCLT strikes down regulations in collateral proceedings, in the exercise of non-existent powers. This causes suffering in terms of legal uncertainty, associated costs, and foregone transactions in the market, leaving aside the pain of avoidable litigation.

The NCLT held that regulation 30A of the IBBI Regulations, which provides a procedure for withdrawal of applications before the constitution of a committee of creditors, was not binding upon it. In its judgment [Abhishek Singh vs. Huhtamaki PPL Ltd & Anr.] yesterday, the Apex Court has settled:

“The Board (IBBI) was conferred with powers to frame regulations for various purposes referred to in section 240 of IBC and the other allied sections. These regulations may be subordinate in character but would still carry a statutory flavor and would be binding on the NCLT.” 

Hopefully, such situations will not arise in the future.

Note: This article was first posted on Linkedin by MS Sahoo

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