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IBBI fees on IPs: Madras High Court dismisses plea challenging levy

K.R.Srivats New Delhi | Updated on August 01, 2020 Published on August 01, 2020

Insolvency regulator's legislative power to levy 0.25% fee on annual professional fees earned by IPs upheld

The Madras High Court has dismissed a writ petition that challenged and sought the striking down of insolvency regulator IBBI’s regulation requiring Insolvency Professionals (IPs) to pay a levy of 0.25 per cent of their professional fee earned from services rendered the preceding financial year.

The regulations stipulated that this fee had to be paid to IBBI before April 30 every year. However, for the financial year 2019-20, an IP had to pay the fee on or before June 30.

In its verdict on the petition filed by Venkata Siva Kumar, a chartered accountant and a registered IP, the Madras High Court concluded that the Insolvency and Bankruptcy Board of India (IBBI) is duly empowered under Sections 196 and 207 of the IBC to levy a fee on IPs, including as a percentage of the annual remuneration as an IP in the preceding financial year.

Reacting to this ruling, M.S.Sahoo, Chairman, IBBI told BusinessLine: “Regulators usually recover a part of their cost from the regulated. Unlike every other profession, the IBBI supervises and monitors services rendered by an Insolvency Professional. Regulatory burden that an Insolvency Professional imposes on IBBI corresponds to the volume of services he renders. Therefore, IBBI levies a nominal fee on Insolvency Professionals, using volume of services as measure”.

The petitioner had three main contentions—First contention was that Section 196 of IBC does not empower IBBI to levy fees on the basis of the annual remuneration or the annual turnover of the IP or IPE and that a registration fee of ₹10,000 is charged every five years after the certificate of registration is granted. His second contention was there is excessive delegation and therefore the regulation is liable to be struck down.

The third contention was that the IBBI has not provided services to IPs and therefore there is no quid pro quo to justify the charging of fees as a percentage of the annual remuneration/turnover.

The Madras High Court ruled that there can be no question whatsoever with regard to the powers of the IBBI to frame regulations on the fee payable by IPs and insolvency professional agencies.

Dwelling on the aspect of quid pro quo, the High Court noted that given the fact that direct or arithmetical correlation as between the fee received and service rendered is not necessary especially in the context of regulatory fees, the relevant IP regulation does not suffer from any constitutional infirmity on account of the absence of quid pro quo.

The Supreme Court ruling in the BSE Brokers’ Forum case was cited to highlight that quid pro quo is not a condition precedent for the levy of regulatory fees and that it is sufficient if there is a broad correlation as between services provided and the fee charged.

The Madras High Court also held that there is no excessive delegation to IBBI. Taking all these together, the Madras High Court held that the writ petition has failed and therefore dismissed it.

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Published on August 01, 2020
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