In a landmark ruling, the Bombay High Court has rejected the contention that the regulatory fee introduced by the Insolvency and Bankruptcy Board of India (IBBI) with effect from Oct 01, 2022 is ultra vires the IBC, holding that the Board performs wide-ranging regulatory functions throughout the CIRP and that the levy satisfies the test of a regulatory fee as evolved in Indian constitutional jurisprudence. The Court held that the Board is well within its powers under Sections 196(1)(c) and 240(2)(d) of the IBC read with Section 5(13)(e) to frame Regulation 31A of the IBBI Regulations and levy the regulatory fee as part of the insolvency resolution process costs.
The Court held that the principle of ejusdem generis does not apply to clause (e) of Section 5(13) of the IBC, as it is a residuary clause and clauses (a) to (d) do not form a single class or genus. Also, the Court clarified that the regulatory fee is not a tax masquerading as a fee, as the Board provides broad-based and general quid pro quo services to all stakeholders in the CIRP, including the successful resolution applicants, and the law has evolved to the extent that specific service is not required to be demonstrated for a regulatory fee.
Accordingly, the Court held that the regulatory fee is not excessive or disproportionate, as the audited accounts of the Board show that prior to the introduction of the fee, the Board was suffering a deficit funded by Government contributions, and after the fee, the Board is able to meet its expenditure with some surplus, which is necessary for financial independence of the regulator. The Court emphasised that the proviso to Regulation 31A is prospective and not retrospective, as the NCLT has the power under Section 31 of the IBC to send the resolution plan back to the CoC for reconsideration or to give notice to rectify defects, and the resolution plan is “cast in stone” only insofar as the CoC and the resolution applicant are concerned, and not insofar as the adjudicatory authority is concerned.
Lastly, the Court held that the regulatory fee does not amount to a colourable exercise of power, as the petitioners have not challenged the validity of Sections 5(13), 53, 196(1)(c), and 240(2)(d) of the IBC, and the delegation of power to the Board is not unbridled or excessive. The Court held that the regulatory fee is not arbitrary or violative of Article 14 of the Constitution, as it applies uniformly to all resolution plans approved on or after Oct 01, 2022.
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The Division Bench comprising Justice Manish Pitale and Justice Shreeram V. Shirsat observed that the Insolvency and Bankruptcy Board of India is the regulatory authority established under the IBC and performs executive, quasi-judicial, and quasi-legislative functions under the provisions of the Code. The Court noted that the role of the Board is not restricted merely to regulating insolvency professionals, insolvency professional agencies, and information utilities, but extends to regulating the entire process of CIRP, including the manner of voting by the CoC, the conduct of meetings, the preparation of information memoranda, and the submission and approval of resolution plans.
The Court referred to the BLRC Report of November 2015, which contemplated the Board as a regulator performing a crucial role in ensuring that CIRP is conducted efficiently to revive the corporate debtor as a going concern. The Court observed that Section 196(1)(c) of the IBC, as amended with effect from June 06, 2018, specifically empowers the Board to levy fee or other charges for carrying out the purposes of the IBC, and that limiting this power only to the three service providers would render the words “for carrying out the purposes of this Code, including” as otiose and meaningless.
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The Court further observed that Section 5(13)(e) of the IBC is a residuary clause and the principle of ejusdem generis does not apply to it, as clauses (a) to (d) of Section 5(13) pertain to distinct classes of costs and do not form a single genus. The Court traced the evolution of law from the Constitution Bench judgment in Commissioner, Hindu Religious Endowments, Madras vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt [(1954) 1 SCC 412] to the recent judgment in Small Scale Entrepreneurs Association vs. State of Maharashtra [2026 SC OnLine SC 972], noting that the distinction between tax and fee has blurred over time, and that for a regulatory fee, specific quid pro quo is not a condition precedent, with general correlation between the levy and the services rendered being sufficient.
The Court observed that the Board provides wide-ranging services throughout the CIRP, including framing regulations for crucial stages of the process, issuing guidelines for the CoC, and creating an ecosystem for efficient completion of CIRP. The Court also observed that the proviso to Regulation 31A is prospective in operation with effect from Oct 01, 2022, and not retrospective, as the NCLT as the adjudicatory authority is not reduced to performing a mere ministerial function of ticking boxes, but has a pivotal role under Section 31 of the IBC.
The Court noted that the resolution plans submitted by the petitioners themselves contained clauses acknowledging that the provisions of the IBC and Regulations framed thereunder, as amended from time to time, would apply, and that CIRP costs would be paid upfront with escalation thereof.
Briefly, four petitions were filed before the Bombay High Court challenging the constitutional validity of Regulation 31A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which introduced a “regulatory fee” of 0.25% of the realisable value to creditors under the resolution plan approved under Section 31 of the Insolvency and Bankruptcy Code, 2016, payable to the IBBI where such realisable value exceeded the liquidation value.
The said Regulation came into force with effect from Oct 01, 2022, and by the very same amendment, clause (ba) was introduced in Regulation 31 of the IBBI Regulations, thereby including the regulatory fee within the insolvency resolution process costs. The petitioners Hazel Mercantile Limited and Suraksha Realty Limited were successful resolution applicants in the CIRP of Reliance Naval and Engineering Limited and Jaypee Infratech Limited respectively. The petitioner Vineet Shrivastava was a depositor claiming that the regulatory fee would adversely affect the financial health of banks, while the petitioner Yadubir Singh Sajwan was a buyer/allottee from the corporate debtor Som Resorts Private Limited.
The two petitions originally filed before the High Court of Madhya Pradesh at Indore and the Delhi High Court were transferred to the Bombay High Court by the Supreme Court. The petitioners contended that the regulatory fee was beyond the powers of the Board under Section 196 of the IBC, ultra vires the parent statute, in the nature of a tax rather than a fee, retrospective in operation, grossly disproportionate, and arbitrary, thereby violating Article 14 of the Constitution.
