The Bombay High Court has upheld the validity of Regulation 31A of the Insolvency and Bankruptcy Board of India (IBBI) Regulations, which imposes a regulatory fee in certain corporate insolvency resolution proceedings. A Division Bench of Justice Manish Pitale and Justice Shreeram V. Shirsat dismissed four writ petitions challenging the levy and rejected the plea that the regulation was beyond the IBBI’s powers or violated Article 14 of the Constitution.
Background of the Case
The lead petition, Hazel Mercantile Limited & Others v. Insolvency and Bankruptcy Board of India & Others, was heard along with Writ Petition Nos. 243 of 2024, 244 of 2024 and 1560 of 2025. The other petitioners included Vineet Shrivastava, Yadubir Singh Sajwan and Suraksha Realty Limited.
The challenge arose after Regulation 31A was introduced with effect from October 1, 2022. The provision prescribed a regulatory fee of 0.25% of the realisable value to creditors under an approved resolution plan where that value exceeded the liquidation value. The petitioners argued that IBBI lacked authority to impose such a charge and that it was effectively a tax rather than a fee.
In the Hazel Mercantile matter, the Committee of Creditors had approved the resolution plan with a 94.86% voting share before Regulation 31A came into force. The plan was subsequently approved by the NCLT, after which IBBI sought compliance with the new regulatory fee.
Court’s Findings
The Bench rejected the argument that IBBI’s power to levy fees was confined only to insolvency professionals, insolvency professional agencies and information utilities. It relied on the amended Section 196(1)(c) of the IBC, which empowers the Board to levy fees or other charges for carrying out the purposes of the Code.
The Court observed that the relevant provisions of the IBC, read with Regulations 31 and 31A, gave IBBI the statutory authority to impose the regulatory fee.
On the argument that the levy was actually a tax, the Court found that a regulatory fee does not require a direct or mathematically exact service-for-payment relationship. It held that a broad and general connection between the regulatory functions and the stakeholders could be sufficient.
The Bench specifically rejected Hazel Mercantile’s contention that it had no connection with the insolvency process, observing:
“We fail to understand how the petitioner-Hazel Mercantile Limited can claim that it has nothing to do with CIRP when the whole process of CIRP is tuned and dynamically operates with the active participation of all stakeholders, particularly the CoC and the resolution applicants.”
Retrospectivity and Proportionality
The Court also rejected the argument that Regulation 31A operated retrospectively. It noted that the relevant resolution plans of Hazel Mercantile and Suraksha Realty were pending before the adjudicatory authority when the regulation came into force on October 1, 2022.
The Bench further held that the 0.25% levy could not be described as excessive or disproportionate and found no basis to treat it as a colourable exercise of power.
Decision
The Court concluded that the petitioners failed to establish that Regulation 31A was ultra vires the Insolvency and Bankruptcy Code or arbitrary under Article 14.
“Consequently, the declaration sought by the petitioners for quashing and striking down impugned Regulation 31A of the IBBI Regulations, cannot be granted and the petitions deserve to be dismissed.”
Accordingly, the Bombay High Court dismissed all four writ petitions and rejected the challenge to the validity of Regulation 31A concerning the imposition of regulatory fee.
