Bombay High Court Upholds IBBI’s 0.25% Regulatory Fee on Resolution Plans; Holds Regulation 31A Within IBC Powers, Prospective and Not a Tax in Disguise
Bombay High Court Refuses to Strike Down IBBI Regulation 31A; Holds Regulatory Fee Valid, Prospective and Within Board’s Quasi-Legislative Powers
Facts
Four writ petitions before the Bombay High Court challenged the validity of Regulation 31A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which introduced a regulatory fee payable to the Insolvency and Bankruptcy Board of India (IBBI). The petitioners sought to have the Regulation struck down as ultra vires the Insolvency and Bankruptcy Code, 2016 and arbitrary under Article 14.
Regulation 31A, introduced with effect from 1 October 2022, prescribed a regulatory fee calculated at 0.25% of the realisable value to creditors under a resolution plan approved under Section 31 of the IBC, where that value exceeded the liquidation value.
Two of the principal petitioners were successful resolution applicants.
In Hazel Mercantile Limited, the Committee of Creditors had approved the resolution plan for Reliance Naval and Engineering Limited on 17 March 2022 with 94.86% voting share. While the plan was pending before the NCLT for approval, Regulation 31A came into force. The NCLT subsequently approved the plan on 23 December 2022, following which IBBI sought payment of the regulatory fee.
Similarly, Suraksha Realty Limited, the successful resolution applicant for Jaypee Infratech Limited, had its resolution plan approved by the CoC on 10 June 2021 with 98.66% voting share. While its approval application was pending before the NCLT, Regulation 31A came into force, and after the plan was sanctioned, Suraksha was informed of its liability towards the additional CIRP costs.
The principal challenge was therefore to the IBBI’s statutory authority to levy the fee, its character as a fee rather than a tax, its inclusion as CIRP cost, its alleged retrospective effect, and its constitutional validity.
Issues
The principal issues before the Bombay High Court were:
- Whether IBBI had statutory authority under Section 196(1)(c) of the IBC to impose the regulatory fee under Regulation 31A.
- Whether Regulation 31A was ultra vires Sections 5(13), 30, 31, 53, 196 and 240 of the IBC.
- Whether the so-called regulatory fee was in substance a tax imposed without authority of law.
- Whether absence of a direct service or strict quid pro quo between IBBI and successful resolution applicants rendered the levy invalid.
- Whether the fee of 0.25% of realisable value was excessive, disproportionate or arbitrary under Article 14.
- Whether Regulation 31A operated retrospectively where the CoC had approved a resolution plan before 1 October 2022 but NCLT approval remained pending.
- Whether inclusion of the regulatory fee as CIRP cost amounted to a colourable exercise of power or excessive delegation.
Petitioners’ Arguments
The petitioners argued that IBBI’s fee-levying power under Section 196(1)(c) was confined principally to regulated service providers such as insolvency professionals, insolvency professional agencies and information utilities.
Since successful resolution applicants were neither regulated by IBBI nor directly provided any service by it, the Board could not impose the fee upon them.
They further argued that Regulation 31A was inconsistent with the statutory conception of insolvency resolution process costs under Section 5(13) and that inclusion of the fee through Regulation 31(ba) could not enlarge the parent statute.
Another major contention was that the levy was in substance a tax masquerading as a fee. According to the petitioners, IBBI played no direct role in negotiation, evaluation or approval of a resolution plan, which was principally undertaken by the resolution professional and CoC. Therefore, there was no corresponding service or quid pro quo capable of supporting a fee.
They also argued that the 0.25% levy bore no rational relationship to the actual expenditure incurred by IBBI and could result in disproportionately large collections, converting the supposed fee into an impermissible tax.
On retrospectivity, the petitioners emphasised that once the CoC approved a resolution plan, the plan was effectively “cast in stone” between the CoC and successful resolution applicant. A regulation introduced thereafter could not increase CIRP costs and alter the financial structure of the already-approved plan.
They therefore contended that applying Regulation 31A to plans approved by the CoC before 1 October 2022 but awaiting NCLT sanction amounted to retrospective operation.
Respondent’s Arguments
IBBI argued that the petitioners had adopted an unduly narrow understanding of its statutory role.
It submitted that IBBI performs broad executive, quasi-legislative and quasi-judicial functions and is responsible for developing and regulating the insolvency ecosystem, ensuring transparency, monitoring professionals, reducing delays and supporting an efficient CIRP framework.
Section 196(1)(c), particularly after the 2018 amendment, expressly permits IBBI to levy fees or charges “for carrying out the purposes of the Code”, and the power was therefore not restricted to registration charges collected from insolvency professionals or other service providers.
The Board further relied upon Sections 5(13)(e), 196(1)(c) and 240(2)(d), together with Regulations 31 and 31A, to contend that the levy was validly included within CIRP costs.
On the tax-versus-fee distinction, IBBI argued that modern jurisprudence does not insist upon strict mathematical quid pro quo for a regulatory fee. A broad and general correlation between the regulatory activity and those benefiting from the regulated ecosystem is sufficient.
IBBI also justified the levy as contributing to its financial independence and institutional autonomy, arguing that an independent regulator should not remain excessively dependent upon government funding.
Analysis of the Law
IBBI’s Power to Levy Regulatory Fee
The High Court rejected the argument that Section 196(1)(c) confined IBBI’s fee-levying authority to insolvency professionals, insolvency professional agencies and information utilities.
The Court considered crucial the words introduced into Section 196(1)(c) by the 2018 amendment—“for carrying out the purposes of this Code, including”.
According to the Court, those words consciously enlarged and clarified the statutory authority of IBBI to levy fees and charges for carrying out the purposes of the Code and not merely for registration or renewal of specified service providers.
A conjoint reading of:
- Section 5(13)(e);
- Section 196(1)(c);
- Section 240(2)(d);
- Regulation 31; and
- Regulation 31A
demonstrated that IBBI possessed sufficient statutory and quasi-legislative authority to impose the regulatory fee and include it as part of CIRP costs.
The Court therefore held that Regulation 31A was not ultra vires the IBC.
Fee Versus Tax
The High Court rejected the petitioners’ contention that the levy was actually a tax.
It held that contemporary law relating to regulatory fees does not require the authority to establish a precise or mathematical quid pro quo between each payer and a specific service.
It is sufficient if there exists a broad-based and general correlation between the levy and regulatory services benefiting the class of stakeholders concerned.
The Court regarded resolution applicants and CoC members themselves as integral stakeholders in CIRP and rejected the proposition that a successful resolution applicant has “nothing to do” with the regulatory framework created by IBBI.
It further observed that merely regulating insolvency professionals, insolvency professional agencies and information utilities itself materially regulates CIRP because those entities perform central functions in the resolution process. IBBI’s functions, however, extended beyond even those entities.
Accordingly, a direct one-to-one service rendered by IBBI to each successful resolution applicant was unnecessary.
Precedent Analysis
The Court considered a large body of Supreme Court jurisprudence concerning the distinction between taxes and regulatory fees, the requirement of quid pro quo and the powers of statutory regulators.
The petitioners relied upon decisions including Hingir-Rampur Coal Co. Ltd., P.M. Ashwathanarayana Setty, VAM Organic Chemicals, Delhi Race Club, and Calcutta Municipal Corporation v. Shrey Mercantile, to argue that a fee required sufficient correlation with services and could not become a revenue-generating tax.
IBBI relied particularly upon Sreenivasa General Traders, State of West Bengal v. Kesoram Industries, BSE Brokers’ Forum v. SEBI, Delhi Race Club, Jalkal Vibhag Nagar Nigam, and Small Scale Entrepreneurs Association to demonstrate the progressive dilution of strict quid pro quo requirements in regulatory fee jurisprudence.
The High Court accepted the broader regulatory-fee principle. It found that exact proportionality between the amount collected and the services rendered was unnecessary.
The Court specifically distinguished P.M. Ashwathanarayana Setty, noting that the regulatory fee collected by IBBI remained with the Board to meet expenditure connected with its regulatory functions and did not enter the general revenues of the State.
The Court also relied upon the reasoning underlying BSE Brokers’ Forum v. SEBI, where strict quid pro quo recedes in significance when the levy is regulatory in nature.
Court’s Reasoning
IBBI Performs a Wider Regulatory Role
The Court rejected the premise that IBBI has no meaningful role in CIRP merely because it does not negotiate individual resolution plans.
IBBI regulates the institutional architecture within which CIRP functions, including insolvency professionals and other service providers, standard-setting, information, monitoring, efficiency and transparency.
The Court considered financial independence important for IBBI to function effectively as a statutory regulator and “watchdog”.
It held that Regulation 31A advances this objective and is connected with the broader statutory purpose of maintaining an effective insolvency resolution framework.
0.25% Fee Not Excessive
The Court found no material establishing that the levy of 0.25% of realisable value was confiscatory, excessive or disproportionate.
It therefore rejected the contention that the magnitude or method of calculation converted the regulatory fee into a tax or rendered it arbitrary under Article 14.
Regulation 31A Is Not Retrospective
This was another significant part of the judgment.
The petitioners contended that their resolution plans had already been approved by the respective CoCs before Regulation 31A came into force and therefore imposition of the fee while the plans were pending before the NCLT amounted to retrospectivity.
The High Court disagreed.
It accepted that once approved by the CoC, a resolution plan has a certain finality between the CoC and resolution applicant. However, it rejected the proposition that this reduces the NCLT to a mere ministerial authority.
The NCLT must independently satisfy itself that a resolution plan complies with Section 30(2), including payment of CIRP costs. Its role under Sections 30 and 31 therefore cannot be characterised as merely “ticking boxes”.
Relying upon Essar Steel, the Court observed that in limited situations the NCLT may return a plan to the CoC for reconsideration or rectification rather than mechanically approve or reject it.
The Court therefore held that although a resolution plan may be “cast in stone” between the CoC and resolution applicant, it is not binding upon the NCLT until statutory approval is granted.
Since Regulation 31A expressly became operative on 1 October 2022, applying it to resolution plans that were still pending before the NCLT on that date did not constitute retrospective application.
The Court therefore held that no vested right had been disturbed and no retrospective liability imposed.
In the cases of Hazel Mercantile and Suraksha Realty specifically, their plans remained pending for NCLT sanction when Regulation 31A came into force. The NCLT was therefore entitled to require inclusion of the regulatory fee as part of CIRP costs.
Colourable Exercise and Excessive Delegation
The Court also rejected the contention that treating the fee as CIRP cost was a colourable exercise of power.
Sections 5(13)(e), 196(1)(c) and 240(2)(d), together with Regulations 31 and 31A, sufficiently supported its inclusion within CIRP costs.
The levy was only 0.25% of realisable value and had not been shown to be confiscatory or grossly disproportionate.
The excessive-delegation argument was also rejected.
The Court observed that the regulation-making power was guided by the purposes of the IBC, and every regulation framed under the Code is additionally required under Section 241 to be laid before both Houses of Parliament. Thus, the delegation to IBBI was neither unguided nor unbridled.
Conclusion
The Bombay High Court upheld Regulation 31A of the IBBI Regulations in its entirety.
It held that:
- IBBI possesses statutory authority under the IBC to levy the regulatory fee;
- the levy is a regulatory fee and not a tax;
- strict or mathematical quid pro quo is unnecessary;
- there is sufficient broad correlation between IBBI’s regulatory functions and CIRP stakeholders;
- the 0.25% levy has not been shown to be excessive or disproportionate;
- Regulation 31A is prospective from 1 October 2022, even where CoC approval preceded that date but NCLT approval remained pending;
- inclusion of the fee as CIRP cost is valid;
- there is no colourable exercise of power or excessive delegation; and
- the Regulation does not violate Article 14.
The Court consequently held that the petitioners had failed to establish that Regulation 31A was either ultra vires the IBC or constitutionally arbitrary and dismissed all four writ petitions.
Case Details
Case: Hazel Mercantile Limited & Ors. v. Insolvency and Bankruptcy Board of India & Ors., with Vineet Shrivastava v. IBBI, Yadubir Singh Sajwan v. IBBI, and Suraksha Realty Limited & Anr. v. IBBI
Court: High Court of Judicature at Bombay, Ordinary Original Civil Jurisdiction
Case Number: Writ Petition No. 703 of 2023 with Writ Petition Nos. 243 of 2024, 244 of 2024 and 1560 of 2025
Judges: Justice Manish Pitale and Justice Shreeram V. Shirsat
Judgment by: Justice Manish Pitale
Reserved on: 30 June 2026
Date: 19 August 2026
Result: All four writ petitions dismissed; challenge to Regulation 31A and the IBBI regulatory fee rejected; Regulation upheld as valid
