The Bombay High Court has rejected challenges to Regulation 31A of the IBBI Regulations, holding that the Board is empowered to levy the regulatory fee and that the fee is a valid fee, not a tax, nor ultra-vires the Insolvency and Bankruptcy Code (IBC).
Background & Facts
The Dispute
The petitioners - Hazel Mercantile Limited and others (WP 703/2023), Vineet Shrivastava (WP 243/2024), Yadubir Singh Sajwan (WP 244/2024) and Suraksha Realty Limited and another (WP 1560/2025) - are successful resolution applicants in corporate insolvency resolution processes (CIRP). They contend that Regulation 31A, introduced on 01.10.2022, imposes a regulatory fee of 0.25% of the realisable value to creditors (or 1% of certain costs) and is beyond the powers of the Insolvency and Bankruptcy Board of India (IBBI) under Section 196 of the IBC. They argue that the fee is a tax, is excessive, retrospective, and violates Article 14 of the Constitution.
Key Facts
- Regulation 31A was introduced by a gazette notification on 20.09.2022 and came into force on 01.10.2022.
- The fee is calculated at 0.25 per cent of the realisable value to creditors where that value exceeds the liquidation value, and at 1 per cent of certain costs.
- The petitioners are resolution applicants whose resolution plans were approved by the Committee of Creditors (CoC) before the fee came into effect.
- The Board argues that it has statutory authority under Section 196(1)(c) and Section 240 of the IBC to levy fees for carrying out the purposes of the Code.
- The petitioners rely on the distinction between tax and fee, the principle of ejusdem generis, and the claim that the fee is retrospective.
Procedural History
- 15.01.2020: NCLT, Ahmedabad Bench, admits IDBI Bank’s petition under Section 7 of the IBC against Reliance Naval and Engineering Ltd.
- 05.05.2020: NCLT appoints a resolution professional.
- 17.03.2022: CoC approves the petitioners’ resolution plan with 94.86 % voting share.
- 24.03.2022: Resolution professional files application under Section 31 of the IBC for plan sanction.
- 20.09.2022: IBBI publishes Regulation 31A in the Gazette.
- 23.12.2022: NCLT, Ahmedabad Bench, approves the resolution plan.
- 30.12.2022: IBBI emails the resolution professional demanding payment of the regulatory fee.
- 21.11.2023: Supreme Court transfers the Madhya Pradesh and Delhi writ petitions to this Court.
- Various dates 2023-2025: Petitioners file writ petitions WP 703/2023, WP 243/2024, WP 244/2024 and WP 1560/2025 challenging Regulation 31A.
- 19.08.2026: Bombay High Court delivers the judgment.
Parties' Positions
- Petitioners: Claim Regulation 31A is ultra-vires, amounts to a tax, is excessive, lacks a quid-pro-quo service, and is retrospective.
- Respondent Board: Argues that Section 196(1)(c) expressly empowers the Board to levy fees for the purposes of the IBC, that the fee is a regulatory fee (not a tax), that the fee is proportionate, and that the regulation is prospective, not retrospective.
Relief Sought
The petitioners seek a declaration striking down Regulation 31A of the IBBI Regulations as ultra-vires, arbitrary, and violative of Article 14, and a direction that no regulatory fee be payable.
The Legal Issue
The central question is whether Regulation 31A of the IBBI Regulations, which imposes a regulatory fee on successful resolution applicants, is within the legislative competence of the Board under Section 196(1)(c) and Section 240 of the IBC, or whether it is ultra-vires, amounts to a tax, is excessive, or operates retrospectively in violation of Article 14 of the Constitution.
Arguments Presented
For the Petitioners
- The fee exceeds the Board’s power under Section 196(1)(c), which is limited to fees on insolvency professionals, agencies and information utilities.
- The fee is a tax because it is compulsory, lacks a direct service benefit, and is disproportionate to the Board’s expenses.
- The proviso to Regulation 31A makes it retrospective, altering obligations after the resolution plan was approved.
- The fee violates the ejusdem generis rule when read with Section 5(13) of the IBC, and therefore cannot be classified as a permissible “other cost”.
For the Respondent Board
- Section 196(1)(c) expressly allows the Board to levy any fee “for carrying out the purposes of this Code”, and the 2018 amendment added the words “including fee for registration and renewal”, broadening the scope.
- Regulation 31A falls within the Board’s quasi-legislative power under Section 240 to prescribe “other costs” under Section 5(13)(e).
- The fee is a regulatory fee; the Supreme Court has held that a fee need not have a strict quid-pro-quo but must have a reasonable correlation with the service, which the Board provides to all stakeholders in CIRP.
- The regulation is prospective; it applies only to plans approved on or after 01.10.2022 and does not alter existing rights.
- The fee is not excessive; the Board’s audited accounts show a surplus after levy, disproving the claim of disproportionate burden.
The Court's Analysis
The Court began by examining the statutory scheme of the IBC. It noted that Section 196(1)(c) empowers the Board to levy “fee or other charges for carrying out the purposes of this Code”, and the 2018 amendment expressly inserted “including fee for registration and renewal”. The Court held that this language removes any limitation to the three entities (insolvency professionals, agencies, information utilities) and permits the Board to levy fees that facilitate the entire CIRP.
"The Board performs executive, quasi-judicial and quasi-legislative functions throughout the CIRP, and the power to levy fees under Section 196(1)(c) must be read in conjunction with Section 240, which authorises the Board to make regulations concerning ‘other costs’ under Section 5(13)(e)."
The Court then addressed the tax versus fee distinction. Relying on Commissioner, Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar and subsequent decisions, it reiterated that a fee is valid where there is a reasonable relationship between the levy and the service rendered, even if the service is indirect or general. The Board’s role in regulating insolvency professionals, issuing guidelines for the CoC, and ensuring timely resolution constitutes such a service. The Court rejected the petitioners’ insistence on a strict quid-pro-quo, noting the evolution of jurisprudence that accepts broader correlations.
On the ejusdem generis argument, the Court observed that Clause (e) of Section 5(13) is a residuary provision and cannot be confined by the specific clauses (a)-(d). It cited Rajasthan State Electricity Board and Pioneer Urban Land to affirm that the rule does not apply where the general words are not preceded by a clear genus. Consequently, the Board’s inclusion of the regulatory fee under “other costs” is permissible.
Regarding retrospectivity, the Court examined the proviso to Regulation 31A, which states that the fee applies to resolution plans approved on or after 01.10.2022. Since the petitioners’ plans were already approved before that date, the fee could not be imposed retrospectively. The Court emphasized that the regulation is prospective and does not disturb vested rights.
Finally, the Court considered the claim of excessiveness. It reviewed the Board’s audited accounts for FY 2024-25, noting a surplus after the fee’s introduction. The Court concluded that the fee’s rate of 0.25 % is not disproportionate to the Board’s functions and does not constitute a confiscatory levy.
In sum, the Court found that Regulation 31A is within the Board’s statutory authority, is a valid regulatory fee, is prospective, and is not excessive or arbitrary. The petitioners’ contentions were therefore dismissed.
The Verdict
All four writ petitions are dismissed. The Bombay High Court upholds Regulation 31A of the IBBI Regulations, confirming that the Board is empowered to levy the regulatory fee as a lawful fee, not a tax, and that the regulation is neither ultra-vires nor retrospective.
What This Means For Similar Cases
Regulatory Fees Within the Board’s Power
- Practitioners must recognize that Section 196(1)(c) now expressly allows the Board to levy fees beyond registration charges, covering any cost “for carrying out the purposes of the Code”.
- Any challenge to a fee must demonstrate that the Board exceeded this statutory scope; mere arguments about lack of direct service are insufficient.
Evolving Fee-Tax Distinction
- Courts will apply the reasonable-correlation test rather than a strict quid-pro-quo requirement.
- A fee that supports the overall regulatory ecosystem of CIRP, even if the benefit is indirect, will likely be upheld.
- Reliance on older tax-fee dichotomy precedents is less persuasive after the Shri Raman line of cases.
Prospective Application Is Key
- Regulations that specify an effective date apply only to plans approved on or after that date; they will not be treated as retrospective.
- Drafting future regulations should include clear prospective language to avoid constitutional challenges.
Practical takeaways:
- When advising resolution applicants, anticipate the regulatory fee and incorporate it into financial modelling.
- Document any service benefits received from the Board to pre-empt fee-tax challenges.
- Monitor Board notifications for fee rate changes; any amendment must still satisfy the reasonable-correlation test.
