Agricultural Market Committee vs Shalimar Chemical Works Ltd - The effect of these principles is that the delegate which has been authorised to make subsidiary Rules and Regulations has to work within the scope of its authority and cannot widen or constrict the scope of the Act or the policy laid down thereunder.

 Supreme Court (07.05.1997) in Agricultural Market Committee vs Shalimar Chemical Works Ltd  [Appeal (civil)  3359 of 1997 ] held that;- 

• Legislature must retain in its own hands the essential legislative functions and what can be delegated is the task of subordinate legislation necessary for implementing the purposes and objects of the Act concerned.

• While what constitutes an essential feature cannot be delineated in detail it certainly cannot include a change of policy. The legis-lature is the master of legislative policy and if the delegate is free to switch policy it may be usurpation of legislative power itself.

• The essential legislative function consists of the determination of the legislative policy and the Legislature cannot abdicate essential legislative function in favour of another.

• The effect of these principles is that the delegate which has been authorised to make subsidiary Rules and Regulations has to work within the scope of its authority and cannot widen or constrict the scope of the Act or the policy laid down thereunder. 

• It cannot, in the garb of making Rules, legislate on the field covered by the Act and has to restrict itself to the mode of implementation of the policy and purpose of the Act.

Excerpts of the order;

# 21. Delegated Legislation has been defined by Salmond as "that which proceeds from any authority other than the sovereign power and is therefore dependent for its continued existence and validity on some superior or supreme authority." (See Salmond, Jurisprudence, 12th Edn.

 

# 22. Delegated Legislation is not a new phenomenon. Ever since the Statutes came to be made by Parliament, the Delegated Legislation also came to be made by an authority to which the power was delegated by the Parliament. It is no use going back into the pages of history or to look to the Statute of Proclamations 1539, under which Henry VIII was given extensive powers to legislate by proclamations, what is intended, to be emphasised is that there has always been, and continues to be, need for delegated legislation. The exigencies of the modern State, especially the social and economic reforms, have given rise to the making of Delegated Legislation on a large scale (by authorising the Government, almost in every Statute passed by Parliament or the State Legislature to make Rules) so much so that a reasonable fear could have arisen among the people that they were being ruled by the Bureaucracy.

 

# 23. The reasons for giving delegated power to the Government to make Rules are many, but the most prominent and dominant reasons are:

• (i) The area for which powers are given to make delegated legislation may be technically complex, so much so, that it may not be possible and may even be difficult to set out all the permutations in the Statute.

• (ii) The Executive may require time to experiment and to find out how the original legislation was operating and thereafter to fill up all other details.

• (iii) It gives an advantage to the Executive, in the sense that a Government with an onerous legislative time schedule may feel tempted to pass skeleton legislation with the details being provided by the making of Rules and Regulations.

 

# 24. The power of delegation is a constituent element of the legislative power as a whole under Article 245 of the Constitution and other relative Articles and when the Legislatures enact laws to meet the challenge of the complex socio-economic problems, they often find it convenient and necessary to delegate subsidiary or ancillary powers to delegates of their choice for carrying out the policy laid down by the Acts as part of the Administra-tive Law. The Legislature has to lay down the legislative policy and principle to afford guidance for carrying out the said policy before it delegates its subsidiary powers in that behalf (See : Vasantlal Maganbhai Sanjanwala v. The State of Bombay and Others, [1961] 1 SCR 341. This Court in another case, namely, The Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills, Delhi and Another, AIR (1968) SC 1232 as also in an earlier decision in In Re : The Delhi Laws Act, 1912, The Ajmer-Merwara (Extension of Laws) Act, 1947, and The Part C States (Laws) Act, 1950, [1951] SCR 747 has laid down the principle that the Legislature must retain in its own hands the essential legislative functions and what can be delegated is the task of subordinate legislation necessary for implementing the purposes and objects of the Act concerned.

 

# 25. In Avinder Singh v. State of Punjab, [1979] 1 SCC 137, Krishna Iyer, J. laid down the following tests for valid delegation of legislative power. These are :

• "(1) the legislature cannot efface itself :

• (2) it cannot delegate the plenary or the essential legislative function;

• (3) even if there be delegation, Parliamentary control over delegated legislation should be a living continuity as a constitution-al necessity."

 

It was further observed as under :

• "While what constitutes an essential feature cannot be delineated in detail it certainly cannot include a change of policy. The legis-lature is the master of legislative policy and if the delegate is free to switch policy it may be usurpation of legislative power itself."

 

# 26. The principle which, therefore, emerges out is that the essential legislative function consists of the determination of the legislative policy and the Legislature cannot abdicate essential legislative function in favour of another. Power to make subsidiary legislation may be entrusted by the Legislature to another body of its choice but the Legislature should, before delegating, enunciate either expressly or by implication, the policy and the principles for the guidance of the delegates. These principles also apply to Taxing Statutes. The effect of these principles is that the delegate which has been authorised to make subsidiary Rules and Regulations has to work within the scope of its authority and cannot widen or constrict the scope of the Act or the policy laid down thereunder. It cannot, in the garb of making Rules, legislate on the field covered by the Act and has to restrict itself to the mode of implementation of the policy and purpose of the Act.

-----------------------------------------

Subhash Chand Aggarwal vs. Union of India & Ors - We are also of the opinion that a delegated power to legislate by making rules "for carrying out the purposes of the Act" is a general delegation without laying down any guidelines; it cannot be so exercised as to bring into existence substantive rights or obligations or disabilities not contemplated by the provisions of the Act itself.

 HC Delhi (2011.07.25) in Subhash Chand Aggarwal  vs. Union of India & Ors. [Writ Petition (CIVIL) NO. 8359 OF 2009] held That;

• We are also of the opinion that a delegated power to legislate by making rules "for carrying out the purposes of the Act" is a general delegation without laying down any guidelines; it cannot be so exercised as to bring into existence substantive rights or obligations or disabilities not contemplated by the provisions of the Act itself.

Excerpts of the order;

# 6. The Rules are subordinate legislation and cannot go beyond the ambit and scope of the main enactment. In Addl. District Magistrate (Rev.) Delhi Admn. v. Siri Ram, (2000) 5 SCC 451 Supreme Court has observed that the mere conferment of rulemaking power by an Act does not mean that the subordinate legislation will go beyond/exceed the scope of the enabling Act. It was held:-

• "16. It is a well-recognised principle of interpretation of a statute that conferment of rule- making power by an Act does not enable the rule- making authority to make a rule which travels beyond the scope of the enabling Act or which is inconsistent therewith or repugnant thereto. From the above discussion, we have no hesitation to hold that by amending the Rules and Form P-5, the rule-making authority has exceeded the power conferred on it by the Land Reforms Act."

# 7. In Kunj Behari Lal Butail v. State of H.P., (2000) 3 SCC 40, the Supreme Court has observed that the delegated power to legislate Rules cannot be used to bring within its purview/ambit a subject that has been specifically excluded by the statute itself, or to bring into existence disabilities/prohibitions not contemplated by the provisions of the Act. It has been observed:-

• "13. It is very common for the legislature to provide for a general rule-making power to carry out the purpose of the Act. When such a power is given, it may be permissible to find out the object of the enactment and then see if the rules framed satisfy the test of having been so framed as to fall within the scope of such general power confirmed. If the rule-making power is not expressed in such a usual general form then it shall have to be seen if the rules made are protected by the limits prescribed by the parent act. (See: Sant Saran Lal v. Parsuram Sahu, AIR para 19.) From the provisions of the Act we cannot spell out any legislative intent delegating expressly, or by necessary implication, the power to enact any prohibition on transfer of land. We are also in agreement with the submission of Shri Anil Divan that by placing complete prohibition on transfer of land subservient to tea estates no purpose sought to be achieved by the Act is advanced and so also such prohibition cannot be sustained. Land forming part of a tea estate including land subservient to a tea plantation have been placed beyond the ken of the Act. Such land is not to be taken in account either for calculating the area of surplus land or for calculating the area of land which a person may retain as falling within the ceiling limit. We fail to understand how  restriction on transfer of such land is going to carry out any purpose of the Act. We are fortified in taking such view by the Constitution Bench decision of this Court in Bhim Singhji v. Union of India whereby sub-section (1) of Section 27 of the Urban Land (Ceiling and Regulation) Act, 1976 was struck down as invalid insofar as it imposed a restriction on transfer of any urban or urbanisable land with a building or a portion only of such building which was within the ceiling area. The provision impugned therein imposed a restriction on transactions by way of sale, mortgage, gift or lease of vacant land or buildings for a period exceeding ten years, or otherwise for a period of ten years from the date of the commencement of the Act even though such vacant land, with or without a building thereon, fell within the ceiling limits. The Constitution Bench held (by majority) that such property will be transferable without the constraints mentioned in sub-section (1) of Section 27 of the said Act. Their Lordships opined that the right to carry on a business guaranteed under Article 19(1)(g) of the Constitution carried with it the right not to carry on business. It logically followed, as a necessary corollary, that the right to acquire, hold and dispose of property guaranteed to citizens under Article 19(1)(f) carried with it the right not to hold any property. It is difficult to appreciate how a citizen could be compelled to own property against his will though he wanted to alienate it and the land being within the ceiling limits was outside the purview of Section 3 of the Act and that being so the person owning the land was not governed by any of the provisions of the Act. Reverting back to the case at hand, the learned counsel for the State of Himachal Pradesh has not been able to satisfy us as to how such a prohibition as is imposed by the impugned amendment in the Rules helps in achieving the object of the Act.

• 14. We are also of the opinion that a delegated power to legislate by making rules "for carrying out the purposes of the Act" is a general delegation without laying down any guidelines; it cannot be so exercised as to bring into existence substantive rights or obligations or disabilities not contemplated by the provisions of the Act itself." (emphasis supplied)

# 8. The Supreme Court has held in State of Tamil Nadu & Anr vs P. Krishnamurthy & Ors. (2006) SCC 517 that any subordinate legislation or part thereof, which does not conform to the object, scheme and provisions of the parent Act under which it is made, is invalid. In this case the court elucidated the grounds on which subordinate legislation can be challenged. It was observed:-

• "15. There is a presumption in favour of constitutionality or validity of a subordinate legislation and the burden is upon him who attacks it to show that it is invalid. It is also well recognised that a subordinate legislation can be challenged under any of the following grounds:

(a) Lack of legislative competence to make the subordinate legislation.

(b) Violation of fundamental rights guaranteed under the Constitution of India.

(c) Violation of any provision of the Constitution of India.

(d) Failure to conform to the statute under which it is made or exceeding the limits of

authority conferred by the enabling Act.

(e) Repugnancy to the laws of the land, that is, any enactment.

(f) Manifest arbitrariness/unreasonableness (to an extent where the court might well

say that the legislature never intended to give authority to make such rules).

• 16. The court considering the validity of a subordinate legislation, will have to consider the nature, object and scheme of the enabling Act, and also the area over which power has been delegated under the Act and then decide whether the subordinate legislation conforms to the parent statute. Where a rule is directly inconsistent with a mandatory provision of the statute, then, of course, the task of the court is simple and easy. But where the contention is that the inconsistency or non-conformity of the rule is not with reference to any specific provision of the enabling Act, but with the object and scheme of the parent Act, the court should proceed with caution before declaring invalidity."(emphasis supplied)

# 9. The Supreme Court, in this case, has relied upon the following decisions to elucidate that the power of delegated legislation is limited to the rule making provisions of the statute under which they are framed, is subordinate to the objects of the enabling act and must come within the purview of the rule making power of the authority:-

# 10. In Mahalakshmi Sugar Mills Company Limited v. Union of India, (2009) 16 SCC 569 the Supreme Court again observed that the validity of subordinate legislation may be questioned on the following grounds:-

• "51. ....................From these decisions, it may be deduced that validity of subordinate

legislation may be questioned on the ground that:

(a) it is ultra vires the Constitution;

(b) it is ultra vires the parent Act;

(c) it is contrary to the statutory provisions other than those contained in the parent Act;

(d) law-making power has been exercised in bad faith;

(e) it is not reasonable; and

(f) it goes against legislative policy, and does not fulfil the object and purpose of the enabling Act."

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Invest Asset Securitisations and Reconstruction Pvt Ltd v/s Mohan Gems & Jewels Pvt. Ltd. - Those regulations shall be not only consistent with the Code but shall also be consistent with Rules issued u/s 239. So these Regulations shall be subordinate and supplemental to the Code as well as Rules.

NCLT PB-ND (2020.09.16) Invest Asset Securitisations and Reconstruction Pvt Ltd v/s Mohan Gems & Jewels Pvt. Ltd. [IA 1490/2020 in CP No. (IB)-590 (PB)/2018] held that Liquidation Regulation 45(3) is in contrast with Section 54 of the Code. 

• If the Code is carefully read, it could be ascertained that wherever the Code felt that IBBI assistance is required, it has been specifically stated "as specified by the Board or in such manner as may be specified or prescribed" we must at the cost of repetition reiterate, this clause is indicative of the fact that beyond the procedure inbuilt in the Code, if additional mechanism or paraphernalia is required to accomplish implementation of the statute, there it has been mentioned as "as specified by the Board or in such manner as may be specified or prescribed”. The point to remember is, it is for supplementation, not for supplantation.

• It is evident that in whichever Section it has been mentioned as "as specified by the Board or in such manner as may be specified or prescribed”, over those sections alone, regulating power is conferred upon IBBI in subsection 2 of section 240.

• Those regulations shall be not only consistent with the Code but shall also be consistent with Rules issued u/s 239. So these Regulations shall be subordinate and supplemental to the Code as well as Rules.  

• Therefore by reading all these, it is nowhere found in the Code that the corporate debtor could be alienated to the purchaser by dispensing with dissolution.

Excerpts of the order;

# 1. It is an application filed by the Liquidator seeking for closure of the Liquidation Process as per Regulation 45(3) (a) of IBBI Liquidation Process Regulations, 2016 (the Regulations), on the premise the Corporate Debtor was sold as going concern in the E-auction held on 20.11.2019 declaring Mr. Vijay Verma is the highest bidder at a bid price of Rs.4,51,99,713. The asset of the Corporate Debtor is a jewellery shop, sold in the liquidation process. After admission of the case, since no expression of interest had come responding to the Invitation of Interest published, the RP, at the instance of the Coc, obtained liquidation order from this Bench. During liquidation, upon publication of E-Auction notice to sell the corporate Debtor as going-concern, the aforesaid person purchased the asset at the rate mentioned above. For the company was sold as going concern, now the liquidator is before this Bench seeking for closure of the liquidation process so that highest bidder, along with another will become directors, paid up capital shall stand reduced to Rs.4.50Crores divided into 45,00,00 shares of Rs10 each and balance consideration of Rs.1,99,737 to be treated as unsecured loan. That the redrawn share capital, reserves and share premium, if any, to form balance sheet, shall be in compliance with other provisions of the Companies Act and other applicable laws to properly represent the purchase consideration after nullifying the debit balance of profit and Loss account from the present capital and reserves. 

# 2. For us, this whole process has become mind boggling. We don't know where this arrangement has come from; one thing is for sure it is not compatible with the structural arrangement given under the Companies Act. This liquidator has not stated how this arrangement is in sync with the Companies Act. Moreover, there is no pleading in the application that Coc, while proposing for liquidation, recommended as per CIRP Regulation 39C that the liquidator may first explore sale of the corporate debtor as a going concern, then pool up the assets and liabilities by the liquidator and the company ought to be sold as going concern and that recommendation ought to be approved by this Bench at the time of ordering for liquidation. Assuming what this liquidator says is correct, then also, unless sale of the corporate debtor as a going concern as stated in Section 39C of CIRP Regulation is approved by the CoC and then by this Bench, the liquidator on his own cannot opt for sale of the corporate debtor as a going concern. He says he himself took a decision looking at the procedure laid under Liquidation Process Regulation 32A. Moreover it is a shop; it doesn't matter whether it continues as a company or as a proprietary concern. 

# 3. As to the relief sought by the Liquidator for dispensation of dissolution, when this Bench has put it to the Liquidator counsel as to how the liquidation process could be closed without dissolving the corporate debtor as stated u/s 54 of the Insolvency and Bankruptcy Code, 2016, the Liquidator counsel has referred Liquidation Regulations 32(e) and 32A (1) to say that Corporate Debtor could be sold as going concern and Liquidation Regulation 45(3)(a) to say that liquidation Process of the Corporate Debtor could be closed without opting for dissolution of the Corporate Debtor despite Section 54 of the Insolvency and Bankruptcy Code (the Code) says that where the assets of the Corporate Debtor have been completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such Corporate Debtor and this Authority shall dissolve the Corporate Debtor and the copy be forwarded to the ROC concerned within seven days. 

# 4. By looking at this argument and section 54, it is clear that the mandate u/s 54 is to terminate the life of corporate debtors by dissolving them after liquidation of their assets. As against this statutory mandate, can IBBI pass Regulations directing dispensation of operation of section 54 by devising a concept not present in the Code, stating that to maximize the value of the Corporate Debtor the liquidator may sell the corporate debtor as a going concern or business of the corporate debtor as a going concern and close the liquidation process with the approval of this Adjudicating Authority bypassing dissolution mandate u/s 54? If it is selling business of the corporate debtor, we may not call for scrutiny of the Regulations because business will remain tied up with undertaking. But selling of a company is not envisaged either under IBC or in corporate jurisprudence. It is unknown to law and beyond the discretion given to IBBI under section 240 (2) (y) of the Code. 

# 5. Regulating power in Section 240 (2) (y) is limited to manner of sale, but not to sell the company itself. In a company, assets come and go, but a company being a juridical person with perpetual succession, it cannot be sold. It can only be dissolved. This wisdom of parliament or jurisprudence developed over centuries cannot be wiped out by a Regulation. It may look good for eyes to sell the company to the purchaser along with the assets when it is shown as a going concern on the ground of maximization of value, but this is not in the hands of either this Authority or IBBI. We are not here to decide what is right or what is not right. What is right is already decided by the Parliament. We are here only to implement. 

# 6. The legal issue involved in the relief sought is whether the relief sought could be granted or not, if not why it could not be granted. Answer is - this being a Tribunal, it can exercise its powers only to the extent conferred upon in the statute. For there being no mandate in the statute to grant such relief, this Tribunal is barred from passing such relief. We must always remind ourselves Courts can pass any order unless it is specifically or impliedly barred; when it comes to Tribunals, they cannot exercise adjudicating powers beyond the power conferred upon. In this Code, this Tribunal is not conferred with general power to deal with any issue falling under this Code. That being the scenario, we can't even think of granting a relief repugnant to the mandate under section 54 of Code. For that matter no authority, no matter whether it is a court or Tribunal or any other authority bound by this Code, could grant relief repugnant to the provision of law unless such law is struck down. 

# 7. In the Liquidation Regulation 45 (3), IBBI has given a peremptory direction to the liquidator to file an application for closure of the liquidation process of the Corporate Debtor where the Corporate Debtor is sold as a going concern. Owing to this direction, the liquidator, without even having approval under CIRP Regulation 39C, has filed it. 

# 8. But the problem involved in this situation is, the peremptory direction given to the liquidator implicitly directs this Adjudicating Authority to grant this relief. These Regulations are flawed for many reasons, the one we immediately mention is, this Authority is not governed by IBBI, and it is governed by the Code. The Code in Section 54 says after completion of liquidation process, the Corporate Debtor shall be dissolved. We must with full responsibility state that so long as Regulations are in conformity with the provisions of the Code, and for implementation of the Code as stated in section 240 (1), this Authority will approve those actions. Now the Regulations not being in conformity with the Code, we must necessarily deal with the issue to come out of this tussle. 

# 9. Before getting into this wrangle, we shall first put it to ourselves as to whether this Adjudicating Authority/Tribunal has competency to deal with this conflict, when IBBI conferred with Regulating Power under the same enactment has regulated liquidation process in a clear mandate (Regulation 45(3)(a)) that the liquidator shall submit an application before this Authority along with final report for closure of liquidation where the corporate debtor is sold as a going concern. But aforesaid regulation is repugnant to the mandate u/s 54, because after liquidation of the assets of the corporate debtor, an application shall be filed for dissolution of the corporate debtor and same shall be allowed. 

# 10. With regard to the competency of this Tribunal to deal with subordinate/delegated legislation, we must visit the ratio decided by Hon'ble Supreme Court in L. Chandra Kumar vs. Union of India and Others (1997) 3 SCC 261 (para 93) to say that Tribunals cannot test the vires of the Parent Legislation, because the Tribunal itself is the creature of the said Statute, but they are competent to test the vires of subordinate/ delegated legislation. We are aware that the source for establishment of Administrative Tribunals has come from Administrative Tribunals Act, 1985 deriving its strength from Article 323A of Constitution of India. However for this Adjudicating Authority is also a Tribunal akin to any other Tribunal, then this Tribunal is fastened with a duty not to get deviated from implementation of the provisions of the Statute by looking at the Regulations not consistent with the provisions of the Statute. 

# 11. The twin test to be followed while dealing with subordinate legislation is - 

• 1 Rules/Regulations shall not be framed in matters not contemplated under the Act, 

• 2. Rule shall be in conformity with the statute because subordinate legislation cannot be violative of any plenary legislation made by Parliament or the State Legislature. 

# 12. Now the point bothering this Bench to grant the relief sought above is, as to how this Bench could pass this relief asking for closure of the liquidation process without dissolving the Corporate Debtor as long as Section 54 of the Code passed by the Parliament is in force. Can such a relief be passed by this Authority by looking at the liquidation Regulations issued with the power conferred upon IBBI under Section 240 (Regulation making power) and Section 196 (Powers and Functions of IBBI) of the Code? 

# 13. If the Code is carefully read, it could be ascertained that wherever the Code felt that IBBI assistance is required, it has been specifically stated "as specified by the Board or in such manner as may be specified or prescribed" we must at the cost of repetition reiterate, this clause is indicative of the fact that beyond the procedure inbuilt in the Code, if additional mechanism or paraphernalia is required to accomplish implementation of the statute, there it has been mentioned as "as specified by the Board or in such manner as may be specified or prescribed”. The point to remember is, it is for supplementation, not for supplantation. 

# 15. If these two provisions are read together, it could be understood that Section 196 is to confer powers and functions upon IBBI, Section 240 is to confer upon IBBI general power (subsection 1) to regulate and particular power (subsection 2) to regulate the areas mentioned in subsection-2. If section 240 (2) regulating powers are read along with other provisions of the Code, it is evident that in whichever Section it has been mentioned as "as specified by the Board or in such manner as may be specified or prescribed”, over those sections alone, regulating power is conferred upon IBBI in subsection 2 of section 240. 

# 16. Of course implicit overriding effect is given in Section 240 (1) of the Code stating that regulating power over particular Sections  will not cause prejudice to the general regulating power of subsection 1, which is as follows:

"(1). The Board may, by notification, make regulations consistent with this Code and the rules made there under, to carry out the provisions of this Code” 

# 17. By reading this sub section, it is understandable that IBBI is given discretion to notify regulations. But those regulations are qualified by later-part of the subsection above. 

# 18. Those regulations shall be not only consistent with the Code but shall also be consistent with Rules issued u/s 239. So these Regulations shall be subordinate and supplemental to the Code as well as Rules. 

# 19. The purpose and object of the Regulations issued by IBBI is to carry out the provisions of the Code, not for carrying out the purpose of the Code. It is in a way carrying out the provisions of Code will tantamount to carrying out the purpose of maximization of value as well. Here IBBI cannot jump the gun and say it has changed the procedure for maximization of value. As we all know, once the CIRP period is over, CoC will not remain in existence. Exercising commercial wisdom by the CoC has its own limitations. They can decide how much they get from the Resolution plan. The financial creditors converting into stakeholders during liquidation can express their wish in the meetings, but the liquidator is not bound by such decisions. 

# 20. It is explicitly mentioned in subsection -1 of section 240, Regulations are to sub-serve sections of the Code in implementation. There are umpteen citations of Hon'ble Supreme Court saying though general power is given in one sub section and when the factors enumerated in another subsection are illustrative in nature, the rule making power mostly limited to those illustrations only. In this case, IBBI is to regulate the working of insolvency professionals relating to the duties of them. IBBI regulating power is even subject to rule-making power of the central government u/s 239 of the Code. In Kerala Samsthana Chethu Thozhilali Union v. State of Kerala (2006) 4 SCC 327, it has been held as follows: 

• "17. A rule is not only required to be made in conformity with the provisions of the Act where under it is made, but the same must be in conformity with the provisions of any other Act, as a subordinate legislation cannot be violative of any plenary legislation made by the Parliament or the State Legislature. 

• 37. Furthermore, the terms and conditions which can be imposed by the State for the purpose of parting with its right of exclusive privilege more or less has been exhaustively dealt with in the illustrations in sub-section (2) of Section 29 of the Act. There cannot be any doubt whatsoever that the general power to make rules is contained in sub-section (1) of Section 29. The provisions contained in sub-section (2) are illustrative in nature. But, the factors enumerated in sub-section (2) of Section 29 are indicative of the heads under which the statutory framework should ordinarily be worked out. 

• 43. The submission of Mr. Iyer that there exists a distinction between carrying out the provisions of the Act and the purpose of the Act, is not relevant for our purpose. The power of delegated legislation cannot be exercised for the purpose of framing a new policy. The power can be exercised only to give effect to the provisions of the Act and not dehors the same. While considering the carrying out of the provisions of the Act, the court must see to it that the rule framed therefore is in conformity with the provisions thereof. 

• 46. In Hotel Balaji and Others v. State of A.P. and Others (1993 Supp (4) SCC 536), whereupon Mr. Iyer placed reliance, it is stated: "The necessity and significance of the delegated legislation is well accepted and needs no elaboration at our hands. Even so, it is well to remind ourselves that rules represent subordinate legislation. They cannot travel beyond the purview of the Act. Where the Act says that rules on being made shall be deemed "as if enacted in this Act", the position may be different. (It is not necessary to express any definite opinion on this aspect for the purpose of this case.) But where the Act does not say so, the rules do not become part of the Act."

 

# 21. The same ratio is held in I.T.C Bhadrachalam Paper Boards and another vs Mandal Revenue Officer, AP and others (1996) 6 SCC 634, Gupta Modern Breweries vs State of J&K and Others (2007) 6 SCC 317, and Cellular Operators Association of India and others vs Telecom Regulatory Authority of India and Others (2016) 7 SCC 703. 

# 22. In view thereof, delegated legislation shall not overreach Sections - When the dissolution is made explicit, IBBI ought not to have ignored the mandate u/s 54 of the Code. When something is said in preamble, it shall be assumed that a whole gamut of provisions of that enactment have come into existence to fulfill that policy alone. At the time when any Bill is laid before legislature, every clause / provision is weighed to balance the same with preamble of the Bill, if that balance is disturbed by outside agencies after enactment, that too without power, the inbuilt balance will be lost. 

# 23. If any study is made by a recommending agency like the Law Commission or Committee set up to look into the efficacy of the enactment, it will recommend to the legislature. In this process, if any particular provision is found not workable and the result is not in conformity with the purpose and object of the enactment, it has to go back to the maker. Repairing is not the job of Regulating Authority. In fact, the Regulating Authority or Rule Making Authority shall provide a support system for effective implementation of the provisions of the Code, not to travel beyond the line of control. 

# 24. In Section 196 (t) & (u) of the Code in clause (t), power is given to make regulations and guidelines on matters relating to insolvency and bankruptcy as may be required under this Code, including mechanism for time bound disposal of the assets of the corporate debtor or debtor; and (u) perform such other functions as may be prescribed. 

# 25. If these two clauses are read, it is apparent that time bound mechanism shall be framed for disposal of the assets of the corporate debtor and under clause (u), IBBI can perform such other functions as specified in the section. In this clause (t), whatever mechanism framed for sale of assets shall be as required under the Code, in this clause the word "corporate debtor" related to liquidation, the word "debtor" related to bankruptcy. The manner of sale of assets cannot be misunderstood that corporate Debtor could also be sold in addition to sale of assets of the Corporate Debtor. 

# 26. With regard to present relief asked for closure of liquidation process skipping dissolution, under section 35 (powers and duties of the liquidator) of the Code, in clause (c) and (f), the liquidator will evaluate the assets and sell the assets as directed by IBBI. The jurisdiction given to the liquidator and regulating power to IBBI is limited as to how to assess the assets and the manner of selling the assets. What is to be sold here is assets, selling as a going concern means the assets on 'as is where is basis', may be the unit in functioning condition. The discretion to the liquidator and IBBI Regulating power is confined to sell the assets, not the Corporate Debtor 

# 27. In section 240 (2) (y) also, IBBI is limited to regulate the manner of evaluating the assets and property of the corporate debtor under clause (c), the manner of selling property in parcels under clause (f), the manner of reporting progress of the liquidation process under clause (n), and the other functions to be performed under clause (o), of sub-section (1) of section 35. Therefore by reading all these, it is nowhere found in the Code that the corporate debtor could be alienated to the purchaser by dispensing with dissolution. If concessions are started providing, there won't be certainty, predictability, uniformity; nobody knows what decision will come tomorrow. This will lead to facelessness and discordancy. 

# 28. Even in Section 240 (2) (zk), the regulating power is limited to the period and the manner of distribution of proceeds of sale under sub section 1 of Section 53, if it is seen juxtaposition to Section 53, it only deals with sale of the liquidation assets, it does not speak about sale of the Corporate Debtor, sale of the Corporate Debtor is altogether different from sale of assets. The only power that is given under Section 53 is, to convert assets of the Corporate Debtor into sale proceeds, therefore it could not be construed that Section 53 envisages sale of the Corporate Debtor. When section itself has not conferred any right to sale of the Corporate Debtor, where is the question of IBBI setting out a new concept of sale of Corporate Debtor without any support of any of the Sections of IBC. 

# 29. What all we say is, in Section 240 (2), regulating power is given to bring in supplementary procedure with regard to the sections mentioned therein, but not to the Sections not mentioned in Subsection 2 of Section 240. Section 54 is not included in Section 240 (2) of the Code.  In section 54 also, it has not been mentioned "as specified by the Board or in such manner as may be specified or prescribed”. When no discretion is given to IBBI to help out in implementation of section 54 of the Code, it should not have given an unsolicited go-by to the dissolution in the case of a business sold as a going concern.

 

# 30. In the follow up, if Regulations relating to Realization of assets (Chapter VI) is examined, the heading given is Realization of Assets, not realization of claims. It is realization of the assets of the Corporate Debtor, therefore whatever mechanism given there, it shall be only relating to realization of assets alone. Initially when these Regulations came into existence in the year 2016, heading to Regulation 32 was rightly given as Manner of Sale; it is right because IBBI can only decide the manner of sale of assets. But by amendment on 22.10.2018, the heading Manner of sale has become Sale of assets. May be realizing the incongruity lying in this Regulation to sell the corporate debtor as well, to reconcile heading with items for sale, IBBI changed it to sale of assets. To bring it in sync with the concept of sale set out in Regulation 32, Regulation 32A has brought into existence on 25.07.2019 with heading “Sale as a going concern", …………….

# 32. On reading this CIRP Regulation, it appears at the outset, an effort has been strenuously made to rewrite IBC without amendment to the Code - the reasons for saying so is - 

• 1. Foremost hurdle is, this Regulation is a new concept not backed by any provision of law in IBC. The Regulating Authority cannot stretch its muscle beyond its strength, if it does so, it is exercising jurisdiction not contemplated under IBC. No mention about this arrangement either in section 28 or section 30 or any other section of the Code. 

• 2. The CIRP process is separate and the liquidation process is separate. Separate yardsticks have been set up by the Code. 

• 3. How CoC, which would not remain in existence after liquidation order, will issue its dictum to be followed without any other recourse to the liquidator despite liquidator is to act independently during liquidation process. 

• 4. CoC has not been endowed with powers to give mandate over the progress of liquidation foreclosing the functions of the liquidator as stated under section 35 of the Code. 

• 5. Indeed actions of the liquidator under section 35 are subject to the directions of this Adjudicating Authority. 

• 6. Liquidator is not bound by the directions of the stakeholders, who are mostly none other than Financial creditors i.e., CoC members. 

• 7. Moreover, the Regulating Authority is implicitly goading this Adjudicating Authority to approve actions not contemplated under the Code. 

• 8. The right given to CoC is to make an effort to keep the assets intact and pass a resolution taking compromises against the right of recovery against the Corporate Debtor. 

• 9. We don't want to get into the anxiety to ensure the company remains a going concern and also not supposed to get into the veracity of it, but one thing we need to emphasize is that when enactment has come into force, we must respect it. If the Code goes in the pace and direction given by the Parliament, it will go well otherwise only chaos will remain.

• 10. As to the going concern concept, in CIRP, COC will put its maximum efforts to derive maximum value from the corporate debtor. The ground reality is if value is there in the company and if the company can be run as going concern, people will come forward to take it as going concern. When the company has failed to resume its strength as a going concern after making all efforts, it will go to liquidation. When effort in the first phase has not yielded results, another window is left open in the liquidation stage to reorganize or amalgamate or merge the company through a scheme u/s 230-232 of the Companies Act 2013. There also if the company failed to reequip as a going concern, asset or undertaking could be sold as going concern, but not the corporate debtor itself. Assets could be valued and sold as going concern. Even in the case of selling the business as one lot, employees could be protected and other rights could also be protected.Selling assets or undertakings shall not stretch out to the sale of the corporate debtor. If this process of sale of the corporate debtor is approved, it will become third window, besides that, it is in violation of company concept. In fact IBBI has made it almost like a mandate to try for sale of the company as a going concern. Is it that this process has to continue until the corporate debtor is sold as a going concern? If this is permitted, tomorrow somebody may suggest something else. Where is the end for it? It is a policy decision - which cannot be taken by IBBI particularly when no such concept is contemplated under the Code and more particularly when section explicitly given a mandate for dissolution. 

• 11. In most of the cases, these companies remain as going concerns on the records of Roc, but if ground situation is taken into account, these companies are gone cases, companies where only two computers, or companies with one landed property. Not really any business, except in a few companies. 

• 12. The benefit in these liquidation cases mostly go to the buyer, because real value of the asset will not come out, only distress value will come out in the form of liquidation value, this value in most cases will be far less than real market value or entrepreneur value. 

• 13. Today what is the yardstick to categorize which corporate debtor is a going concern and which one is not a going concern? 

• 14. Let us assume purchaser come forward to take the corporate debtor as going concern for a value less than liquidation value, as per this Regulation unless the liquidator has failed to get a purchaser under (e) and (f) of Regulation 32, cant he opt for another mode? In such a conundrum, how could the liquidator sell the assets in a method other than the method mentioned in (e) and (f)? This will again protract the litigation. 

# 33. After examining these two Regulations, one from CIRP Regulations and another from Liquidation Regulations, we have not found any merit in either of these regulations, which are set up as foundation to say that by virtue of liquidation Regulation 45 (3), dissolution shall be dispensed with for closure of liquidation. 

• 45. Final report prior to dissolution. (1) When the corporate debtor is liquidated, the liquidator shall make an account of the liquidation, showing how it has been conducted and how the corporate debtor's assets have been liquidated. 

• (2) If the liquidation cost exceeds the estimated liquidation cost provided in the Preliminary Report, the liquidator shall explain the reasons for the same. (Inserted on 25.07.2019.) 

• (3) The Liquidator shall submit an application along with the final report and the compliance certificate in form H to the Adjudicating Authority for

• (a) Closure of the liquidation process of the corporate debtor where the corporate debtor is sold as a going concern; 

• (b) for the dissolution of the corporate debtor, in cases not covered under clause (a).

# 34. Insolvency and Bankruptcy Code is an embodiment of substantial rights laced with procedural mandates. When procedure itself is part of the enactment, the Regulating Authority cannot rewrite the procedure obliterating the provisions of IBC. Yes, the Regulating authority may bring in subordinate procedure for full implementation of the sections of the Code. What could be liquidated is the assets of the debtor company, this concept of liquidation of assets shall not be construed as inclusion of sale of the company. 

# 35. The procedure is already set out under the Code for rearrangement under insolvency and resolution process thereafter another window under liquidation through Sec. 230 of the Companies Act, 2013, therefore there cannot be any other procedure which is militating the procedure set out under the Code. Accordingly this IA1940/2020 is hereby dismissed as misconceived. 

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