2023 (3) TMI 73 - AT - Insolvency and Bankruptcy

Quantum of fees and other expenses payable to the Resolution Professional and in the course of determination of fees/expenses - conduct of the Resolution Professional in respect of insolvency proceedings of M/s Kushal International Limited which had entered into liquidation. Whether in light of the facts of the present case the Adjudicating Authority had erred in disallowing the fees/expenses claimed by the Appellant and in refixing the same and whether the negative remarks made on the conduct of the Appellant stands to reason? HELD THAT - On the activities undertaken post passing of the liquidation order, we notice that the Adjudicating Authority has returned the findings that no progress report was filed by the Resolution Professional on the efforts made by him during the period when the liquidator remained to be appointed. While this is factually correct, it also cannot be discounted that he had undertaken several steps including appointment of security guards to protect the assets of the Corporate Debtor, prevented the suspended management from causing harm to the property of the Corporate Debtor by way of unauthorized leased deeds, undertook several visits to the factory site, made several appearances for hearings before the Adjudicating Authority etc. This finding of the Adjudicating Authority has also been challenged on the ground that in the absence of his regular appointment as liquidator, the liquidation process could not have moved forward and therefore there was no question of submitting progress report. The Adjudicating Authority in the impugned order has narrated the chronology of hearings and stated that though the matter was heard 22 times, in none of the hearings the expeditious appointment of liquidator without delay was emphasized. In fact there were numerous adjournments either on request of the parties or on grounds of settlement being under consideration between parties. The delays were compounded by the lockdown imposed on account of Covid pandemic during the intervening period - for the sluggishness in the appointment of the liquidator, it is not the Resolution Professional alone who can be held solely responsible but the responsibility equally devolves on the CoC and as much on the Adjudicating Authority which took an inordinately long time in making the appointment. The fees/expenses claimed by the Resolution Professional for the period following the passing of the liquidation order is exorbitant and not commensurate with the work performed by him as is clearly borne out from material on record. The directions of the Adjudicating Authority as contained in the impugned order are concurred with respect to the determination of the fees of the Resolution Professional; expenses incurred by him on site visits; fees of the legal advisor and salary of the security guards and direct that the same shall be paid by the CoC within ten days from the date of uploading of this order. Further all the adverse observations made on the conduct of Resolution Professional in the impugned order is expunged - appeal disposed off.

Summary

Issues Involved:
1. Quantum of fees and expenses payable to the Resolution Professional.
2. Adverse observations on the conduct of the Resolution Professional during the insolvency proceedings.

Detailed Analysis:

Quantum of Fees and Expenses Payable to the Resolution Professional:
The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code 2016 (IBC) against the order dated 22.03.2022 by the Adjudicating Authority (National Company Law Tribunal, Allahabad Bench). The Adjudicating Authority had decided on the quantum of fees and other expenses payable to the Resolution Professional and made adverse observations on his conduct during the insolvency proceedings of M/s Kushal International Limited, which had entered liquidation.

The Appellant contended that he diligently conducted his duties, including holding four Committee of Creditors (CoC) meetings and submitting several progress reports. He faced non-cooperation from the suspended management, necessitating applications under Section 19 and 70 of IBC for directions and complaints, respectively. The Adjudicating Authority issued directions for cooperation, but the suspended management failed to comply, leading to a contempt application.

The 4th CoC meeting recommended liquidation due to non-compliance and non-cooperation, and the Adjudicating Authority passed the liquidation order on 28.02.2019. The Appellant continued to discharge duties as Resolution Professional cum Liquidator until the appointment of a new liquidator on 20.12.2021. The Appellant claimed fees/expenses for this period, but the Adjudicating Authority reduced the quantum and made derogatory remarks against him.

The Respondent argued that the Resolution Professional failed to prepare and submit the Information Memorandum and issue an Expression of Interest, resulting in no Resolution Plan. The Adjudicating Authority disallowed fees/expenses for the period 28.02.2019 to 20.12.2021, as the Resolution Professional did not perform the obligatory duties of a liquidator and no status report was filed.

The Tribunal noted that the fees/expenses for the period up to 28.02.2019 were undisputedly cleared. However, for the period post-liquidation order, the Resolution Professional was not appointed as liquidator and thus could not claim fees for duties not performed. The Adjudicating Authority's decision to pay a lump sum amount of Rs. 2,00,000/- for the period from 01.03.2019 to 20.12.2021 was found reasonable. The decision was in line with the Supreme Court's ratio in Devarajan Raman v. Bank of India Ltd. (2022) 3 SCC 254.

Adverse Observations on the Conduct of the Resolution Professional:
The Adjudicating Authority made several adverse observations, stating that the Resolution Professional was more focused on remuneration rather than completing the CIRP. It was noted that no Information Memorandum or Expression of Interest was prepared, and no Resolution Plans were filed. The Resolution Professional also wrongly proceeded against the assets of a subsidiary of the Corporate Debtor, showing a lack of understanding of IBC provisions.

The Tribunal acknowledged that while the Resolution Professional took several steps towards conducting CIRP, including making public announcements, forming CoC, and filing applications under Sections 19 and 70 of IBC, the delays were largely due to non-cooperation from the suspended management. The Tribunal found that the adverse remarks on the Resolution Professional's focus on remuneration were unwarranted given the constraints faced.

Regarding the continuation of duties post-liquidation order, the Tribunal noted that the Resolution Professional should have sought clarification from the Adjudicating Authority on his role or pressed for the appointment of a liquidator. However, the responsibility for the delay also lay with the CoC and the Adjudicating Authority.

The Tribunal found that the appointment of security guards was necessary to protect the Corporate Debtor's assets and was not correlated to the non-appointment of valuers. The Resolution Professional's conduct in this regard was deemed appropriate.

Conclusion:
The Tribunal concurred with the Adjudicating Authority's determination of fees and expenses but expunged the adverse observations on the Resolution Professional's conduct. The appeal was disposed of with directions for the CoC to pay the determined amounts within ten days. No order as to costs was made.