REDUCTION OF FEES OF RESOLUTION PROFESSIONAL BY ADJUDICATING AUTHORITY

[Mr. M. GOVINDARAJAN]

The Adjudicating Authority, Mumbai Bench, Court III, admitted an application No. 4065/MB/2018, filed under Section 7 of the Code against the Corporate Debtor on 25.04.2019. The Interim Resolution Professional caused a public announcement calling claims from the creditors. He received the claims, verified the same and constituted the Committee of Creditors. Religare Finvest had 69.02% of voting power of Committee of Creditors. Later Religare Finvest assigned the debt to India Resurgence Arc Private limited and the said company became a creditor in lieu of Religare Finvest.

The Interim Resolution Professional was later appointed as Resolution Professional and he was offered Rs. 3.75 lakhs plus GST per month as his remuneration as approved by Committee of Creditors in its first meeting. In the third meeting of Committee of Creditors held on 18.07.2019 it was decided to replace the Interim Resolution Professional. Since the application for the same was not filed by the Committee of Creditors the Interim Resolution Professional continued as Resolution Professional.

The Resolution Professional, in the 4^th meeting of Committee of Creditors held on 26.08.2019, raised an issue of non payment of fees to him and also the non contribution of fees by members of Committee of Creditors. The Committee of Creditors decided to go for liquidation and have a liquidator of its choice replacing the Resolution Professional. The Committee of Creditors in its 5^th meeting held on 17.10.2019 decided not to file application before Adjudicating Authority for the extension of Corporate Insolvency Resolution Process. It did not approve Form G or invitation for Expression of Interest.

On 16.10.2019 the Resolution Professional filed an interim application in No. IA 3399 of 2019 for payment of his fees to the tune of Rs. 24,25,113/- till 31.08.2019. The Resolution Professional also alleged that the financial creditors did not co-operate in corporate insolvency resolution process and pushed the corporate debtor in liquidation. The Adjudicating Authority allowed the IA on 10.11.2022.

The Resolution Professional, on 11.11.2019 filed an interim application in IA 3668/2019 seeking liquidation of the corporate debtor and for the payment of his fees from 01.09.2019 to 01.11.2019 to the tune of Rs. 12,63,393/-. The Resolution Professional also filed another IA No. 2755 of 2021 with the following prayers-

• to allow the suspended management of the Corporate Debtor to submit their resolution plan;
• to direct the Committee of Creditors to pay outstanding corporate insolvency resolution process cost; and
• debar Committee of Creditor member from participation in Committee of Creditor if it failed to contribute its share of corporate insolvency resolution cost.

The Adjudicating Authority dismissed this application with liberty to file a fresh application after liquidation order is passed.

On 10.05.2022 the Resolution Professional filed IA No. 1312/2022 claiming fees and other expenses for the period from 25.04.2019 to 24.12.2022. The Adjudicating Authority directed to pay fees of Rs. 1 lakh per month along with other actual expenses on production of bills. Being aggrieved against this order of Adjudicating Authority the Resolution Professional filed an appeal before the National Company Law Appellate Tribunal (‘NCLAT’ for short) in CA (AT) (Ins) 100/2023 - INDIA RESURGENCE ARC PVT. LTD. VERSUS ROHIT J. VORA, ERSTWHILE RESOLUTION PROFESSIONAL OF JOGMA LAMINATES INDUSTRY (P) LTD. AND ROHIT J. VORA, ERSTWHILE RESOLUTION PROFESSIONAL OF JOGMA LAMINATES INDUSTRY (P) LTD. VERSUS RELIGARE FINVEST LTD. (INDIA RESURGENCE ARC PVT. LTD.) , DENA BANK (BANK OF BARODA) , STAR ORECHEM INTERNATIONAL PVT. LTD., ZUMBERLAL BHARAT & SONS HUF, PODDAR TELECOM PRIVATE LIMITED, UJWALA BHARUT - 2023 (8) TMI 547 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH , NEW DELHI challenging the impugned order for the reduction of his fees and for making disparaging remarks on his professional conduct. The Financial creditor submitted the following before the NCLAT-

• It had never consented to payment of fees of the RP beyond 31.08.2019.
• When the RP had filed MA No. 3399/2019 seeking payment of fees and expenses till 31.08.2019, the Appellant had agreed to the same so as not to prolong litigation.
• The above said consent was with a caveat of allowing fees and expenses only up to 31.08.2019.
• However the Adjudicating Authority misconstrued that the consent is till 24.04.2022.
• The Adjudicating Authority has correctly noted that the RP had failed to perform his duty and acted prejudicially to the interests of the Corporate Debtor by joining hands with the suspended management by handing over the control of its assets to the erstwhile management.
• Therefore the Resolution Professional did not deserve payment of fees as the same had been sought solely for his personal benefit and not for making any contribution to the Corporate Insolvency Resolution process.
• The RP could not have performed much work during the period after August 2019 on account of outbreak of Covid pandemic.
• Since the RP had not performed any work and therefore it is not justified to pay any further amount for the period 01.09.2019 onwards.

The Resolution Professional also filed an appeal before NCLAT against the order of Adjudicating Authority. He submitted the following before the NCLAT-

• Since the Committee of Creditors has ratified the fees of Rs. 3.75 lakhs per month he is entitled to receive the said fees.
• Even though the Committee of Creditors decided to replace him by another Insolvency Professional, the Committee of Creditors did not file any application before the Adjudicating Authority for this purpose.
• Therefore he continued to act as Resolution Professional till he is to be replaced. Therefore he is eligible for the fees and claim the actual expenses incurred.
• No fee was paid to him from 25.04.2019 @ Rs. 3.75 lakhs but the Adjudicating Authority reduced the fees to Rs. 1 lakh per month which is unjustified and to be set aside.
• He was discharging all his responsibilities appropriately and taking care to protect the assets of the corporate debtor.
• The impugned order contains deprecatory remarks against his professional conduct which deserves to be expunged.
• The conduct of the financial creditor gave hindrances to the conduct of corporate insolvency resolution process and pushed the corporate debtor into liquidation.

The NCLAT considered the facts and circumstances of the cases in these two appeals and also considered the submissions made by the appellants in both the appeals.

The first issue taken by NCLAT is as to whether the fee and the expenses are to be payable up to 24.04.2022; if so the reduction of fees to Rs. 1 lakh is justifiable or not. NCLAT observed that the Committee of Creditors in its first meeting ratified the fees payable to the Resolution Professional. It is undisputed fact that the Committee of Creditors even after deciding to replace the Resolution Professional did not make any endeavors for effectuating the substitution of the Resolution Professional. Hence the Resolution Professional continued to remain in position. The third Committee of Creditors had resolved to pay the Resolution Professional on the existing terms and conditions till the date of his demitting office. Once the Committee of Creditors in the third meeting had decided to continue with the Resolution Professional on the same terms and conditions until the replacement was appointed and this decision was not subsequently modified by the Committee of Creditors, the logical corollary is that the Resolution Professional was entitled to claim fees/expenses.

The NCLAT analyze the chronological events and inferred that by the end of August 2019 the active corporate insolvency resolution process had reached a dead end. The NCLAT further observed that the Resolution professional was taking advantage of the fact that replacement application was not filed on time before the Adjudicating Authority. Some of the actions of the Resolution Professional were not in sync with the decisions of the Committee of Creditors. Hence the Resolution Professional had failed to assist in the corporate insolvency resolution process in a fair and objective manner in the best interest of all stakeholders.

The Resolution Professional admittedly was unable to publish Form G. Neither could Expression of Interest be invited. The Resolution Professional was also unable to elicit any successful resolution plan for the Corporate Debtor within 180 days from the initiation of Corporate Insolvency Resolution Process. The resolution of the Corporate Debtor had not taken place due to ongoing tussle between the Appellant and Committee of Creditors is writ large.

Therefore the NCLAT held that it agreed with the finding of the Adjudicating Authority that the active corporate insolvency resolution process period has expired with no substantial work to be taken up further and the Covid pandemic also having generally disrupted work, the scaling down of the fees to Rs. 1 lakh was not discriminatory or unfair.

In respect of second issue NCLAT observed that the Resolution Professional plays a pivotal role in the corporate insolvency resolution process and acts as the bridge of balance and harmony between the Committee of Creditors and other stakeholders including the Corporate Debtor. The Resolution Professional as the facilitator of the resolution process is expected to conduct the corporate insolvency resolution process with fairness, diligence, forthrightness and highest sense of responsibility. But much harm was done to the corporate debtor by handing over the control of the assets of corporate debtor to erstwhile management. These actions of the Resolution Professional do not reflect well on his professional conduct. The Resolution Professional was more focused on claiming his fees/remuneration and other expenses than discharging his responsibilities of completing corporate insolvency resolution process in a time bound manner. The NCLAT held that the Adjudicating Authority has been justified in taking a serious note of the conduct of the Resolution Professional.