WRONG FIXATION OF FEES PAYABLE TO INTERIM RESOLUTION PROFESSIONAL

[Mr. M. GOVINDARAJAN]

In M/S STATE TRADING CORPORATION OF INDIA LIMITED VERSUS MR. DEVINDER ARORA, ERSTWHILE INTERIM RESOLUTION PROFESSIONAL, MR. RAKESH PRASAD KHANDELWAL, LIQUIDATOR OF SPACEVISION IMPEX PVT. LTD, M/S IDBI BANK LIMITED - 2024 (4) TMI 868 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI, corporate insolvency resolution process (‘CIRP’ for short) was initiated against Space Vision Impex Private Limited and the same was admitted by the Adjudicating Authority.  The Adjudicating Authority appointed Interim Insolvency Professional (‘IRP’ for short) to conduct the CIRP.  Since the CIRP could not be conducted the IRP filed an application before the Adjudicating Authority for liquidation of the corporate debtor and the same was ordered by the Adjudicating Authority.  After this the IRP claimed his fees and CIRP expenses to the tune of Rs.77.91 lakhs.  The Adjudicating Authority directed to pay Rs.33 lakhs (Re.1 lakh * 33 months) and Rs. 9 lakhs towards the reimbursement of CIRP expenses. 

Aggrieved by the order of Adjudicating Authority State Trading Corporation filed the present appeal before the National Company Law Appellate Tribunal.  The appellant contended the following before the Appellate Tribunal-

• The Adjudicating Authority in deciding the fees of Rs. 33 lakhs @ Rs.1 lakh per month for 33 months to be paid to the IRP committed a mistake as it was fixed on the higher side and not in sync with the work performed by the IRP. 
• The Adjudicating Authority failed to apply the test of reasonability and proportionality which should have been done in terms of Clause 25 of the Code of Conduct for Insolvency Professionals.
• The Adjudicating Authority had wrongly placed reliance on Regulation 34(B) of IBBI (Insolvency Professionals for Corporate Persons) Regulations, 2016 which Regulation was applicable only in cases where IRP were appointed on or after 01.10.2022 while in the present case the IRP–Respondent No. 1 had been appointed on 08.05.2019.
• The fees fixed in the present case exceeded the volume of work performed by the IRP. 
• The IRP had held only three meetings of the Committee of Creditors (‘CoC’ for short) which testifies the non-seriousness on the part of the IRP.
• The fee has been claimed for the period 02.02.2020 till the handing over of CIRP records to the Liquidator on 08.03.2022 while no significant work was completed during this time.
• The CIRP expenses of Rs.9 lakhs as allowed by the Adjudicating Authority is again on the higher side.
• The IRP could not able to complete the CIRP within 180 days as stipulated in the Code and also within 90 days the extension given to IRP.
• It is intention of the IRP to drag on the cash to his own unjust enrichment.
• The IRP to justify his fees has submitted a long list of 106 activities but most of these items indicated in the list are of trivial and mundane nature which deserves to be ignored.
• The IRP therefore deserves to be paid fees far less than Rs.1 lakh per month and for a period not exceeding 6 months.

The IRP submitted the following before the Appellate Tribunal-

• The IRP had made best possible efforts to complete the CIRP process within the stipulated time. 
• The indecision and non-cooperation on the part of the Appellant, who constituted the sole member of the CoC, which delayed the process of CIRP. 
• No Resolution plan had been received from any resolution applicant. 
• The CoC was therefore left with no option but to move towards liquidation. 
• Tthe IRP has submitted a list of 106 activities performed by him since his appointment and emphatically asserted that all these activities were necessary, critical and unavoidable for conduct of CIRP.
• The IRP had attended several hearings before the Adjudicating Authority; before this Tribunal and before the Hon’ble Supreme Court. 
• The IRP had suo motu reduced their fees to Rs. 1 lakh per month and that this reduction was in consonance with Regulation 34B which prescribes the minimum fees to be charged by the IRP. 
• Even the CIRP expenses has been reduced from Rs.11.91 lakhs to Rs.9 lakhs and includes payment to be made to other professionals engaged by the IRP.
• The Adjudicating Authority had not committed any error in directing the payment of IRP fees and CIRP expenses.

The Appellate Tribunal considered the arguments of both the parties and also the documents available on record.  The Appellate Tribunal have gone through the minutes of the three CoC meetings.  The Appellate Tribunal found that the IRP had meticulously listed out the entire gamut of activities carried out by him for the smooth conduct of CIRP.  In the 1st CoC meeting at Agenda item 4, the IRP had explained in details to the CoC of the steps taken by the IRP which included public announcements in the newspapers; communications entered into with the suspended management; visits undertaken to the office of the Corporate Debtor; collection, verification and filing of documents with Registrar of Companies; verification of claims received; constitution of CoC and filing of status reports with the Adjudicating Authority.  In the 2nd CoC meeting he reported about filing of application under Section 19 of IBC; appearances before Adjudicating Authority and this Tribunal; collection of financial documents of the Corporate Debtor and correspondence with the bankers; appointment of registered valuers; preparation of Information Memorandum, Request for Resolution Plan and Evaluation Matrix and publication of Form-G.  In the 3^rd CoC the IRP apprised the CoC of the steps undertaken by him as placed on record.  The Appellate Tribunal did not accept the contentions of the appellant.  The Appellate Tribunal opined that the IRP had carried out all the requisite steps which was necessary to conduct the CIRP proceedings.

Then the Appellate Tribunal analysed the decision-making process of CoC.  It observed that there were clear signs of lethargy and tendency on the part of the Appellant to defer decisions.  In the agenda fixation of fees for IRP and CIRP expenses.  It remained inconclusive since the Appellant had informed that they would convey the approval only after securing internal approval from their competent authority.  The same paralysis in decision-making continued in the second CoC meeting wherein though the extension of the 90 days of the CIRP of the Corporate Debtor was agreed to by the CoC.  On the issue of IRP fees and CIRP expenses it was informed that they would convey the approval within 15 days after securing internal approval from their competent authority.   Even after the IRP in the 3rd CoC meeting had apprised the CoC that in spite of Form-G publication, no Resolution plan had been received from any resolution applicant, leaving no option but to move forward towards liquidation. Even at this stage, the Appellant continued to remain slow and lethargic in taking a decision and the liquidation resolution was approved after a lapse of 6 months 11 days since the holding of the 3rd CoC meeting.  Even for taking decision on the appointment of the IRP as a Liquidator the appellant informed that it would require the approval of the competent higher authority.

The Appellate Tribunal held that the Adjudicating Authority has attributed delay on the part of the Appellant in approving the liquidation proposal and in the fixation of IRP fees and CIRP expenses and this order not having been challenged by the Appellant has therefore attained finality.  Though the IRP had pegged its fees initially at Rs.2 lakhs per month, it has now suo motu reduced the same to Rs. 1 lakh per month. Thus, when the IRP has on his own reduced his fees by 50% shows that his endeavours has been to keep his fees reasonable, there was no error on the part of the Adjudicating Authority to agree to the reduced quantum of fees and also reduced the CIRP expenses from Rs.11 lakhs to Rs.9 lakhs.

The Appellate Tribunal found no reason to interfere with the order of Adjudicating Authority.  The Appellate Tribunal directed the appellant to the IRP the fees of Rs. 33 lakhs within one month from the date of the order.  In respect of CIRP expenses the Appellate Tribunal directed the appellant to remit the amount in the accounts of the concerned person. Therefore, the Appellate Tribunal dismissed the appeal.