Applicant / corporate creditor to pay fees of IRP/ RP – NCALT order holding debtor to pay fees reversed – quality of NCLT/ NCALT teams need improvement.

[DEV KUMAR KOTHARI]

Judgment and order under study:

S3 ELECTRICALS AND ELECTRONICS PRIVATE LIMITED VERSUS BRIAN LAU AND ANR. [2019 (9) TMI 362 - SC ORDER]

For chain of related judgments/ orders please refer to reported judgments and citations therein.

Creditor/  is sufferer:

Creditor is sufferer if the debtor does not pay dues and interest thereon. Besides bad debts to be written off and interest to be waived creditor also suffer as he has to bear costs and  make sincere and timely efforts for recovery from defaulting debtors.

The creditor has to take timely remedial actions for recovery to save limitations. The period of limitation of three years is also very short and it provided escape to defaulting debtors, in case credit miss the bus by not filing suits within limitation.

 In contracts it may be provided that the debtor will have to pay costs, in case the creditor has to institute suits for recovery. In some situations, in general money suits, courts can award costs in favor of creditor/ applicant. However, costs awarded are generally very low in comparison to actual expenses incurred for filing and contesting suits.

  Therefore we find that the money lender, / creditor has to suffer if debtors start defaults.

However, in case of cases filed under the IBC Code, legal position is different. The NCALT had held that the fees of IRP will be payable by the Corporate debtor . The relevant portion of order of NCALT  vide paragraph 9  of order  ANDHRA BANK VERSUS BRIAN LAU AND ANR. [2017 (8) TMI 1571 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] dated 02.08.2017  reads as follows with highlights added:

             “ 9. Learned Adjudicating Authority will fix the fee of 'Interim Resolution Professional', if appointed and the appellant-'Corporate Debtor' will pay the fees of the Interim Resolution Professional, for the period he has functioned. “

Unquoted:

It seems that the above order was passed by NCALT, based on general law in which costs of suits are in discretion of the court. This order was contrary to specific law applicable in case of proceedings under IBC Code. Therefore, against the above order the corporate debtor preferred appeal before the Supreme Court.

The honorable Supreme Court reversed the order of NCALT on this issue. Relevant portion from the judgment is reproduced below, with highlights added:

          “ We have been shown Regulation 33 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which reads as follows:-

“33. Costs of the interim resolution professional.- (1) The applicant shall fix the expenses to be incurred on or by the interim resolution professional.

(2) The Adjudicating Authority shall fix expenses where the applicant has not fix expenses under sub-regulation (1).

(3) The applicant shall bear the expenses which shall be reimbursed by the committee to the extent it ratifies.

(4) The amount of expenses ratified by the committee shall be treated as insolvency resolution process costs.

[Explanation.- For the purposes of this regulation, “expenses” include the fee to be paid to the interim resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the interim resolution professional.]”

A bare reading of Regulation 33(3) indicates that the applicant is to bear expenses incurred by the RP, which shall then be reimbursed by the Committee of Creditors to the extent such expenses are ratified. We are informed that, in this case, no Committee of Creditors was ever appointed as the interim resolution process did not reach that stage. In these circumstances, it is clear that whatever the Adjudicating Authority fixes as expenses will be borne by the creditor who moved the application.

In this view of the matter, the impugned judgment dated 02.08.2017 is set aside only to the extent that these expenses are to be paid by the Corporate debtor. The appeal is allowed to the aforesaid extent.

Unquote:

It appears that the NCALT had passed order without looking into specific provisions applicable,  which were then considered by the Supreme Court, as discussed above.

We find that before NCLT and NCALT the debtor was not given any opportunity of hearing or he was not heard on this issue and NCALT passed order in this regard as an incidental order.

We find that in NCLT and NCALT matters are being dealt with considerably good speed. However, we also note that the orders might be passed in haste and undue hurry. This case is one such case which indicates on serious inadvertent mistake and thus poor quality of order passed by NCALT.

 Therefore, quality of  teams at NCLT and NCALT including  legal assistants, personal secretaries and  other assistants and counsels appearing before the benches, who are also court officers, need to be improved.