2021 (11) TMI 953 - AT - Insolvency and Bankruptcy

Entitlement of fees of Resolution Professional - Respondent was entitle for his fee upto which date? - whether when CoC decided to replace the Interim Resolution professional he ceased to entitle to any fee? - HELD THAT - The present is not a case where CoC in first meeting resolved to appoint the Interim Resolution Professional as Resolution Professional rather they in the first meeting resolved to replace the Interim Resolution Professional by another Resolution Professional. The present case is covered by Section 22 (3) (b) where CoC decided to replace the Interim Resolution Professional and it had filed an Application before the Adjudicating Authority for appointment of proposed Resolution Professional on 31.07.2018. Sub-section (4) of Section 22 requires that the Adjudicating Authority shall forward the name of the Resolution Professional proposed under clause (b) of sub-section (3) to the Board for its confirmation and shall make such appointment after confirmation by the Board. The most relevant provision is sub-section (5) of Section 22 which empowers the Adjudicating Authority to pass an order for the Interim Resolution Professional to continue to function as the Resolution Professional where the Board does not confirm the name of the proposed Resolution Professional within 10 days. The present case is not a case where Adjudicating Authority has passed any order after 31.07.2018 to continue the Interim Resolution Professional till the confirmation of the Board is received. After 10 days of sending the name of Resolution Professional to Board by the Adjudicating Authority, there being no order of the Adjudicating Authority to continue the Interim Resolution Professional as Resolution Professional, the Interim Resolution Professional has no right to continue to function as the Resolution Professional after such date. Obviously, the claim of the Respondent to continue to function as Resolution Professional till 09.10.2018 cannot be accepted - From the material on record, it does appear that after first meeting of the CoC dated 16.07.2018 when a decision was taken to replace the Interim Resolution Professional, no substantial work has been done. The second meeting was convened by the Interim Resolution Professional on 10.08.2018 which too was objected and no business was transacted in the said meeting also. Thus, effectively the Interim Resolution Professional could function only till 16.07.2018 and, as noted above, legally he could not have continued after 10 days from sending the proposal of new Resolution Professional by Adjudicating Authority as per Section 22 of the Code. This Tribunal passed an interim order on 12.07.2019 subject to condition of payment of ₹ 10 lakh to Respondent No.2 which has been accepted by Respondent. Looking to the sequence of events and actual work conducted by the Respondent, the amount of ₹ 10 lakh is sufficient to cover the fee payable to the Interim Resolution Professional including the cost for Insolvency Resolution Process - the amount paid to Respondent under interim orders sufficiently cover the Insolvency Resolution Process costs and no further payment is required to be made. Appeal allowed.

Summary

Issues Involved:
1. Entitlement of Interim Resolution Professional (IRP) to fees and expenses.
2. Validity of the CoC's decision to replace the IRP.
3. Applicability of Section 22 and Regulation 17 of the Insolvency and Bankruptcy Code (IBC), 2016.

Detailed Analysis:

1. Entitlement of Interim Resolution Professional (IRP) to Fees and Expenses:
The primary issue was whether the IRP was entitled to fees and expenses till the date of his replacement. The CoC in its first meeting on 16.07.2018 approved the IRP’s fees at ?5,00,000 per month. Despite the decision to replace him, the IRP claimed entitlement to fees until 09.10.2018, when the Adjudicating Authority officially replaced him. The Tribunal noted that the IRP was obstructed by the CoC members from performing his duties post the first meeting, and no substantial work was conducted by him after 16.07.2018. The Tribunal concluded that the IRP's entitlement to fees should be limited to the actual work performed and the statutory provisions governing such situations.

2. Validity of the CoC's Decision to Replace the IRP:
The CoC resolved to replace the IRP in its first meeting and filed an application for the same on 31.07.2018. The Tribunal examined Section 22 of the IBC, which allows the CoC to replace the IRP by another Resolution Professional (RP) by a majority vote. The Tribunal emphasized that once the CoC decides to replace the IRP, the IRP cannot claim entitlement to fees beyond the statutory period unless there is an order from the Adjudicating Authority to continue his role. The CoC's decision was valid and aligned with the statutory provisions.

3. Applicability of Section 22 and Regulation 17 of the Insolvency and Bankruptcy Code (IBC), 2016:
Section 22(5) of the IBC requires an order from the Adjudicating Authority to continue the IRP if the Board does not confirm the new RP within ten days. The Tribunal highlighted that no such order was passed in this case, and thus, the IRP could not claim continuance beyond the statutory period. Regulation 17(3) of the CIRP Regulations, 2016, which allows the IRP to perform the functions of the RP if the appointment is delayed, cannot be interpreted to override the statutory scheme of Section 22(5). The Tribunal clarified that Regulation 17(3) is subservient to the Code and cannot defeat the statutory provisions.

Conclusion:
The Tribunal concluded that the IRP was not entitled to fees beyond the statutory period as per Section 22(5) of the IBC. The Adjudicating Authority erred in allowing the IRP’s claim for fees till 09.10.2018 without considering the statutory scheme and the actual work conducted by the IRP. The interim order of payment of ?10 lakhs was deemed sufficient to cover the IRP’s fees and CIRP costs. The appeal was allowed, and the order dated 26.06.2019 was set aside to the extent of the IRP's claim for fees beyond the statutory period.