2022 (9) TMI 277 - AT - Insolvency and Bankruptcy

Duties and functions carried out by IRP. - Disallowing certain CIRP expenses claimed by the Appellant/IRP - the IRP himself filed the CIRP withdrawal application just within 12 days after commencement of the CIRP - whether it was justified on the part of the IRP to still continue with the CIRP proceedings - disallowing certain CIRP expenses claimed by the Appellant/IRP by treating them as non-essential ? - whether the remarks disapproving the conduct of the IRP in the present matter by the Adjudicating Authority stands to reason? - HELD THAT - It is an undisputed fact that the Operational Creditor having entered into a settlement with the Corporate Debtor, he had informed the IRP on 12.10.2021 in the prescribed format, seeking withdrawal of CIRP. Within six days, on 18.10.2021, the IRP had also filed the CIRP withdrawal application before the Adjudicating Authority. The Corporate Debtor also had taken steps on his part before the Adjudicating Authority on 17.10.2021 for stay on the CIRP and also filed an application on 22.10.2021 for withdrawal of the CIRP. It is therefore amply clear that all the important stakeholders in the process were in unison in seeking closure of CIRP and awaiting final directions of the Adjudicating Authority. The Adjudicating Authority after categorizing the costs as essential and non-essential have allowed the CIRP costs to the extent of Rs. 8,36,001/- to be reimbursed by the Corporate Debtor. The Adjudicating Authority has also allowed certain amount as the expenses of the IRP and for payment towards his fees - since the Section 12A application was filed by the IRP before the Adjudicating Authority well before the constitution of CoC, the IRP s continuance with the CIRP process without making adequate efforts to seek pointed clarification from the Adjudicating Authority on whether to proceed with the CIRP or not, does not reflect well on his conduct. IRP cannot afford to be unmindful of the fact that he is the driving force and the nerve-center in the resolution process and is expected to assist in the CIRP process in a fair and objective manner in the best interest of all stakeholders. In the IBC framework, the IRP is the fulcrum of the CIRP process and is obligated to act as the bridge between the Adjudicating Authority, the CoC and other stakeholders including the Corporate Debtor. As an officer of the court vested with administrative powers, the IRP as the facilitator of the resolution process needs to conduct the process with fairness, diligence, forthrightness and highest sense of responsibility. This aspect squarely finds place in Section 208(2)(a) of the IBC which subjects the insolvency professionals to abide by a code of conduct which, inter-alia, obligates the IRP to take reasonable care and diligence while performing his duties. It is clear that what is reasonable, is not amenable to precise definition and therefore is context specific. Given that CIRP withdrawal application before the Adjudicating Authority was a known factor, it would only have been fair on the part of the IRP, if instead of pressing the accelerator on the CIRP process, he had pursued in serious earnest with the Adjudicating Authority for its clear directions and guidance on proceeding with the CIRP - the IRP seems to have taken advantage of the fluid situation and unnecessarily added to the costs by carrying out activities which could have otherwise been put on hold and find the conduct of the IRP deprecatory. There are no substance in the submission raised by the Learned Counsel for the Appellant to warrant any interference in the impugned order. The impugned order passed by the Adjudicating Authority, not suffering from any infirmities, is hereby affirmed - appeal dismissed.

Summary

Issues Involved:
1. Justification of IRP continuing with CIRP proceedings after filing the withdrawal application.
2. Adjudicating Authority's disallowance of certain CIRP expenses as "non-essential."
3. Remarks disapproving the conduct of the IRP.

Detailed Analysis:

1. Justification of IRP Continuing with CIRP Proceedings:
The core issue is whether the IRP was justified in continuing with the CIRP after filing the withdrawal application on 18.10.2021, just 12 days after CIRP commencement. The Adjudicating Authority emphasized that the IRP should have sought clear guidance on whether to proceed with the CIRP. The IRP's mechanical adherence to CIRP Regulations without pursuing the withdrawal application with greater vigor was criticized. The Tribunal agreed with the Adjudicating Authority, noting that the IRP should have highlighted the special circumstances before the Adjudicating Authority and sought pointed clarification, rather than proceeding with the CIRP.

2. Disallowance of Certain CIRP Expenses:
The IRP's expenses were scrutinized, and the Adjudicating Authority categorized them into "essential" and "non-essential" activities. The expenses on valuation and payment to advocates were disallowed due to the non-cooperation of the ex-management in handing over records and assets. The Tribunal found the classification reasonable and justified, noting that the IRP should have been mindful of the peculiar circumstances and not incurred unnecessary expenses. The Adjudicating Authority's decision to allow only Rs. 8,36,001/- as CIRP costs was upheld.

3. Remarks Disapproving the Conduct of the IRP:
The Adjudicating Authority made strong remarks disapproving the IRP's conduct, stating that his actions were not in sync with the spirit of the IBC. The Tribunal concurred, emphasizing that the IRP, as the fulcrum of the CIRP process, should act with fairness, diligence, and responsibility. The IRP's failure to pursue the withdrawal application with the necessary seriousness and instead pushing forward the CIRP was seen as adding unnecessary costs. The Tribunal upheld the Adjudicating Authority's remarks, finding the IRP's conduct deprecatory and agreeing that his actions were not consistent with the expected standards of care and diligence.

Conclusion:
The Tribunal affirmed the impugned order, finding no infirmities. The appeal was dismissed, with no order as to costs. The Tribunal emphasized the importance of the IRP's role in the CIRP process and the need for acting in a manner consistent with the IBC's spirit and regulations.