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TMI Blog2023 (2) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... n on 21.03.2022. The provisions as appearing in IBC and Regulations framed thereunder read with the Code of Conduct of IRP all indicate that although quantum of fees has not been fixed, the quantum of fees payable is context specific. Thus, what fee is reasonable is context specific but what is context specific is not amenable to a precise definition. However, the fee should be a reasonable reflection of the work necessarily and properly undertaken by IRP. Further the fees should not be inconsistent with the applicable regulations and should be charged in a transparent manner. Reasonability of the fees/expenses which has been allowed by the Adjudicating Authority in the present case - HELD THAT:- The IRP has claimed Rs.4,00,000/- only towards fixed fee for the period for which the CIRP had continued and this entire amount has been allowed by the Adjudicating Authority. It is an admitted fact that a substantial portion of this period was hit by the lockdown arising out of the Covid outbreak. Further, we cannot lose sight of the fact that the CIRP proceedings were stymied on account of the fact that the IRP could not lay hand on the information required to undertake various s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order, the present appeal has been preferred. 2. The factual matrix of the present case as briefly put forth by the Learned Counsel for the Appellant is that a Section 9 petition was admitted against Tarang Exports Private Limited, the Corporate Debtor by the Adjudicating Authority vide its order dated 17.02.2020, subsequently modified vide corrigendum dated 24.02.2020. Since the Operational Creditor/Appellant while filing the Section 9 application did not propose the name of the IRP, hence the Adjudicating Authority while bringing the Corporate Debtor under the rigours of CIRP appointed the IRP. Accordingly, the Operational Creditor/Appellant, through legal counsel, intimated the IRP vide email dated 09.03.2020 regarding his appointment. 3. It was further submitted that following his appointment, the IRP had issued a public announcement on 11.03.2020. It has been submitted by the Learned Counsel for the Appellant that soon thereafter Covid-19 pandemic made ingress and because of the consequential lock-down, the Operational Creditor could not follow up on the progress of the CIRP of the Corporate Debtor with the IRP until end-September 2020. It has been further submitted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntain reasons for allowing the fees and expenses claimed by the IRP. The Learned Counsel for the Appellant strenuously contended about dereliction of duty on the part of IRP and stated that the Appellant was, therefore, not obligated to reimburse the IRP for his fees/expenses. 6. It has been further submitted that the IRP had failed to disclose the detailed item wise break-up of the fees and expenses claimed by him which is required in terms of the Code of Conduct in terms of the IBBI (Insolvency Professionals) Regulations, 2016 and Regulation 34-A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 ( CIRP Regulation in short). It has also been pointed out that the fees charged by the IRP is exorbitant. 7. The Learned Counsel for the Respondent making the rival submissions stated that on receipt of email dated 09.03.2020 from the Operational Creditor regarding his appointment as IRP, he sought the contact details of the Operational Creditor and sought information from the suspended management for conduct of CIRP. However, no response having been received from the suspended management, the public announcement was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egin with, we may start by going through the relevant provisions of the IBC Code, IBBI (Insolvency Professionals) Regulations, 2016 and CIRP Regulations, 2016: - Section 5(13) of IBC reads as under: (13) Insolvency Resolution Process Costs means (a) the amount of any interim finance and the costs incurred in raising such finance; (b) the fees payable to any person acting as a resolution professional; (c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern; (d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and (e) any other costs as may be specified by the Board; Section 208(2) reads as under: 208. (2) Every insolvency professional shall abide by the following code of conduct: (a) to take reasonable care and diligence while performing his duties; (b) to comply with all requirements and terms and conditions specified in the byelaws of the insolvency professional agency of which he is a member; (c) to allow the insolvency professional agency to inspect his records; (d) to submit a copy of the recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 33; (d) expenses incurred on or by the resolution professional fixed under Regulation 34; and (e) other costs directly relating to the corporate insolvency resolution process and approved by the committee. Costs of the interim resolution professional. 33. (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 fixed 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. Resolution professional costs. 34. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught the contact details of the Operational Creditor and also sent a communication to suspended management requesting other related particulars, documents and books of accounts of the Corporate Debtor so as to effectively conduct the CIRP and manage the affairs of the Corporate Debtor. Neither the Operational Creditor nor the suspended management had provided access to the books of accounts, financial statement, bank account details or any other related information to the IRP. It is also noticed that the Operational Creditor was not in contact directly with the IRP. Instead, an advocate Mr. Saurabh Pandya was seeking status of CIRP from IRP without any authorisation from the Operational Creditor. The IRP had clarified that he was not bound to respond to mails to Mr. Pandya in absence of receipt of any authority letter from the Operational Creditor. 14. We notice that the IRP continued with his efforts to obtain information and in terms of Sections 13 and 15 of IBC had also taken steps to issue public announcement in two newspapers. The issue of public announcement has not been controverted by the Appellant. It is also the claim of the IRP that the details of the public announcem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the creditors to play a catalytic role in the insolvency resolution process given the present regime of creditor-driven IBC. The rigours of similar standards of discipline should also apply on the creditors. This is clearly a case where the CIRP process was being hindered due to want of cooperation and participation from the creditors. The conduct of the Operational Creditor in the present case is deprecatory in that once the CIRP process had commenced, the Operational Creditor went into a sleeping mode. This position has been further aggravated by the fact that it was the Appellant/Operational Creditor who had triggered this judicial process and then abdicated himself from all responsibilities. That the Operational Creditor did not seem interested in resolution of the Corporate Debtor is evident from the fact that till date no claim has been filed with the IRP. 17. Further we are of the considered view that Section 217 of the IBC empowers any person aggrieved by the functioning of a Resolution Professional to file a complaint before the IBBI. The Operational Creditor was at liberty to report any dereliction of duty on the part of the IRP and that not having been done, the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged his fees in a transparent manner and that he claimed disproportionately high fees as compared to the limited work undertaken by him having only issued the public announcement. Attention was also adverted to circular of IBBI dated 21.06.2018 on fee and other expenses incurred for Corporate Insolvency Resolution Process and the need of fees having to meet the reasonability quotient which is as reproduced hereunder: CIRCULAR No. IBBI/IP/013/2018 12th June, 2018 To All Registered Insolvency Professionals All Recognised Insolvency Professional Entities All Registered Insolvency Professional Agencies (By mail to registered email addresses and on website of the IBBI) Dear Madam / Sir, Sub : Fee and other Expenses incurred for Corporate Insolvency Resolution Process When a corporate debtor undergoes corporate insolvency resolution process (CIRP), an Insolvency Professional (IP) is vested with the management of its affairs and he manages its operations as a going concern. He complies with the applicable laws on behalf of the corporate debtor. He conducts the entire CIRP. Such responsibilities of an IP require the highest leve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ependence; (d) written contemporaneous records for incurring or agreeing to incur any fee or other expense are maintained; (e) supporting records of fee and other expenses incurred are maintained at least for three years from the completion of the CIRP; (f) approval of the Committee of Creditors (CoC) for the fee or other expense is obtained, wherever approval is required; and (g) all CIRP related fee and other expenses are paid through banking channel. 7. The Code read with regulations made thereunder specify what is included in the insolvency resolution process cost (IRPC). The IP is directed to ensure that:- (a) no fee or expense other than what is permitted under the Code read with regulations made thereunder is included in the IRPC; (b) no fee or expense other than the IRPC incurred by the IP is borne by the corporate debtor; and (c) only the IRPC, to the extent not paid during the CIRP from the internal sources of the Corporate Debtor, shall be met in the manner provided in section 30 or section 53, as the case may be. 8. It is clarified that the IRPC shall not include: (a) any fee or other expense not directly related to CIRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deputy General Manager Email: [email protected] Annexure B What is Reasonable Cost and Reasonable Fee I. As regards reasonable costs, the Society for Insolvency Practitioners of India, in its statement of best practices on PAYMENT OF CORPORATE INSOLVENCY RESOLUTION PROCESS COSTS observes: Insolvency professionals must ensure that the costs incurred are reasonable. To determine the reasonability of these costs, they should consider if the costs are- (a) directly related to the insolvency resolution process, (b) necessary for meeting the objectives of the insolvency resolution process, and the Code, (c) proportional to the work required to be done and the assets of the corporate debtor, and (d) determined on an arms length basis, in consonance with the requirements of integrity and independence. [http://www.insolindia.com/uploads_insol/draft_best_practices/files/-1013.pdf] II. As regards reasonable fee, the Society for Insolvency Practitioners of India, in its statement of best practices on PAYMENT OF FEE AND REIMBURSEMENT OF OUT-OF-POCKET EXPENSES suggests: Factors to be considered while chargin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increase the fee charged without the prior approval of the authority fixing his/her fee. [http://www.insolindia.com/uploads_insol/draft_best_practices/files/-1008.pdf] 20. It has been pointed out by the Learned counsel for the Appellant that the Adjudicating Authority in the impugned order has simply endorsed the CIRP cost claimed by the IRP and directed the Operational Creditor to reimburse the total costs of Rs. 5,62,000/- without analysing whether the claim made was proportionate to the work done and the reasonableness of the claim. It has been further submitted that the IRP has not provided any supporting bills to substantiate his claim of expenses and that the fees charged were therefore not transparent. It is pertinent to add here that during oral hearing when the Learned Counsel for the Operational Creditor was pointedly asked by this Tribunal to indicate what to their mind in the present case constituted reasonable fees, it was stated that any amount beyond Rs.50,000/- would become excessive. An opportunity was also offered to the IRP to submit detailed break-up of expenditure incurred along with bills to which the Learned Counsel for the IRP submitted that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, felt that the reasonability of the fees payable to the IRP may be determined keeping in mind that CIRP had not made much progress beyond its preliminary phase and there was no occasion to carry out any exceptional responsibility. On this basis, it may suffice to restrict the expenditure to Rs.2,00,000/- only on account of fees. We agree with the Adjudicating Authority that the expenditure incurred on public announcement amounting to Rs. 12,000/- deserves to be reimbursed fully since this work was completed. As regards expenditure incurred on Legal expenses, Company Secretary and Out of pocket expenses which have been claimed by the IRP at the rate of Rs.50,000/- each and so allowed by the Adjudicating Authority, we are of the view that it needs to be rationalized by reducing it by one half. The basis of this rationalisation is that not much work complexity was involved as is borne out by the facts of the case and that it would suffice to restrict expenditure on the two aforementioned professional services and miscellaneous costs at the rate of Rs.25,000/- each. We therefore hold that payment of a consolidated amount of Rs.2,87,000/- plus GST to the IRP would suffice toward ..... X X X X Extracts X X X X X X X X Extracts X X X X
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