The New Delhi bench of the National Company Law Appellate Tribunal( NCLAT ) approved the reduced Fee payable to Resolution Process(RP) on failure to complete Corporate Insolvency Resolution Process (“CIRP”) in Time Bound Manner.
India Resurgence ARC Pvt. Ltd., the appellant filed appeal under Section 61 of Insolvency and Bankruptcy Code, 2016 (“IBC”) arises out of the common order dated 06.12.2022 (“Impugned Order”) passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench Court-III) wherein the Adjudicating Authority has directed the Committee of Creditors (“CoC”) for payment of fees to the Resolution Professional (“RP”) of Rs.1 lakh per month + GST from 01.09.2019 to 24.04.2022 along with other actual expenses incurred by him on production of bills.
It was submitted that a Section 7 application had been admitted against the Corporate Debtor on 25.04.2019 for initiation of CIRP. After collating claims of the creditors, the CoC was constituted on which Religare Finvest became a member.
The Religare Finvest had 69.02% of the voting share and was the majority Financial Creditor. In terms of voting share, the next largest Financial Creditor was Dena Bank with a 29.34% vote share as recorded in the minutes of the first CoC meeting. Later, India Resurgence Arc Pvt Ltd became a member on 24.12.2021 after replacing Religare Finvest as the predecessor in interest following a deed of assignment in their favour. For convenience, this party will be referred to as Religare Finvest in this matter.
The Interim Resolution Professional appointed to conduct the CIRP was later appointed as the RP with a monthly remuneration of Rs.3.75 lakhs plus GST as approved in the 1st CoC meeting. The 3rd CoC meeting on 18.07.2019 decided to remove the RP subject to his continuance until replacement by a new person. However, the RP continued to function since no application was filed for a change of RP.
The Adjudicating Authority has correctly noted that the RP had failed to perform his duty and acted prejudicially to the interests of the Corporate Debtor by joining hands with the suspended management.
The RP was therefore rightfully entitled to claim the same amount to be paid as his fees. While admitting that the CoC in its third meeting had decided to replace the RP, it was also asserted that the CoC did not move any application for his substitution and had resolved to pay the RP till the date of his demitting office.
The RP has contended that he was discharging all his responsibilities appropriately. All steps had been taken to protect the assets of the Corporate Debtor for which purpose a person had also been appointed to supervise the assets.
It was evident from the minutes of the first CoC meeting reveal that it had ratified the appointment of the Interim Resolution Professional including payment of fees and in the second CoC meeting held on 14.06.2019 his appointment as RP was confirmed.
The Adjudicating Authority has scaled down the fees from Rs 3.75 lakhs to Rs 1 lakh plus GST which has been challenged by the RP. It has been observed by the Adjudicating Authority that it was unreasonable for the RP to claim fees for himself and his team for the period when all work was at a standstill due to the Covid pandemic.
It has also been observed that at a time when the CoC had already decided to replace the RP, he was taking advantage of the fact that the replacement application was not filed on time before the Adjudicating Authority.
The RP had failed to assist in the CIRP process fairly and objectively in the best interest of all stakeholders. The RP was also unable to elicit any successful resolution plan for the Corporate Debtor within 180 days from the initiation of CIRP.
The NCLAT observed that the active CIRP period having expired with no substantial work to be taken up further and the Covid pandemic also having generally disrupted work, the scaling down of the fees to Rs 1 lakh was not discriminatory or unfair. The Adjudicating Authority was therefore well within its rights in exercising its wisdom in adjudicating on the reasonability quotient of fees payable to the RP.
The RP in the CoC meetings had repeatedly raised the issue of non-cooperation from the Corporate Debtor in securing books of accounts and statutory registers. Further information memorandum preparation had suffered since valuers could not be appointed on time as CoC was not confirming payment of valuer’s fees.
A two-member comprising Justice Ashok Bhushan, Chairperson and Barun Mitra, Member (Technical) observed that the RP had insisted on a forensic audit though the CoC wanted only a statutory audit. The CoC had recommended liquidation but RP had orally opposed liquidation of the Corporate Debtor before the Adjudicating Authority even after having filed the liquidation application.
The RP had also not acted on the suggestion of the CoC to file a petition before the Adjudicating Authority against the suspended management for non-cooperation in submitting statutory registers and other documents etc.
It was observed that RP was more focused on claiming his fees/remuneration and other expenses than discharging his responsibilities of completing CIRP in a time-bound manner. The NCLAT upholds the impugned order and dismissed the appeal.
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