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Judgment
(Per Hon’ble Mr. Justice M. Satyanarayana Murthy)
This Appeal, under Section 61 of Insolvency and Bankruptcy Code, 2016 (hereinafter referred as ‘IBC’), is filed challenging the order passed by National Company Law Tribunal, Special Bench, New Delhi (hereinafter referred as ‘Adjudicating Authority’) in Company Petition (IB) No. 415(PB)/2019 dated 07.06.2022 whereby the claim of the Resolution Professional for payment of fee, is accepted.
The parties to the appeal preferred as arrayed before the NCLT, Delhi for convenience. The Resolution Professional is appointed by the impugned order dated 07.06.2022 to complete the Corporate Insolvency Resolution Process (hereinafter referred as ‘CIRP’), accordingly he constituted CoC and conducted 4 Meetings of Committee of Creditors (hereinafter referred as ‘CoC’) incurring expenses, besides engaging an advocate on payment of fee. But the same has not been paid to the Insolvency Resolution Professional though the remuneration and expenses were approved by CoC but he died before the completion of process. The main contention of the Respondents before the Adjudicating Authority was that he was having only 25.54% of voting right being creditor and cannot be compelled to pay half of the share of remuneration and expenses and that he is not liable to pay the legal expenses which was not approved by the CoC and agreed to pay the fee payable to Resolution Professional and other expenses approved by CoC.
The Adjudicating Authority passed the order after recording contentions and mostly on the submission made by Ms. Anju Jain that fee payable to the legal heirs of the deceased Resolution Professional was approved by National Company Law Appellate Tribunal (hereinafter referred as ‘NCLAT’) without recording independent reason. The Respondent before the Adjudicating Authority Appellant herein questioning the same on the ground that no such order of approval of the remuneration payable to the legal heirs of deceased Resolution Professional was passed by the NCLAT and that the Appellant is liable to pay remuneration and expenses approved by CoC, proportionate to his voting right of 25.54%. Apart from that the fee payable to advocate is not approved by CoC thereby not liable to pay the fee allegedly paid by RP to advocate, requested to pass an appropriate order.
Whereas, the Learned Senior Counsel Mr. Virender Ganda submits that the fee payable and the expenses incurred by deceased Resolution Professional was approved by CoC in 1st, 2nd and 4th CoC meetings and the Appellant herein, the Respondent before the Adjudicating Authority is liable to pay the fee to the legal heirs consequent upon death of Resolution Professional but not paid till date and requested to pass an appropriate order.
Admittedly, Resolution Professional was appointed to complete CIRP and held fourth CoC meeting and incurred certain expenses and died in the month of September, 2021 before completion of resolution process. During his tenure, fourth CoC meetings were held, but in three meetings i.e. in 1st, 2nd and 4th CoC meetings the expenses incurred by the erstwhile deceased Resolution Professional was approved the remuneration and expenses in different meetings noted as follows.
The 1st CoC meeting dated 15.11.2019 and the expenses in Item No. 4, remuneration and expenses incurred by Interim Resolution Professional were dealt with and approved the same is extracted hereunder:
| “Item – 04 | To ratify and approve the remuneration and expenses incurred by the Interim Resolution Professional till the date of the meeting. The Chairman placed before the members a list of expenses incurred from the date of appointment till the date of first meeting of the Committee of Creditors, the details of which is as under: | ||
| Sr. No. | Particulars | Amount (Rs) | |
| 1. | Fees of Interim Resolution Professional during the first month of resolution process (excluding | 1,00,000 | |
| applicable taxes, if any) | |||
| 2. | Travelling expenses of Interim Resolution Professional and other team members | 15,000 | |
| 3. | Office staff salary, printing, stationery and other office expenses | 10,000 | |
| 4. | Public Announcements | 58,800 | |
| 5. | Preparation of demand drafts and other expenses for filing of applications with the Hon’ble NCLT, Principal Bench and New Delhi Bench | 6,020 | |
| 6. | Lawyers’ fee for preparation, filing of applications with NCLT, Principal Bench and New Delhi Bench and appearances before the Hon’ble Tribunal. | 1,69,000 | |
| 7. | Cost of conducting Meeting of Committee of Creditors | 1,357 | |
| Total expenses (in Rs.) | 3,60,177 | ||
The matter was discussed and the Chairman informed the committee that the CIRP expenses as described above from the date of commencement of the CIRP process (including the fee of IRP for the period) till the date of the first meeting total up to Rs.3,60,177/-. He further informed the members that the IRP has received Rs.2,00,000 from the applicant M/s Unimax International in accordance with the order of the Hon’ble NCLT dated 30.09.2019 which needs to be reimbursed to him by the IRP upon approval of the expenses by the Committee and receipt of funds by the IRP.
The Chairman requested the members to ratify the said expenses. The members after considering the same ratified the expenses unanimously.”
In the 2nd CoC meeting dated 15.02.2020 the remuneration and expenses incurred by the Resolution Professional till date of meeting was shown as item No. 6 and approved the same is extracted hereunder:
| “Item – 06 | To ratify and approve the remuneration and expenses incurred by the Resolution Professional till the date of the meeting. The Chairman placed before the members a list of expenses incurred from the date of appointment first meeting of the Committee of Creditors till the date of second meeting of the Committee of Creditors, the details of which is as under: | ||
| Sr. No. | Particulars | Amount (Rs) | |
| 1. | Fees of Resolution Professional from 01.11.2019 till the date of second meeting (excluding applicable taxes, if any) | 2,81,379 | |
| 2. | E-voting expenses | 11,800 | |
| 3. | Preparation of demand drafts and other expenses for filing of applications with the Hon’ble NCLT, Principal Bench and New Delhi Bench | 6,050 | |
| 4. | Lawyers’ fee for preparation, filing of applications, affidavits with NCLT, Principal bench, New Delhi Bench and Hon’ble Appellate Tribunal and appearances before the Hon’ble NCLT, Principal Bench and New Delhi Bench and Appellate Tribunal. | 4,33,500 | |
| 5. | Cost of conducting of the second Meeting of Committee of Creditors. | 765 | |
| Total expenses (in Rs.) | 7,33,494 | ||
The matter was discussed and the Chairman informed the committee that the CIRP expenses as described above from the date of first meeting of the Committee of Creditors till the date of the second meeting total up to Rs.7,33,494/-. The Chairman requested the members to ratify the said expenses and the members after considering the same ratified the expenses.”
Similarly, in the 2nd CoC meeting dated 17.03.2020 the minutes of the previous meetings were approved in Item No. 3 while ratifying and approved remuneration and expenses incurred by Resolution Professional from the date of 1st CoC meeting till date of this meeting. Item No. 6 is extracted hereinunder:
“Item – 06 To ratify and approve the remuneration and expenses incurred by the Resolution Professional from the date of second meeting till the date of this meeting.
The Chairman placed before the members a list of expenses incurred from the date of second meeting of the Committee of Creditors till the date of this meeting, the details of which is as under: Sr. No. CIRP process cost Amounts (Rs) 1. Fees of Resolution Professional from 16.02.2019 till the date of this meeting (excluding applicable taxes, if any) 82,492 2. Preparation of demand drafts for filing of applications with the Hon’ble NCLT 1,010 3. Lawyers’ fee for appearances before the Hon’ble NCLT, Principal Bench and New Delhi Bench and Appellate Tribunal. 3,68,500 4. Electricity expenses 58,734 5. Meeting expenses, stamp paper,
notary, speed post expenses
5,000 Total (in Rs.) 5,15,736 The members took tone of the same and ratified the expenses.”
Thus, the total amount to be paid to erstwhile RP is Rs. 16,09,402/-(Rupees sixteen lakhs nine thousand four hundred and two only) (Rs. 3,60,177/- + Rs. 7,33,494/- + Rs.5,15,736/-), approved in the CoC meetings held on viz., 1st, 2nd and 4th as shown in the earlier paragraphs.
Respondent before the Adjudicating Authority and the Appellant herein is bound to pay the expenses and remuneration approved by CoC in terms of judgment of this Tribunal in State Bank of India Vs. SKC Retails Ltd Through IRP & Anr. in Company Appeal (AT) (Insolvency) No. 08 & 43 of 2018 at Para No.10 which is to the following effect:
“10.As per Regulation 33, the applicant means the person who files the application under Section 7 or 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “I&B Code”) who generally proposes the name of the ‘interim resolution professional’. Such applicant negotiates the fee to be charged and paid to the interim resolution professional. As per the provision aforesaid, the Adjudicating Authority is required to fix the expenses where the applicant has not fixed expenses under sub-regulation (1) of Regulation 33. In such case, the applicant, who has filed the application under Section 7 or 9 of the I & B Code, is required to bear the expenses which is to be reimbursed by the committee of creditors to the extent the Committee of Creditors ratifies the same.”
According to Regulation 25, an Insolvency Professional must provide services for remuneration which is charged in a transparent manner, is a reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations. Sections 25A, 26 and 27 are the relevant Regulations, which deal with the remuneration, cost of Insolvency Professional. Whereas, Regulation 33 of the IBBI (Insolvency Corporate Persons) Regulations, 2016 specify the Resolution Process Cost. Regulation 31 specifies the Insolvency Regulation Process costs, which are as follows:
“31.Insolvency resolution process costs. - “Insolvency resolution process costs” under section 5(13)(e) shall mean –
(a)Amounts due to suppliers of essential goods and services under regulation 32;
[(aa) fee payable to authorised representative under [sub-regulation (8)] of regulation 16-A;
(ab)out of pocket expenses of authorised representative for discharge of his functions under [section 25-A];]
(b)Amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d);
(c)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.”
A conjoint reading of Regulation 25A, 26 and 27 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and Regulation 31 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the expenses incurred under the different heads covered by Regulation 31 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 shall be paid by the creditors. Insolvency Process cost is defined under Section 5(13)(e) which runs as follows:
“5(13)(e) Insolvency resolution process costs” means-
(e)any other costs as may be specified by the Board;”
In the instant case, the cost incurred by erstwhile RP and remuneration payable to him was approved by CoC in the CoC meetings, the total amount payable is Rs. 16,09,402/-, thus, the legal heirs of deceased RP are entitled to claim the remuneration payable to erstwhile RP and cost incurred by him, approved in CoC meetings.
One of the major contentions of the Appellant herein is that the Appellant is having only 25.54% voting share and liable to pay its share of costs. As per provisions of the Act, the Respondent before the Adjudicating Authority Appellant herein, the creditors have to bear the cost of resolution process and remuneration payable to the Resolution Professional in proportionate to voting share, but the Adjudicating Authority directed the creditors to pay 50% of the cost payable to erstwhile RP. Therefore, the direction to the extent of payment of remuneration equally by the creditors is contrary to the provisions of ‘IBC’ and relevant Regulations.
During the argument, the Learned Counsel for the Appellant herein, agreed to pay the cost and remuneration approved in CoC meeting proportionate to its voting share while denying liability to pay legal expenses paid to the advocate. Admittedly, the fee payable to advocate was not approved or ratified to CoC meetings. In view of the judgment in Bharat Hotels Ltd. Vs. Tapan Chakraborty in Company Appeal (AT) (Insolvency) No. 1074 of 2022, the Appellant is not liable to pay its share of fee of advocate, since it was not ratified or approved in the CoC meetings, in view of the principle laid down in the judgment. Hence, the direction issued by the Adjudicating Authority to pay the legal expenses i.e. fee paid to the advocate is erroneous and the same is hereby set aside.
Apart from the above conclusion, we are of the view that direction to pay equally with other creditor is erroneous, since, the Respondent before the Adjudicating Authority is having 25.54% voting share and therefore liable to pay the expenses in proportionate to the voting share of Appellant herein and before the Adjudicating Authority. Accordingly, the order of the Adjudicating Authority is modified to this extent indicated above.
The Appeal is allowed in part modifying the order directing the Appellant to pay remuneration and cost of resolution process approved in CoC meeting i.e. Rs. 16,09,407/- proportionate to its voting share.