Mr. Pankaj Khaitan vs Jammu & Kashmir Bank Limited

Per: Virendra Kumar Gupta, Member (Technical)

This application has been filed by the Resolution Professional for payment of fees of IRP/ RP and CIRP cost.

The facts, in brief, are that the Corporate Debtor in pursuance of an application filed by the Financial Creditor U/s 7 of IBC, 2016 was admitted into CIRP vide order of this Adjudicating Authority dated 08.05.2018. The applicant was appointed as IRP who constituted the CoC.

In the first meeting of CoC held on 05.06.2018, the appointment of RP as IRP was confirmed by the CoC, however, the issue regarding fixation of fees was deferred as approval from the head office was required. IRP submitted the details of expenses from 08.05.2018 to 04.06.2018. However, due to lack of invoices the matter was deferred and subsequently it was approved in the CoC in its 2^nd meeting held on 26.06.2018. Further, the expenses of similar nature have been approved by the sole member of the CoC in subsequent meetings. However, it is claimed by the RP that against the CIRP costs incurred only a sum of Rs.10,00,000/- + Rs.2,50,932/-, being IRP expenses from 08.05.2018 to 04.06.2018 had been reimbursed and, thereafter, no payment has been made by the CoC.

It is also claimed in the application that the RP is functioning as per law in a most diligent manner and taking all steps and actions to protect the interests of the Corporate Debtor. Ultimately, it is prayed that the direction be given to the sole member of the CoC to pay the expenses and professional fees as approved by the CoC from time to time.

Ld. Counsel appearing for the RP submitted that the RP in compliance to the order of this Adjudicating Authority dated 28.12.2021 provided the necessary detail chart and even the invoices to CoC, hence, no shortcoming exists, hence, the sole member of the CoC be directed to make the payment of professional fees as well as CIRP costs as approved and considering the efforts made by the IRP/ RP.

On the other side, it is claimed on behalf of the sole member of the Financial Creditor that CoC was always willing to pay RP’s fees for six months from the commencement of CIRP period i.e. 08.05.2018 and expenses incurred till the passing resolution for liquidation of the corporate debtor. It is also claimed that after rejecting the proposal for extension of CIRP, the CoC in its 4^th meeting held on 12.10.2018 passed a resolution to initiate liquidation process and an application was to be filed with Adjudicating Authority to this effect. It is also claimed that post filing of such application the applicant did not carry out any work, hence, the amount claimed by the Applicant/ RP was totally unjustified, vague and without merits.

It has also been claimed that only IRP fee had been approved and the fee for RP though approved by the CoC but was subject to the approval of higher authorities of the respondent Bank. It was again reiterated that the applicant has not performed any activity of RP and now only fee of Liquidator will have to be paid as per the provisions of law. It is also claimed that after passing of the order of liquidation, the role of the RP gets over as CIRP comes to an end and consequently no fee/ expenses are required to be paid to post passing of the order of liquidation on 28.02.2019.

We have considered the submissions made on behalf of both sides and have also perused the material on record.

In the present case, corporate debtor was admitted into CIRP on 08.05.2018. The applicant herein was appointed as IRP and whose appointment as RP was also confirmed. First meeting of CoC was held on 05.06.2018, the second meeting of CoC was held on 26.06.2018, the third meeting of CoC was held on 13.08.2018 and the fourth meeting of CoC was held on 12.10.2018, wherein the resolution for initiation of liquidation of the corporate debtor was passed by the CoC and, consequently, an application for liquidation of the corporate debtor was filed which was numbered as IA No.265/2018.

The Suspended Board had also filed two applications, wherein prayer was made to change the RP on account of his biased approach. Allegations of corrupt conduct were also made which have also been taken note of as submissions made by the corporate debtor in para no.8 to 13 of the order of the liquidation passed by this Adjudicating Authority on 28.02.2019. In the order of liquidation, this Adjudicating Authority has noted that though the allegations were made but no concrete material was produced on record. The Adjudicating Authority has also noted that the filing of application U/s 19(2) of the Code and a contempt application for non-compliance of order passed by this Adjudicating Authority in the application filed U/s 19(2) of IBC, 2016. Finally, this Adjudicating Authority took note of the fact that neither information memorandum was prepared nor any expression of interest was published, hence, after expiry of 180 days, liquidation was the natural consequence.

Considering the legal provisions, the order to this effect was passed. Further, considering the allegations and counter allegations by the suspended management against the conduct of the RP it was thought fit to appoint other person as Liquidator, though the CoC had passed the resolution for appointment of IRP as Liquidator and for this purpose, the hearing was fixed on 11.03.2019. However, due to one or the other reasons, the issue of appointment of Liquidator remained pending and in the intervening period the Pandemic situation also prevailed. This situation created a vacuum and to fill up the same, neither the RP nor the CoC took any effective steps in the intervening period so that the appointment of Liquidator could have been done without such delay. On this situation, discussion is being made in later part of this order. We further note that ultimately this Adjudicating Authority appointed new RP as Liquidator vide its order dated 20.12.2021 and also excluded the period from 28.02.2019 till appointment of the Liquidator by the impugned order from the liquidation process period.

The RP has claimed his fees out of pocket expenses and other CIRP costs for the entire period i.e 11.03.2019 till date.In the reply, the CoC has stated that the fees of IRP had only been approved and fees of RP though approved by the CoC but was subject to the approval of higher authorities. We, however, do not find any merit in this contention made on behalf of the CoC as there is no provision in I & B Code or Regulations made thereunder whereby such approach can be taken by member of CoC as for all purposes it is the CoC who is competent in itself to take the decision.

In this situation, we have to consider as to what claims made by RP can be accepted. The RP has produced the convenience chart showing the amount of fee and expenses which were approved or dis-approved along with outstanding on account of such fee and expenses from 28.02.2019 till 20.12.2021. The same are reproduced hereunder:-

Now, we need to take note of the proceedings as regard to issue of delay in appointment of Liquidator, we have gone through the proceedings before this Adjudicating Authority and it is noted that applications except that IA relating to the appointment of Liquidator wherein order of liquidation has been passed but appointment of Liquidator remained pending, was under consideration of this Adjudicating Authority for which 22 times the hearings were fixed and, in none of such hearings, the fact that Liquidator was to be appointed without any delay was emphasized. On the contrary, on few occasions adjournments were granted at the joint requests of all the parties or on the ground that differences amongst them were being resolved. We further note that the RP vide its email dated 06.07.2020 requested the sole member of the CoC regarding the payment of fee and expenses which shows that the RP was focused on getting its remuneration and other expenses only instead of getting the insolvency resolution of the corporate debtor done in a time bound manner. For, this purpose, we consider it appropriate to give a brief aspect of the proceedings of this Adjudicating Authority. After passing of the liquidation order, the next date of hearing was fixed on 11.03.2019, on which date neither CoC nor the applicant appeared. Hence, the matter was adjourned to 05.04.2019. On the next date of hearing i.e. on 08.04.2019, there was no representation on the part of suspended management, hence, the matter was adjourned to give an opportunity to them as they were objecting to the appointment of RP as Liquidator, whereas the CoC was having full confidence on RP being appointed as Liquidator. The matter was adjourned to 23.04.2019 where reply given by the suspended management was considered and RP was asked to give reply. Thereafter matter was fixed for hearing on 05.04.2019, on which date due to lack of Coram, Bench did not function. Subsequently, arguments were heard and the order was reserved on 08.08.2019. Thereafter, there was a change of the constitution of the Bench and the case was taken up for hearing on 03.01.2020 on which date the matter was adjourned for further hearing to 17.01.2020. Subsequently, this application came for hearing on 03.02.2020 on which date at the joint request the matter was put for further consideration on 22.02.2020, on which date the counsel representing CoC sought adjournment and thereafter the matter was adjourned on 05.03.2020 on which date nobody appeared on behalf of the suspended management, hence, the matter was again adjourned to 23.03.2020. The Lockdown came into operation and, thereafter, the matter was heard on 13.07.2020 wherein further developments were noted and counsel of CoC again sought time for giving reply. On the next date of hearing i.e. 19.08.2020, the CoC changed its stands as regard to continuation of RP as Liquidator and it was stated that for this purpose application was to be filed which was under process, hence, the matter was adjourned to 17.09.2020. However, the reply could not be filed because as the Ld. Counsel representing the CoC was suffering from Covid, hence, the matter was adjourned to 14.10.2020, on which date at the joint request, the matter was adjourned to 03.12.2020. On 03.12.2020 it was informed to the Bench that parties are reaching out for settlement as regard to the dues as well as the issue of appointment of Liquidator, hence, the matter was again adjourned to 04.02.2021. On which date again the matter was adjourned to 26.02.2021. Thereafter the matter came up for hearing on 03.08.2021, on which date the matter was adjourned to 08.09.2021 at the joint request of the parties. On 08.09.2021 the Bench adjourned the matter to 02.11.2021 as the relevant documents was not uploaded on the e-portal. Ultimately, the order was passed by this Bench on 20.12.2021, whereby the new Liquidator was appointed. This chronology of events shows that the RP was fully aware of the fact that he had not been appointed as Liquidator nor any other person was appointed as liquidator, hence, it was obligatory on his part to take appropriate steps for appointment of Liquidator so that liquidation process could be conducted. Having said so, even CoC though initially supported the RP to be appointed as Liquidator later on changed its stand but it also did not raise the issue of appointment of liquidator at the earliest. Further, no efforts have been made either by the RP or CoC in approaching the Hon’ble President of NCLT or filing an appeal before Hon’ble NCLAT for appointment of Liquidator, particularly, when it is fully known to RP as well as CoC that the insolvency resolution is a time bound process and delay in such resolution depletes the valuation of the corporate debtor, which ultimately defeats one of the primary objects of the I & B Code.

In our considered opinion, merely because Liquidator was not appointed, only technically RP continued in the position of RP, hence, without actions being undertaken in the interests of all stakeholders, the payment of fee or expenses cannot be made disproportionately on the basis of fee approved for conducting and completing CIRP. Further, no material has been brought on record by RP to establish that the RP in fact worked diligently in the best interests of the corporate debtor either during CIRP or thereafter. When we look at the conduct of CIRP, it is noted that no information memorandum has been prepared nor any expression of interest was published. As far as work undertaken by the RP during the CIRP it is noted that the RP had communications with Suspended Board of the Corporate Director regarding secretarial compliances, documents to be obtained from them and assets of the subsidiary of the corporate debtor. Apart from the above, the RP had pursued the application relating to non-cooperation by suspended board of Corporate debtor with this Adjudicating Authority.

We further observe that in the absence of the appointment of the Liquidator, no preliminary or progress report has been filed by the RP with this Adjudicating Authority. Further, RP has also not filed any status report that what actions or efforts he has made during the course of period where the Liquidator has remained to be appointed so as to justify its claim for payment of fee and expenses.

Further, from the minutes of the first progress report for the period from 08.05.2018 to 22.05.2018, it is noted that RP made a visit to the registered office of the company. It is also noted from the progress report that the company had no operations for the last 5-6 years due to lack of funds/ non-disbursal of sanctioned loan amount, operations could not start. Only one claim of the sole member of the financial creditor has been received and admitted. In the second progress report the actions, more or less, remain same. In the third progress report only one transaction of transfer of car is being noted, however, no application U/s 43 has been filed. In the progress report filed on 04.10.2018, the areas of actions remain same. It is also noted that one application relating to the property of ‘M/s Barnawa Agro Industries Ltd.’ the subsidiary of the corporate debtor had been filed. As per the progress report filed on 31.10.2018, the proposal for extension of CIRP period was made as the CIRP was coming to an end on 04.11.2018 and the resolution to that effect was proposed to be passed which was ultimately rejected by the sole member of the CoC. Other activities, more or less remain of the same nature.

In the background of the above facts, it is noted that the RP is claiming fee of Rs.3,50,000/- per month in addition to that he had appointed after due approval of CoC an Advocate for a fee of Rs.50,000/- per month. Furthermore, he appointed a Company Secretary for a sum of Rs.25,000/- per month as consideration to do the necessary secretarial compliances, which can be done for total fee of Rs.50,000/- per annum or so in the case of company like corporate debtor, surprisingly, CoC also approved the same. For the purpose of protecting the assets of the corporate debtor, Security Guards have been appointed but neither valuation of whatsoever nature has been done nor information memorandum has been prepared even in respect of this property. Hence, we are unable to understand why this much of expenditure on security of such assets was spent. From the minutes of second meeting, it is noted that the Advocate’s work included drafting and filing of minutes of first CoC meeting which compels us to think as regard to the functional efficiency of the RP as this is the responsibility of RP.

Further, we take note of circular no.IBBI/IP/013/2018 dated 12.06.2018 issued by the IBBI wherein it has clearly spelt out the role and responsibilities of RP as regard to fee and other expenses to be incurred for CIRP.

The first para of this circular reads as under :-

Further, para no.3 & 4 of the said circular are also reproduced as under :-

The IBBI after considering the scope of Insolvency Professionals’ responsibilities and expectations from such Professionals, in para no.6 of the said circular issued following directions to IPs :-

In Annexure B to this circular, IBBI has given guidelines that what is reasonable cost and reasonable fee, wherein factors as suggested by Society for Insolvency Practitioners of India in its statement of best practises have also been taken into consideration. Apart from this, statement of best practices for payment of CIRP costs and statement of best practices payment of fee and reimbursement of out of pocket expenses have also been outlined. Considering these guidelines given by IBBI, we are of the view that in the facts and circumstances of the case, the expenses so claimed are exorbitant considering the activities undertaken by RP both during CIRP and thereafter.

As regard to the approach of RP in conducting the CIRP, it is noted that RP filed an application with this Adjudicating Authority as CA No.200/2018 whereby he sought directions for the attachment of the assets of M/s Barnawa Agro Industries Ltd. being the subsidiary of the corporate debtor which caused serious rift between them and also resulted into serious allegations against the RP. This aspect is being considered by us now just to show that the RP U/s 25(2)(a) of IBC,2016 is obliged to take custody and control of all the assets of the corporate debtor and not of any of its subsidiary. This action has been taken by the RP without taking even a legal opinion whereas he engaged a legal advisor and took legal assistance for frivolous issues. In our view, such action of RP indicates the lack of understanding of provisions of law and, therefore, it gives strength to our view that RP did not function in the expected and required manner even during the course of CIRP knowing fully well that he had no jurisdiction over the assets of the subsidiary of the corporate debtor.

Now, the question comes as to what amounts need to be paid to RP considering the overall facts as narrated above? In this regard, we hold as under :-

In the result, this application stands allowed and disposed of in terms indicated above.

Rajasekhar V.K., Member (Judicial)

I have had the benefit of perusing the order written by my learned brother, While I am in complete agreement with the conclusions reached, I would like to add a few points of my own.

The facts have already been noticed in the order of my learned brother, and are also admitted by both sides. Briefly, after the expiry of 180 days, with no invitations for Expressions of Interest (EoI), liquidation was the inevitable consequence. The CoC recommended the appointment of the applicant/RP as the liquidator, though this is not within the realm of the CoC.

Be that as it may, in view of the various allegations raised by members of the suspended board, the Adjudicating Authority, in its wisdom, decided not to appoint the outgoing RP as the liquidator, though the allegations were never substantiated. However, inadvertently, while the order of liquidation came to be passed, no liquidator was appointed by the Adjudicating Authority.

On the part of the RP and the CoC also, this does not appear to have been pointed out, though it was claimed by the RP during the course of oral hearings that he had brought it to the notice of the Bench. We would not like to venture into this point too much, because there is nothing to record to suggest this. Nothing is to be gained from such an exercise. Suffice it to say that the RP could have taken steps in accordance with law to make sure that a liquidator was appointed by this Adjudicating Authority, immediately after the order of liquidation was passed on 28.02.2019 in IA No.265/ALD/2018. It cannot be gainsaid that things have been remiss from all sides, including the Adjudicating Authority. The end result was a vacuum where, at least in law, there was nobody in charge of the process. This is a situation that ought not to have been created at all.

When this Bench noticed the situation, we appointed a Liquidator vide our order dated 20.12.2021 and suo motu also excluded the period from 28.02.2019 (when liquidation was ordered) till 20.12.2021 (the date of appointment of the Liquidator) from the liquidation process period.

From the record of proceedings, I am wholly unconvinced that the CoC, the RP and the suspended management appear to have been interested in the expeditious completion of the process. Each of these stakeholders simply left everything to the Adjudicating Authority to do. This is probably a perfect example of how not to conduct a CIRP or liquidation of a corporate debtor. We cannot close our eyes to the systemic failure that has occurred here. I would, therefore, recommend that the matter be referred to the IBBI also for considering issue of appropriate directions to cover situations like this in future, if it is felt necessary.

My learned brother, after a very detailed analysis of the record of proceedings, has rightly come to the conclusion that the fee claimed by the RP is exorbitant considering various factors. I fully concur. The fee now ordered to be paid vide para 25 above is very appropriate. I hope and that now the liquidation process can proceed unhindered without further ado.

The application bearing CA (IB) No.169/ALD/2019 in CP (IB) No.124/ALD/ 2018 will stand disposed of in terms of the order in para 25 above.