NCLT could have decided fee and expenses of RP only on basis of material before it
In a recent judgment, NCLAT held that NCLT could have decided fee and expenses of Resolution Professional to be paid by Financial Creditor only on the basis of material before it.
ABCAUS Case Law Citation:
4190 (2024) (08) abcaus.in NCLAT
The Financial Creditor (the Appellant) had filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC/Code) seeking to initiate process of CIRP against a Corporate Debtor owing to non-payment of a financial debt and the NCLT directed initiation of CIRP.
Subsequent to order of NCLT, an Insolvency Resolution Professional was appointed to carry the process under IBC. he aforesaid order of admission of insolvency was challenged by a shareholder and suspended director of the corporate debtor before the National Company Law Appellate Tribunal (NCALT).
The NCLAT held that there was no default. The NCLAT quashed and set aside the order of the NCLT and the Corporate Debtor was released from rigour of ‘Corporate Insolvency Resolution Process. The Interim Resolution Professional/Resolution Professional was directed to hand over the management, assets and records to the Corporate Debtor/Promoter/Board of Directors. Henceforth the Corporate Debtor will function independently through its Board of Directors.
The NCLAT also directed that Financial Creditor was liable to pay the CIRP cost and fees of the Interim Resolution Professional/Resolution Professional. The Interim Resolution Professional/Resolution Professional will file report before the Adjudicating Authority with regard to his fee, CIRP cost and the NCLT was directed to pass orders to recover the same from the Financial Creditor.
The NCLT while disposing the company petition observed that Financial Creditor may take note of the order of the NCLAT and asked the counsel of the financial creditor to invite the client’s attention to the same and ensure compliance.
Subsequent to the order of the NCLT, the Resolution Professional (RP) send an email to the Financial Creditor informing him the his claim for fees of the IRP/RP and expenses incurred during CIRP period which was Rs. 17 lakhs. It was further informed that the fee of RP was approved by the Committee of Creditor comprising of the financial creditor only, and that the NCLT had also directed him to pay the CIRP cost to IRP/RP.
When the financial creditor failed to make the payment on one pretext or another, The RP filed a Contempt Application before the NCLT praying that Financial Creditor may be punished for willful disobedience/flouting and not complying the order of NCLAT.
The Financial Creditor also filed an Interlocutory Application under Section 60(5) of IBC seeking dismissal of Contempt Petition and stated that he had not willfully disobeyed any order of the NCLAT and the money asked by RP as Cost is disproportionate and unreasonable.
The NCLT observed that the RP in the email merely stated a figure of approx. Rs. 17 lakhs for payment without any breakup of the figure explaining how this figure was arrived at by the Professional
The NCLT further observed that in the NCLAT order the direction categorically made incumbent on the IRP/RP to file a report before the NCLT and once the determination of quantum is observed by the Authority in the order then such sum becomes payable by the Financial Creditor.
The NCLT held that the IRP/RP had opted for a wrong approach in filing of contempt petition because in terms of the order of the NCLAT the RP should have moved an application seeking specific order as to quantum of money to be paid by the Financial Creditor as cost of CIRP and the amount payable by the Financial Creditor before a certain date in the said order.
The NCLT further noted that as per the regulation 33(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the Adjudicating Authority has powers to decide the cost of CIRP. In view of the above the NCLT dismissed the Contempt Petition.
The Financial Creditor submitted that the Corporate Debtor under CIRP was not in operation and did not have any employee / staff etc. Therefore, the work of RP was almost negligible and accordingly his fees and other CIRP costs might be decided by the Adjudicating Authority for the total period of seven months and nine days only.
The NCLT directed the RP to file affidavit submitting the claims of the CIRP costs with supporting bills including his fees, IRP fees, Legal expenses etc. It was found that that the RP / the Applicant submitted a chart of CIRP costs showing the CIRP cost of Rs. 23 lakhs approx.
The NCLT held that considering the job undertaken by the IRP and the RP and the papers submitted a reasonable fee of IRP / RP would be of Rs. 1 lac per month with applicable GST. Further the NCLT directed the Financial Creditor to pay other CIRP expenses for which the bills had been submitted. For CIRP expenses for which bills had not been submitted, the RP was given time to submit the bill, with the Registry and copy of the same to the Financial Creditor who shall pay the said amount.
Aggrieved by the order of the NCLT, the Financial Creditor challenged it before the NCLAT.
It was contended that in the contempt jurisdiction, NCLT ought not to have proceeded to compute the fee and expenses of the RP. It was further submitted that as per the order of this NCLT, the report ought to have been filed by the RP before the Adjudicating Authority and it was the Adjudicating Authority who was to determine the fee and expenses and no Report having been filed by the RP, order of the Adjudicating Authority was unsustainable.
It was further submitted that the directions issued by the NCLT with regard to expenses for which bills had not been submitted was unsustainable as there was no material before the NCLT with regard to the aforesaid amount and liberty was given to the RP to submit Bill subsequently.
With respect to the jurisdiction of the NCLT to determine the fees and expenses, the NCLT observed that when its order had specifically directed that Financial Creditor was liable to pay the CIRP cost and fees which was to be reported to the NCLT and which was to be determined, the NCLT had ample jurisdiction to proceed to examine the entitlement of the fee and expenses.
However, the NCLAT held that direction issued by NCLT with respect to payment of expenses for which bills had not been submitted was uncalled for it set aside the said direction as the NCLT could have decided the fee and expenses only on the basis of material which was before it.
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