Author DefaultIn the matter of Devarajan Raman Vs. Bank of India Limited (2022) ibclaw.in 01 SC – Supreme Court allows appeal, holds that NCLT, NCLAT have to consider basis and reasonableness of claim for fee and expenses payable to Resolution Professional, and cannot pass ad hoc orders.
In an appeal filed by Mr. Devarajan Raman, Resolution Professional, under Section 62 of the Insolvency and Bankruptcy Code, against an order passed by the NCLAT, Delhi on 30th July, 2020, the Hon’ble Supreme Court has dealt with the issue of fees payable to Resolution Professionals by the Committees of Creditors that appoint them/confirm their appointment, and the extent to which and manner in which the same is justiciable. Vide it’s judgment passed in the said appeal titled ‘Devarajan Raman Vs. Bank of India Limited’, the Hon’ble Supreme Court while upholding the view expressed in its earlier judgment in the matter titled ‘Alok Kaushik Vs. Bhuvaneshwari Ramanathan and Others’, cited as (2021) ibclaw.in 90 SC, has elaborated upon the manner in which the NCLT may exercise its jurisdiction under Section 60 (5)(c) of the Insolvency and Bankruptcy Code (hereinafter referred to as the ‘IBC’) when dealing with the aspect of the agreed fee payable to a Resolution Professional by the Committee of Creditors. At para 19 of its earlier judgment in ‘Alok Kaushik Vs. Bhuvaneshwari Ramanathan and Others(supra)’, the Hon’ble Supreme Court had held as follows:
19. Though the CIRP was set aside later, the claim of the appellant as registered valuer related to the period when he was discharging his functions as a registered valuer appointed as an incident of the CIRP. NCLT would have been justified in exercising its jurisdiction under Section 60(5)(c) of the IBC and, in exercise of our jurisdiction under Article 142 of the Constitution, we accordingly order and direct that in a situation such as the present case, the adjudicating authority is sufficiently empowered under Section 60(5)(c) of the IBC to make a determination of the amount which is payable to an expert valuer as an intrinsic part of the CIRP costs. Regulation 34 of the IRP Regulations defines “insolvency resolution process cost” to include the fees of other professionals appointed by the RP. Whether any work has been done as claimed and if so, the nature of the work done by the valuer is something which need not detain this Court, since it is purely a factual matter to be assessed by the adjudicating authority.
This judgement and these observations had however been passed in the context of the fee and expenses payable to a Registered Valuer appointed by the Resolution Professional of a corporate debtor in a case where the corporate insolvency resolution process was set aside by the NCLAT, as it also was in Mr. Devarajan Raman’s case. In the case filed by Mr. Alok Kaushik, the NCLT Mumbai bench had refused to deal with his application pertaining to the fee and expenses payable to him by holding that with the setting aside of the corporate insolvency resolution process, it had been rendered functus officio. The NCLAT had upheld that view in appeal. The appellant, Mr. Alok Kaushik had therefore approached the Hon’ble Supreme Court in an appeal under Section 62 of the IBC and contended that there has to be within the framework of the IBC, a modality for determining the claim of a professional valuer such as the appellant. It was in this context that the Hon’ble Supreme Court adverted to Section 60 (5)(c) of the IBC, and held that the NCLT has jurisdiction to adjudicate disputes which arise solely from or which relate to the insolvency of the corporate debtor, and is therefore sufficiently empowered under Section 60(5)(c) to make a determination of the amount which is payable to an expert valuer as an intrinsic part of the CIRP (i.e., corporate insolvency resolution process) costs.
In Mr. Devarajan Raman’s case, the NCLAT vide the impugned order passed on 30th July, 2020, cited as [2020] ibclaw.in 29 NCLAT had held as follows at para 3:
3. On a query, learned counsel for the Appellant replied, that the Resolution Professional has worked for about three months. Since the expenses have been allowed in full and the consolidated amount of Rs.5 Lakh + GST has been allowed as fee of the Resolution Professional for entire period, we find the same is not unreasonable. Fixation of fee is not a business decision depending upon the commercial wisdom of the Committee of Creditors. We accordingly find this appeal lacking merit. The appeal is accordingly dismissed. No costs.
Before the Supreme Court the contention of the Appellant was that in his case the facts were different. Firstly, the Committee of Creditors comprising of the Bank of India had accepted his technical and financial bid, and the fee quoted by him when confirming him for appointment by the NCLT Mumbai bench as the Interim Resolution Professional, and then as the Resolution Professional of the company known as Poonam Drums and Containers Pvt. Ltd. Thereafter, even when the corporate insolvency resolution process of the Corporate Debtor was set aside by the NCLAT, which had then referred the Appellant back to the NCLT Mumbai bench for determination of his fee and expenses payable to him by the Bank of India, the said bank, upon receiving a communication from the Appellant, Mr. Devarajan Raman, setting out the computation of fee and expenses payable to him, accepted the same as correct and as agreed by them. However, when the Appellant filed a Miscellaneous Application before the NCLT Mumbai bench, and set out the computation of fee and expenses payable to him by the Respondent, Bank of India, the NCLT reduced the fee payable to the Appellant vide a brief order passed by it without any discussion whatsoever, or noting any contention on the part of the Appellant. In the appeal filed by the Appellant under Section 61 of the IBC before the NCLAT, the NCLAT likewise, without discussing any contention on the part of the Appellant regarding the fee and expenses agreed to by the Respondent, Bank of India, i.e., the Committee of Creditors, as payable to him, or even referring to and analyzing his computation of fee and expenses, upheld the order passed by the NCLT Mumbai bench.
In the appeal under Section 62 of the Insolvency and Bankruptcy Code filed by the Appellant against the impugned order passed by the NCLAT, Delhi on 30th July, 2020, titled as ‘Devarajan Raman Vs. Bank of India Limited’ (supra), the principal contentions on the part of the Advocate appearing for the Appellant, were two-fold :-
That in terms of Regulation 34 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the Committee of Creditors was entitled to fix the expenses to be incurred by the Resolution Professional, including the fee to be paid to him, and therefore the agreed fee and expenses in the present case could not have been disregarded outright by the NCLT and NCLAT ; and
Whereas the NCLT is empowered exercise jurisdiction under Section 60(5)(c) of the IBC even in the matter of fee and expenses payable to Resolution Professionals and other professionals as already held by the Hon’ble Court in the matter of Alok Kaushik Vs. Bhuvaneshwari Ramanathan and Others (supra)’, it was not open to the NCLT and NCLAT to pass cryptic orders without analysis of the agreed fee and expenses, and the computation provided, and without reasons.
The counsel for the Appellant also pointed out the context in which the judgement in the matter of Alok Kaushik had come to be passed by the Supreme Court, i.e., when the NCLT had refused to entertain his application regarding fee on the premise that it had been rendered functus officio by the setting aside of the corporate insolvency resolution process by the NCLAT; and thereafter the NCLAT had refused to interfere with the NCLT’s order in appeal. The counsel further pointed out to the Hon’ble Court that they themselves in their order passed in the matter of Alok Kaushik had adverted to Regulation 34 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, and excerpted it at para 14 of their judgement, and also referred to the same at para 19 of their judgement.
Regulation 34 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, reads as follows :-
34. Resolution professional costs .-The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses a shall constitute insolvency resolution process costs.
Explanation.- For the purposes of this regulation, “expenses” include the fee to be paid to the 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 resolution professional.
The counsel for the Appellant also referred to the Circular No. IBBI/IP/013/2018 dated 12th June, 2018, on the subject of ‘Fee and other Expenses for Corporate Insolvency Resolution Process’ issued by the Regulator, i.e., the Insolvency and Bankruptcy Board of India, and specifically pointed to clauses (a) and (f) of Para 6 thereof, which read as follows :-
“6. Keeping the above in view, the IP is directed to ensure that:-
(a) the fee payable to him, fee payable to an Insolvency Professional Entity, and fee payable to Registered Valuers and other Professionals, and other expenses incurred by him during the CIRP are reasonable;
(f) approval of the Committee of Creditors (CoC) for the fee or other expense is obtained, wherever approval is required; and”
It was submitted on behalf of the Appellant that he had gone by the book, and claimed only the agreed fee, which is very reasonable in the circumstances. It was therefore sought that the orders passed by the Adjudicating Authority and the impugned order passed by the Appellate Authority, which were bereft of reasoning and analysis and disregarded what had been agreed to between the parties, be set aside.
The counsel for the Respondent bank, i.e., the Bank of India on the other hand principally argued that the Appellant’s contention was that the NCLT and NCLAT cannot look into the aspect of fee and expenses payable to the Resolution Professional since the same are commercial decisions, which is an untenable contention in view of the judgment passed by the Hon’ble Supreme Court in ‘Alok Kaushik Vs. Bhuvaneshwari Ramanathan and Others’. The Respondent could not however deny that they had agreed to the fee quoted by the Appellant; and the amount that he was claiming was correctly computed.
Agreeing with the contentions advanced on the part of the Appellant, and noticing that the order passed by the NCLT Mumbai bench in the Miscellaneous Application filed by the Appellant before it, as well as the impugned order dated 30th July, 2020, were in fact ad hoc orders that had failed to take note of and discuss and / or analyze the fee and expenses agreed as payable to the Resolution Professional by the Committee of Creditors (which comprised only of the Bank of India), the Hon’ble Supreme Court was pleased to set aside the orders passed by the NCLT and the NCLAT. In so doing, the Supreme Court also noticed Regulation 34 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, and Para 6, clauses (a) and (f) of Circular No. IBBI/IP/013/2018 dated 12th June, 2018, on ‘Fee and other Expenses for Corporate Insolvency Resolution Process’ issued by the Insolvency and Bankruptcy Board of India. Civil Appeal No.3160/2020 filed by the Appellant under Section 62 of the Insolvency and Bankruptcy Board has been allowed, and the matter remanded back to the NCLT with the following observation :
“Both the orders suffer from an abdication in the exercise of jurisdiction. In the absence of any reasons either in the order of the NCLT or the appellate authority, it is impossible for the Court to deduce the basis on which the payment of an amount of Rs. 5,00,000 together with expenses has been fund to be reasonable. Consequently, an order of remand becomes necessary.
We accordingly allow the appeal and set aside the impugned judgment and order of the NCLAT dated 30 July 2020. Similarly the order of the NCLT dated 7 February 2020 is set aside. MA No 223/2020 in CP(IB) 970/MB/2019 is restored to the file of the NCLT for a decision afresh. The NCLT, upon remand, is requested to expedite the disposal of the MA and to complete the process within a period of one month from the date of receipt of a certified copy of this order on its record.“
With the passing of this judgment the Adjudicating Authority exercising jurisdiction under Section 60 (5) (c) of the IBC shall have to take into account, the fee and expenses fixed by the Committee of Creditors as payable to the Resolution Professional, and may not pass ad hoc unreasoned orders.
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