NCLAT Delhi orders Operational Creditor to Bear the Expense/Fees of Insolvency Resolution Professional

NCLAT Delhi orders Operational Creditor to Bear the Expense/Fees of Insolvency Resolution Professional

The National Company Law Appellate Tribunal (NCLAT) by its division bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) in a peculiar circumstance, observed that in terms of the statutory construct of Insolvency and Bankruptcy Code, 2016, (IBC) it is the Operational Creditor who is liable to bear the expense/fees of Insolvency Resolution Professional (IRP) in the present case.

The factual matrix of the case is the Operational Creditor- Shri Guru Containers filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("IBC") seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Tarang Exports Private Limited ("Corporate Debtor").

On 24th February, 2020, the Corporate Debtor was admitted into CIRP and Mr. Jitendra Palande was appointed as the Interim Resolution Professional ("IRP"). In March 2020 the IRP sought details from the Operational Creditor and suspended management to proceed with CIRP and also issued a public announcement. No claims were received by the Operational Creditor or any other creditor.

Subsequently on 21st March, 2022, the IRP filed an application under Section 60 of the IBC before the Adjudicating Authority, inter-alia, seeking the termination of the CIRP initiated against the Corporate Debtor; seeking his discharge from duties as IRP and reimbursement of costs amounting Rs.5,62,000/- for duties performed. The IRP had not received any fees/expenses at the time of filing of the said application.

On 7th December, 2022 the Adjudicating Authority directed the Operational Creditor to reimburse the IRP for total costs of Rs. 5,62,000, which was incurred by the IRP for duties performed.

The Operational Creditor filed an appeal before the NCLAT against the Order dated 7th December, 2022. According to Operational Creditor, the direction to reimburse the IRP for his duties was not justified as the IRP had failed to carry out his duties under IBC; had filed Section 60 application to cover up his non-performance; and had undertaken limited work confined to issuing of the public announcement alone.

The primary that came before the NCLAT was whether in the given facts of the present case, the IRP is entitled to claim fees and expenses incurred in the CIRP proceedings and, if so, whether it is incumbent upon the Operational Creditor/Respondent to bear such fees/expenses subject to their being reasonable.

The bench noted that the IRP had sought requisite information from both Operational Creditor and the Suspended Management of the Corporate Debtor. All efforts were made to effectively conduct the CIRP and manage the affairs of the Corporate Debtor.

However, the Operational Creditor and the Suspended Management failed to provide any assistance to the IRP. The scope of CIRP work was limited, owing to lack of information and claims but the IRP diligently dispensed its duties.

The bench observed, "shifting the entire blame on the IRP on grounds of non-performance of duty and making him the scapegoat does not appear to be justified. It is equally important for the creditors to play a catalytic role in the insolvency resolution process given the present regime of creditor-driven IBC. The rigours of similar standards of discipline should also apply on the creditors. This is clearly a case where the CIRP process was being hindered due to want of cooperation and participation from the creditors. The conduct of the Operational Creditor in the present case is deprecatory in that once the CIRP process had commenced, the Operational Creditor went into a sleeping mode."

Further, the bench commented that the Operational Creditor was at liberty to report any dereliction of duty on the part of the IRP and that not having been done, the denial to pay fees and expenses was not acceptable.

"The Operational Creditor has failed to substantiate any lapses or deficiency in the performance of duties by the IRP. It is an admitted fact that CoC could not be constituted by the IRP but that does not seem to be on account of any inefficiency or laxity or leniency on the part of the IRP. We are thus of the considered view that the IRP was entitled in this case to claim his fees/expenses incurred on CIRP and needs to be compensated for his professional services," discerned the Court.

In the present case, when the Operational Creditor had initiated the CIRP proceedings which had led to the appointment of the IRP, it was incumbent upon the Operational Creditor to pay for the CIRP expenses.

The bench was of the view that for the Operational Creditor to claim that it was not obligatory to reimburse the fees/expenses of IRP squarely contravenes the Regulations and therefore cannot be countenanced. The CIRP Regulation 33 of course also provides that the reimbursement would be to the extent it is ratified by the CoC. Ratification of fees by CoC did not arose in the present case because no CoC could be formed for reasons already noted earlier.

Given in these peculiar circumstances, the NCLAT was of the considered view that in terms of the statutory construct of IBC, it was the Operational Creditor who is liable to bear the expense/fees of IRP in the present case.

The Bench upheld the Order dated 7th December, 2022. However, the amount payable to IRP has been modified to a consolidated amount of Rs. 2,87,000 plus GST instead of Rs.5,62,000.