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SUPREME COURT OF INDIA
(From the National Company Law Apellate Tribunal)
DHANANJAYA Y. CHANDRACHUD, A.S. BOPANNA, JJ.
Devarajan Raman - Appellant
Versus
Bank of India Limited - Respondent
Civil Appeal No. 3160 of 2020
Decided On : 05-01-2022
Insolvency and Bankruptcy Code, 2016 – Section 7 – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – Regulation 34 – Release of fees and costs of Registered Valuer – Insolvency and Bankruptcy Board of India Circular dated 12th June 2018, requires insolvency professional to ensure that fees payable to him during the CIRP are reasonable and approval of CoC for fee or other expenses is obtained, wherever approval is required – In present case, after NCLAT set aside order of NCLT initiating CIRP, proceedings were remitted back for determining insolvency resolution costs – In the application which was filed by appellant before NCLT, appellant annexed a statement of costs, amount which was reimbursed with balance dues – Order of NCLT, however, reveals that none of submissions of appellant have been considered – Adjudicating authority merely directed respondent to pay expenses incurred and an amount of Rs 5,00,000 plus GST towards fee of RP – Neither basis of claim nor its reasonableness has been considered by adjudicating authority – Appellate authority has merely proceeded in an ad hoc manner on the ground that amount of Rs 5,00,000 as fee, in addition to expenses, appears to be reasonable – Both orders suffer from an abdication in exercise of jurisdiction – In absence of any reasons either in order of NCLT or appellate authority, it is impossible for Court to deduce the basis on which payment of an amount of Rs 5,00,000 together with expenses has been found to be reasonable – Consequently, order of remand becomes necessary – Impugned judgment and order of NCLAT as well as order of NCLT set aside and MA restored to file of NCLT for a decision afresh. (Paras 15, 16 and 17)
Facts of the case:
Issue in dispute relates to the payments of costs and expenses incurred by Resolution Professional. Pursuant to an email dated 4th February 2019 of respondent, who was a financial creditor of Poonam Drums and Containers Private Limited (the Corporate Debtor), the appellant submitted his technical and financial bid on 5 February 2019 for appointment as an Interim Resolution Professional. On 8th March 2019, the respondent filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor. On 20th September 2019, the Corporate Debtor was admitted to the insolvency resolution process by the National Company Law Tribunal and the appellant was appointed as an Interim Resolution Professional.
Findings of Court:
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.
Result : Appeal allowed.
Certainly. Based on the provided legal document, here are the key points summarized:
The case involves a dispute over the reasonableness and approval of costs and fees incurred during the insolvency resolution process, specifically concerning the fees payable to the Resolution Professional (RP) [judgement_subject].
The Insolvency and Bankruptcy Board of India circular dated 12th June 2018 mandates that insolvency professionals ensure their fees during the CIRP are reasonable and require approval from the Committee of Creditors (CoC) for such fees and expenses where necessary [judgement_act_referred].
In this case, the proceedings were remitted back to the adjudicating authority to determine the insolvency resolution costs after the initial order was set aside. The appellant submitted a statement of costs and claimed reimbursement, but the orders did not specify the basis for determining the reasonableness of the fees [paras 15-17].
The adjudicating authority and appellate tribunal awarded a fixed fee of Rs. 5,00,000 plus GST, deeming it reasonable without providing detailed reasoning or considering the submissions and evidence presented by the appellant. This approach was found to be an abdication of jurisdiction [paras 15-17].
The appellant challenged the orders on grounds that the fees and expenses were in accordance with the bid and verified by the respondent, and that the orders lacked proper reasoning to justify the fee amount. The appellant also argued that the work performed was for a significant period and should be assessed based on the submitted bid and circular provisions [paras 16-19].
The court observed that the orders did not contain adequate reasons or basis for the fee determination, making it impossible to assess the reasonableness of the amount awarded. As a result, the court found it necessary to set aside the orders and remand the matter for a fresh decision by the NCLT, with instructions to expedite the process [paras 15-17].
The final ruling was to allow the appeal, set aside the impugned orders, and restore the matter to the NCLT for a proper assessment of the costs and fees, ensuring compliance with applicable regulations and principles of reasonableness [paras 16-17].
Please let me know if you need further elaboration or specific legal advice related to this case.
JUDGMENT :
Dhananjaya Y. Chandrachud, J.
1. This appeal arises from a judgment of the National Company Law Appellate Tribunal, 1[“NCLAT or appellate authority”] dated 30 July 2020 in Company Appeal (AT) Insolvency No.646 of 2020,2[Mr. Devarajan Raman, Resolution Professional Poonam Drums & Containers Pvt Ltd v. Bank of India Ltd].
2. The issue in dispute relates to the payments of costs and expenses incurred by the Resolution Professional,3[“RP”]. Pursuant to an email dated 4 February 2019 of the respondent, who was a financial creditor of Poonam Drums and Containers Private Limited (the Corporate Debtor), the appellant submitted his technical and financial bid on 5 February 2019 for appointment as an Interim Resolution Professional. On 8 March 2019, the respondent filed a petition under Section 7 of the Insolvency and Bankruptcy Code 2016,4[“IBC”] against the Corporate Debtor. On 20 September 2019, the Corporate Debtor was admitted to the insolvency resolution process by the National Company Law Tribunal,5[“NCLT or adjudicating authority”] and the appellant was appointed as an Interim Resolution Professional. The order of appointment of the appellant is reflected in operative direction VI of the order of the NCLT, which reads as follows:
3. On 19 December 2019, the order of the NCLT was set aside in appeal,6[Company Appeal (AT) Insolvency No.1092 of 2019] by the NCLAT at the behest of the Directors of the Corporate Debtor. By the order of the appellate authority, the proceedings were remitted to the NCLT to decide upon the fee and costs of the Corporate Insolvency Resolution Process,7[“CIRP”] incurred by the appellant which was to be borne by the respondent as a financial creditor.
4. On 30 December 2019, the appellant addressed a letter to the respondent enclosing a statement showing the amount payable as fee and costs. The amount was quantified in the amount of Rs.14,75,660 until 19 December 2019. An amount of Rs.5,66,667 was reimbursed by the respondent leaving in balance, according to the appellant, an amount of Rs.9,08,993.
5. The appellant moved the NCLT in an application on 17 January 2020 for obtaining the release of the remaining fee and costs. The principal relief which was claimed was in the following terms:
6. On 24 January 2020, the respondent replied to the appellant’s letter dated 30 December 2019 stating that it had verified the details of the fee and costs stated by the appellant and found them in conformity with the technical and financial bid based on which he had been awarded the assignment, together with the approval of the Committee of Creditors,8[“CoC”]. The respondent stated that it would release the payment to the appellant, upon receipt of an order of the NCLT. By its order dated 7 February 2020, the NCLT disposed of the application in the following terms:
Accordingly, MA 223/2020 is allowed and disposed of.”
7. The appellant filed an appeal before the NCLAT. Among the grounds of appeal, the relevant ground of challenge is extracted below:
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