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Declines to Interfere With NCLAT Ruling That IRP Remuneration Is
The has declined to interfere with a significant ruling that a Committee of Creditors' (CoC) decision fixing an Interim Resolution Professional's (IRP) remuneration is open to . While upholding the NCLAT's conclusion that the remuneration decision is not immune from review, the Apex Court also left undisturbed the tribunal's finding that the ₹3 lakh fee approved by the CoC in this case was justified on its merits. The ruling clarifies the limits of the CoC's so-called "" and reinforces the principle that not all decisions entrusted to the CoC under the are .
The dispute arose from the insolvency proceedings of . Mohd. Nazim Khan was appointed as the IRP of the corporate debtor on , and continued in that role until , when he was replaced. At its first meeting on , the CoC approved ₹1.5 lakh as remuneration for Khan in his capacity as IRP. A separate proposal to appoint him as Resolution Professional (RP) at a monthly fee of ₹1.5 lakh was rejected with 100% voting. Subsequently, the CoC approved a total payment of ₹3 lakh—₹1.5 lakh for the initial period and another ₹1.5 lakh for the remaining period of his services.
Khan challenged the CoC's decision before the , arguing that the remuneration payable to an IRP forms part of the and that the issue could not be treated as a matter of the CoC's unreviewable . The NCLT, however, upheld the CoC's decision, holding that the CoC had exercised its and that the Adjudicating Authority could not interfere. Khan then appealed to the NCLAT.
NCLAT's Reasoning: A Critical Distinction
The NCLAT agreed with the NCLT on the outcome but expressly disagreed with its reasoning. The appellate tribunal held that the CoC's decision on IRP remuneration is indeed subject to , distinguishing the 's earlier judgment in . In K. Sashidhar , the Court had held that the CoC's in approving or rejecting a is largely . However, the NCLAT observed that this principle does not extend to every decision entrusted to the CoC under the Code.
The NCLAT reasoned: “However, this judgment does not make all decisions or duties entrusted upon the CoC under the Code as . As the control of the Corporate Debtor shifts to the creditors in insolvency, the decisions taken by the CoC in the course of the resolution process impacts and effects the rights of stakeholders. The CoC during the resolution process must therefore balance responsibilities towards all such stakeholders. The payment of the remuneration for the IRP falls in such category.”
This nuanced approach signals that while the CoC enjoys wide discretion in commercial matters like plan approval, decisions that directly affect the compensation of officers appointed under the Code remain amenable to . The NCLAT specifically noted that K. Sashidhar primarily concerned the commercial decision to approve or reject a , and did not make the fixation of IRP remuneration immune from scrutiny.
Merits Upheld Despite Justiciability
Having held that the remuneration decision was , the NCLAT nonetheless examined the facts and found that the ₹3 lakh amount was justified. The tribunal noted that the first CoC meeting had rejected Khan's appointment as RP, so the proposal for monthly remuneration of ₹1.5 lakh was linked to his role as RP, not as IRP. It also observed that Khan had not fully cooperated with the CoC and that an IRP does not have a to continue against the wishes of the CoC. The CoC had considered that Khan worked for more than a month and approved an additional ₹1.5 lakh for the remaining period, bringing the total to ₹3 lakh. The NCLAT concluded that the CoC was “justified in the facts and circumstances” and within its rights to assess the quantum and quality of the work performed by Khan.
The tribunal also dismissed Khan's reliance on Regulation 34B and , which prescribe minimum monthly fees for IRPs and RPs. It held that those provisions were introduced after Khan's appointment and could not assist him retrospectively.
's Refusal: A Quiet Endorsement
A Division Bench of Justices P.S. Narasimha and Alok Aradhe, after hearing the parties, refused to interfere with the NCLAT order. By declining to entertain the challenge, the has effectively endorsed the NCLAT's reasoning on the justiciability of CoC decisions regarding IRP remuneration. While the Court did not issue a detailed judgment, its refusal to intervene sends a clear message that the NCLAT's approach is legally sound.
This development is significant for insolvency practitioners and stakeholders. It establishes that the CoC's , while broad, is not a blanket shield against when it comes to the compensation of professionals appointed under the IBC. The decision reinforces the principle that the resolution process must balance responsibilities towards all stakeholders, including the IRP/RP who performs essential .
Impact on Insolvency Practice
The ruling is likely to have practical implications for how CoCs approach the fixation of IRP and RP remuneration. Previously, some CoCs may have assumed that their decisions on fees were final and unreviewable, relying on the expansive language of K. Sashidhar . This judgment clarifies that such decisions can be challenged on grounds of or , though the threshold for interference remains high.
For IRPs and RPs, the decision provides a measure of protection against arbitrary or inadequate compensation, while also reminding them that they do not have a to continue in office or demand a particular fee. The CoC retains the authority to assess the quality and quantum of work, but its assessment is now subject to judicial oversight.
The 's refusal to interfere also means that the NCLAT's reasoning will serve as for other tribunals and courts dealing with similar disputes. It underscores the importance of distinguishing between purely commercial decisions and those that implicate statutory rights or public interest.
Conclusion
The 's quiet affirmation of the NCLAT's ruling marks a balanced approach to the powers of the Committee of Creditors under the IBC. While the CoC's remains paramount in core business decisions, it cannot operate as a complete bar to when the rights of statutory functionaries like IRPs are at stake. The decision ensures that the resolution process remains fair and transparent, without unduly hampering the CoC's ability to manage insolvency proceedings efficiently. For legal professionals, this judgment provides a valuable precedent on the limits of justiciability in the insolvency landscape.
