Supreme Court Remands Case Regarding Resolution Professional's Fees Under the Insolvency and Bankruptcy Code

The Supreme Court of India recently handed down a judgment in an appeal concerning the payment of fees and expenses incurred by a Resolution Professional (RP) during a Corporate Insolvency Resolution Process (CIRP). The case, Devarajan Raman v. Bank of India , highlights the importance of proper assessment and reasoned decision-making by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) when determining the remuneration of RPs.

Case Background

The case involved Mr. Devarajan Raman , the RP, who was appointed in the CIRP of Poonam Drums and Containers Private Limited. After the NCLAT set aside the NCLT's order initiating the CIRP, the proceedings were remitted back to the NCLT to determine the RP's fees and costs. The RP submitted a detailed claim, which the Bank of India (the financial creditor) initially accepted. However, the NCLT subsequently awarded a significantly reduced amount without providing sufficient reasoning. The NCLAT upheld this reduced amount, leading to the appeal before the Supreme Court.

Arguments Presented

The appellant (Mr. Raman ) argued that the NCLT and NCLAT failed to properly consider the agreed-upon fees in his technical and financial bid and the CoC's (Committee of Creditors) ratification of expenses. He highlighted the respondent Bank's acceptance of his claim in a letter. He relied on the Supreme Court's previous decision in Alok Kaushik v. Bhuvaneshwari Raman athan , which established the NCLT's jurisdiction to determine the fees of professionals involved in a CIRP, even if the CIRP itself is later set aside.

The respondent (Bank of India) countered by arguing that the payment made to the RP was proportionate to the three months of work performed.

Court's Reasoning and Decision

The Supreme Court, in its judgment delivered by Justice Dhananjaya Y.Chandrachud , critically examined the NCLT and NCLAT orders. The court noted that neither tribunal adequately considered the RP's claim or provided reasons for the reduced fee. The court emphasized that Regulation 34 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, requires the CoC to fix expenses, including the RP's fees, and the need for reasonableness. The Court also referred to the IBBI circular of June 12, 2018, emphasizing the need for reasonable fees and CoC approval.

Justice Chandrachud stated: "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 found to be reasonable."

The Supreme Court ultimately allowed the appeal, setting aside both the NCLT and NCLAT orders. The matter was remanded to the NCLT to reconsider the RP's claim afresh, emphasizing the need for a reasoned and proper assessment based on the existing agreement and relevant regulations. The NCLT was directed to expedite the process and complete it within one month.

Implications

This judgment underscores the importance of procedural fairness and reasoned decision-making in determining the fees and expenses of professionals involved in CIRPs under the IBC. It reinforces the need for tribunals to properly consider evidence and justify their decisions, avoiding arbitrary reductions in claims without proper justification. The decision provides valuable guidance to tribunals on the correct application of the IBC and related regulations in this context.