Judicial Pronouncements Relating to Insolvency Professionals

Judicial
Pronouncements
on
Pertaining to
Insolvency Professionals
under
Insolvency and Bankruptcy Code
2016
Madhusudan Sharma

KEY ISSUES RELATING TO IPS
¢ SC on Adverse Remarks against Professionals
¢ Role and Responsibilities
¢ Judicial Support
¢ Adverse remark on conduct
¢ Appointment /Resignation
¢ Fee and expenses
2

Supreme Court
on
Adverse Remarks against
Professionals
3

COUNCIL OF THE ICAI VS SHRI GURVINDER
SINGH & ANR. 16.11.18 - SC
¢ Complaint dated 16.03.2005 against CA relating to sale
of 100 shares in 1999, which were transferred to the CA’s
own name. The matter was settled between the
Complainant and the CA
¢ Conduct of the CA was derogatory in nature and highly
unbecoming and held him guilty of ‘Other Misconduct’
under Section 22 read with Section 21 of the Chartered
Accountants Act, 1949

¢ Council recommended to the High Court to remove the
name of CA from the rolls for a period of six months.
¢ HC held that he was acting as an individual in his
dealings with the complainant which were purely
commercial. While selling the shares held by him he
was not acting as a CA. He was not discharging any
function in relation to his practice as a CA.
¢ SC set aside HC order and remanded the matter to the
High Court to be decided afresh

¢ Schedule-I Part-IV reads as follows:-
¢ “Other Misconduct in Relation to Members of the Institute
Generally
¢ A member of the Institute, whether in practice or not,
shall be deemed to be guilty of other misconduct, if
he-
¢ (1) is held guilty by any civil or criminal court for an
offence which is punishable with imprisonment for a term
not exceeding six months;
¢ (2) in the opinion of the Council, brings disrepute to the
profession or the Institute as a result of his action
whether or not related to his professional work.”

¢ Schedule-I Part-IV of the Chartered Accountants Act,
1949 reads as follows:-
¢ “Other Misconduct in Relation to Members of the Institute
Generally
¢ A member of the Institute, whether in practice or not,
shall be deemed to be guilty of other misconduct, if he-
¢ (1) is held guilty by any civil or criminal court for an
offence which is punishable with imprisonment for a term
not exceeding six months;
¢ (2) in the opinion of the Council, brings disrepute to the
profession or the Institute as a result of his action
whether or not related to his professional work.”

SC IN TESSTA SETALVAD AND ANR. VS. STATE OF
GUJARAT AND ORS.
¢ Uncalled for observations on the professional
competence or conduct of a counsel, and any person or
authority or harsh or disparaging remarks are not to be
made, unless absolutely required or warranted for
deciding the case.
¢ Since appellants not being party to the case and
observations not having any relevance to the subject
matter of dispute before the High Court and since
appellants not given an opportunity of being heard,
observations made by court held unjustified
¢ Direction given for deletion of observations from
judgment
8

¢ It is beyond comprehension as to how the learned
Judges in the High Court could afford to overlook such a
basic and vitally essential tenet of ‘Rule of Law’, that no
one should be condemned unheard and risk
themselves to be criticised for injudicious approach
and/or render their decisions vulnerable for challenge on
account of violating judicial norms and ethics.
¢ Time and again this Court has deprecated the practice of
making observations in judgments, unless the persons in
respect of whom comments and criticisms were being
made were parties to the proceedings, and further were
granted an opportunity of having their say in the matter,
unmindful of the serious repercussions they may entail
on such persons.
9

¢ Uncalled for observations on the professional
competence or conduct of a counsel, and any person or
authority or harsh or disparaging remarks are not to be
made, unless absolutely required or warranted for
deciding the case.
10

Role and Responsibilities
of
IRP/RP
11

SUPREME COURT - SWISS RIBBONS PVT. LTD. &
ANR. VS UNION OF INDIA & ORS.
¢ RP has no adjudicatory powers. (claims)
¢ Under the CIRP Regulations, the RP has to vet and
verify claims made, and ultimately, determine the
amount of each claim as per Regulation 10 to 14
¢ The RP is given administrative as opposed to
quasi-judicial powers.
¢ When RP is to make a determination (preferential
transactions) under Regulation 35A, he is only to
apply to the AA for appropriate relief based on the
determination made
¢ The liquidator, in liquidation proceedings under the
Code, has to consolidate and verify the claims, and
either admit or reject such claims under Sections
38 to 40 of the Code.
12

¢ When the liquidator “determines” the value of
claims admitted under Section 40, such
determination is a ― “decision”, which is quasi-
judicial in nature, and which can be appealed
against to the AA under Section 42 of the Code.
¢ Unlike the liquidator, the RP cannot act in a number
of matters without the approval of the CoC u/s 28 of
the Code, which can, by a two-thirds majority,
replace one RP with another, in case they are
unhappy with his performance.
¢ Thus, the RP is really a facilitator of the resolution
process, whose administrative functions are
overseen by the CoC and by the AA. 13

SC IN ARCELOR MITTAL CASE
¢ The fact that the RP is also to confirm that a
resolution plan does not contravene any of the
provisions of law for the time-being in force,
including Section 29A of the Code, only means
that his prima facie opinion is to be given to the
CoC that a law has or has not been contravened.
¢ Section 30(2)(e) does not empower the RP to
decide whether the resolution plan does or does
not contravene the provisions of law.
¢

SC - K. SASHIDHAR VS INDIAN
OVERSEAS BANK .
¢ The RP is not required to express his opinion
on matters within the domain of the financial
creditor(s), to approve or reject the resolution
plan, under Section 30(4) of the I&B Code.

¢ Hon’ble Supreme Court in Innoventive Industries Ltd.
Vs. ICICI Bank & Anr
Once an insolvency professional is appointed to manage
the company, the erstwhile directors who are no longer in
management, obviously cannot maintain an appeal on
behalf of the company.
¢ NCLAT in Tryst Inds Pvt Ltd Vs Billets Electro Works
Pvt Ltd
IRP will ensure that the company remains on-going, if so
necessary may take assistance of the (suspended) Board
of Directors.
Authorised signatory of CD can sign the cheques
subject to authorisation by the IRP. 16

NCLAT- SUBASRI REALTY PRIVATE LIMITED
VS. MR. N. SUBRAMANIAN
¢ NCLAT clarified that after the appointment of the RP,
the Board of Directors stands suspended, but that
does not amount to a suspension of MD, or any of
the directors or officers or employees of the CD.
¢ If one or other officer or employee had the power to
sign a cheque on behalf of the CD prior to the order
of moratorium, such power does not stand
suspended on suspension of Board of Directors nor
can it be taken away by the RP.
¢ If the person empowered to sign cheque refuses to
function on the direction of the RP or misuse the
power, it is always open to the RP to take away such
power after notice to the person concerned. 17

CIRP EXTENSION CAN ONLY BE REQUESTED BY RP
NCLT Chandigarh – Hind Motors India Limited,
¢ CoC rejected the resolution plan submitted by a director of the
CD and passed resolution for liquidation.
¢ Director filed an application before NCLT, praying that since he
was in police custody during CIRP process, he should be
given another opportunity to persuade the CoC on his
resolution plan and that the CIRP time period should be
extended (from 180 days) for such purpose.
¢ Held that extension of CIRP time period (from 180 days to 270
days) can only be allowed on an application made by the RP,
pursuant to a resolution passed by the CoC.
¢ If the resolution plan is not approved during the CIRP period,
the corporate has to be mandatorily liquidated. Accordingly,
liquidation of the corporate debtor was ordered.
18

COMPLAINT AGAINST IRP/ RP
¢ Alchemist ARC vs Hotel Gaudavan P Ltd
¢ Complaint to Police by CD against IRP
¢ IRP was put behind the bar by Police
¢ NCLT Delhi held: Police complaint can be filed only by
IBBI or Central Govt. u/s Sec. 236 (2)
¢ Jaipur HC dismissed writ petition Challenging IBC
¢ SC quashed the FIR, and held that:
¢ the steps that have to be taken under the Insolvency
Code will continue unimpeded by any order of any
other Court.
20

COOPERATION BY PROMOTERS - SEC 19 (2)
¢ NCLT Chandigarh in Hero Steels Ltd. Vs Rolex Cycles
Pvt.Ltd.
Directions Issued to:
¢ FC (BoM and Canara) Why proper monitoring of sensitive
matter like resolution process under IBC 2016 is not being
done and why an application has not been made so far for
replacement of IRP
¢ Statutory Auditor - Why the statutory record has not been
handed over to the IRP why proceedings for violation of
directions of tribunal be not initiated.
¢ Director of CD - Why action be not initiated for not complying
with instructions of IRP in the collection of information and
handing over management of CD.
¢ Comm. of Police Ludhiana -To provide necessary police
protection/assistance to IRP
21

COOPERATION BY PROMOTERS
¢ Central Bank of India Vs Ashok Magnetics Ltd
Director of CD directed to furnish the books of accounts,
list of assets, FC, OC, documents and other relevant
particulars as envisaged in IBC 2016 and extend full
cooperation to IRP.
22

POLICE ASSISTANCE TO IRP
¢ The Central Bank of India and The State Bank of India
v. Ashok Magnetics Ltd. NCLT Chennai
¢ IRP filed a memo before the NCLT, stating difficulty in
discharge of his functions and requesting for police
assistance on account of resistance from the corporate
debtor.
¢ NCLT granted police assistance to the IRP and issued
notices to the Managing Director and counsels of the
corporate debtor. Upon assurance of cooperation by the
corporate debtor and compliance affidavits being filed,
the memo was disposed of.
23

¢ Muskaan Power Infra Ltd – NCLT Chandigarh
Non bailable warrant was issued against
Promoters of CD
¢ Radico Khaitan vs Adhujia distributor Pvt ltd,
Kolkata
CD did not cooperate, penalty of Rs 3 lakh u/s
70 and after 180 days ordered liquidation
24

ASSET RECONSTRUCTION COMPANY (INDIA) PVT.
LTD. VS SHIVAM WATER TREATERS PVT. LTD.
¢ NCLT Mumbai:
¢ Ordered for police assistance so that the RP can
take full control of the company without any
interference from ex Director’s or his officials.
¢ RP is acting as an officer of the Court and any
hindrance in the working of the CIRP will amount to
contempt of court.
¢
25

UNION BANK OF INDIA VS. PARAMSHAKTI
STEEL LIMITED
¢ While making physical verification of debtors appearing
in the records of the CD, the RP found that some of
them are not even aware of the CD.
¢ AA suggested the RP to initiate all steps available under
the Code to proceed against the promoters/directors of
the CD.
¢ AA also asked the police authority to assist the RP in
unravelling the fraud.
¢ It observed: “By looking at the sincere efforts of this RP
in revelation of all these things before this Bench, the
Registry is further directed to communicate this order as
well to IBBI, so that IBBI also will be conversant with the
progress that is taking place in this case.” 26

Adverse Remarks on
Conduct of RP
Of
Insolvency Professionals
27

CLARIFICATIONS SOUGHT BY RP FROM THE NCLT
DBS Bank Ltd. v. Edu Smart Services Pvt. Ltd.
¢ IRP sought clarifications from the NCLT on various issues
in respect of formation of committee of creditors - such
as, whether a bank who is a beneficiary of a corporate
guarantee from the CD (in CIRP) can form part of
committee of creditors and value of its voting rights.
¢ NCLT Held that such issues are entirely in the domain of
the IRP who must exercise her discretion and wisdom in
this regard.
¢ It will not be proper for NCLT to opine when the resolution
plan is in progress.
¢ Parties are free to raise all available arguments when
resolution plan comes for final approval before the NCLT.28

RELIANCE COMMERCIAL FINANCE LIMITED VS
VED CELLULOSE LTD
¢ 30th June, 2017 Application u/s 7 admitted by AA
¢ 5th July, 2017 public announcement made seeking
claims by 19th July, 2017.
¢ 19th July, 2017 IRP invited BoI to submit its claims,
as no claim was received
¢ 21st July, 2017 IRP made an application on to AA
u/s 19(2) and (3) seeking co-operation of the
erstwhile management of the CD
¢ 1st August, 2017 IRP requested AA to dispose of
his application as he had started receiving
necessary co-operation
29

¢ IRP constituted CoC and also issued notice for
holding the first meeting of the CoC on 3rd August,
2017.
¢ 3rd August, 2017 IRP received a claim from
another FC Bank of India (BoI) but did not consider
¢ CoC convened, Resolution Plan approved
¢ 8th August, 2017 IRP filed his report on the CIRP
along with the ‘resolution plan’ as approved
30

AA PASSED ORDER ON 4TH OCTOBER, 2017
¢ There was a flagrant contravention of the provisions
of section 21(2) of the Code, as the IRP did not
include BoI in the CoC despite it figured in the
certificate of charges registered with the RoC.
¢ The term of the IRP came to an end on 30th July,
2017 as per section 5(12) of the Code. The
‘resolution plan’ was, however, approved in the
meeting of the CoC held on 3rd August, 2017 and
submitted to the AA on 8th August, 2017 for
approval.
¢ The ‘resolution plan’ and the report on CIRP were
rejected. The Board was advised to appoint a new
IRP to conduct the CIRP of the CD. 31

IRREGULARITIES
¢ 7 days’ notice for CoC meeting not given
¢ meeting notice did not include any item related to
‘consideration or approval of resolution plan’
¢ IRP 30 days IRP tenure over, No appointment as
RP in CoC meeting
¢ The ‘resolution plan' stated - no claimant other than
the applicant-creditor. CD entered into a settlement
agreement with the applicant-creditor. delivered
four post-dated cheques.
32

¢ allowed a settlement, approved as ‘resolution plan’,
without even following the due process of law.
¢ entire CIRP was cramped into two days
¢ IRP played the role of IRP, CD, resolution applicant
and RP simultaneously.
¢ IP’s registration cancelled
33

BANK OF BARODA VS BINANI CEMENT LTD.
¢ Issue of notice without agenda is unfair
¢ Asking representatives of Directors of CD to move
out of the meeting when sensitive issues are being
discussed has no legal force and amounts to
violation of the right of hearing
¢ Denial of opportunity to have a hearing when the
applicants resolution plan was screened for the
purpose of classification, no doubt is unfair and
unjust… It is an adverse decision affecting the right
of the participant in the process…
¢ The RP has not taken any independent decision of
his own before placing the plans before the CoC. It
can not be ruled out that there is undue influence
over him by the lenders who has larger voting
share.
34

¢ …what we expected from the RP and also from
CoC is fair and transparent process in finding out a
bidder who can satisfy all the claims of the lenders
and operational creditors in a transparent manner
without giving a chance to interrupt the process by
affected parties.
¢ …. Revised offer of Ultra Tech is to be considered
by the CoC and non-consideration of the revised
offer is found not legally sustainable and is against
objective of maximization of value as provided in
the Code and is in violation of the provisions of the
Code and Regulations.
35

MK SHAH EXPORT LTD V ASSAM CO INDIA LTD
¢ RP action should be prudent, practical and rational
and such action must also demonstrate a clear co-
relation between such action and the object it seeks
to achieve.
¢ In the fact and circumstances of the case cannot
escape being found enormously arbitrary and
unreasonable
¢ Eligibility criteria incorporated therein must ensure
not only the quantitative competence but also
qualitative competence of Resolution Applicants.
36

¢ Since the decision by RP and COC in finalizing the
notice inviting EOI from prospective resolution
applicants (PRA) suffers from the vice of
arbitrariness it violates the fundamental rights of the
prospective resolution applicants and as such it
requires to be interfered by this authority in the
interest of all concerned.
¢ The above revelations in my considered opinion
serve to show that the criteria so fixed in the notice
to invite EOI from the PRAs …. cannot escape
being found arbitrary, unreasonable and therefore
unsustainable in law thereby offering this Authority
a ground to invoke its extraordinary jurisdiction to
rectify the illegalities so noticed… 37

VEDIKAT NUT CRAFTS PVT. LTD.
¢ AA noted that in this matter, the RP is an advocate
practising for many years and yet he engaged a
counsel.
¢ We needed the assistance of the RP, when he
appeared today we found that there was hardly any
necessity to engage another counsel. It was
avoidable.”
38

NCLAT- IBBI VS RISHI PRAKASH VATS IN THE
MATTER OF RANA GLOBAL LTD.
¢ Once a disciplinary proceeding is initiated by the IBBI on
the basis of evidence on record, it is for the disciplinary
authority, IBBI to close the proceeding or pass
appropriate orders in accordance with law.
¢ Expunge of the earlier order made by NCLT may be a
good ground to close the proceeding, but the NCLT
cannot quash the proceeding initiated by IBBI.
39

NCLAT-VANDANA GARG, RP OF JYOTI
STRUCTURES LTD. VS SBI
¢ CoC supported the Resolution Plan initially by 62.66%
voting share, 23.12% votes were cast against.
¢ Subsequent to the conclusion of voting and
pronouncement of result, RP on the request of the FC
IDBI Trusteeship Services Ltd. accepted its assenting
vote of 0.42%
¢ Another FC Indian Bank on 28.03.2018 sent an email to
the RP indicating its desire to put affirmative vote of
6.31% to support the resolution plan.
¢ 270 days for CIRP was going to complete on 31.03.2018.
40

¢ RP on the basis of bona fide belief accepted the request
of the FC, who had the voting right and could not vote for
one or other reason or changed their mind as otherwise
in absence of any other Resolution Plan the CD would
have gone for liquidation.
¢ In absence of any deliberate inaction and intention of the
RP, no observation should have been made against the
RP.
¢ Before making any observation against the RP individual
notice should have been given to the RP asking him/her
to state as to why observations be not made against
him/her for alleged act of omission or commission.
¢ It is only after hearing the RP any observation should
have been made by the AA.
41

NCLAT- DHINAL SHAH VS BHARATI
DEFENCE INFRASTRUCTURE LTD. .
¢ Adverse observations were made against
the Ex-RP without issuing individual notice
to him to reply as to why adverse
observations be not passed against him for
any act of omission or commission.
¢ Without such notice and without impleading
RP by name, the AA was not competent to
make any observation against the RP
42

¢ If there was any lapse on the part of RP
which has come to the notice of the AA,
should have referred the matter to the IBBI
for taking appropriate action in accordance
with law, which is the competent authority to
take any action, after seeking explanation
from the RP.
¢ For the reason aforesaid, we set aside the
part of the impugned order dated 14th
January, 2019 so far it relates to adverse
observations made against the RP 43

NCLAT- IBBI VS RISHI PRAKASH VATS & ORS.
RP RANA GLOBAL LIMITED
¢ While admitting CIRP application name of IRP was mis spelt
but registration number and address were mentioned correctly
¢ Application was filed by IRP for name correction
¢ AA referred the matter to IBBI for disciplinary action
¢ IBBI started Disciplinary proceeding
¢ AA later based on explanation by IRP expunged the remarks
and informed IBBI but disciplinary proceedings continued
¢ Appeal filed with NCLAT, which held that:
Once a disciplinary proceeding is initiated, the final order is
required to be passed by the IBBI.
¢ Expunge of the earlier order made by NCLT, may be a good
ground to close the proceeding, but the NCLT cannot quash
the proceeding initiated by IBBI.
44

DEADLOCK ON APPOINTMENT OF RP
¢ NCLT Mumbai - Raj Oil Mills Ltd. and Edelweiss Asset
Reconstruction Co. Ltd.
¢ 31.7% creditors in COC voted for continuation of IRP
(Sec 10 application by CD)
¢ 61.84% voted for appointment of another RP.
¢ Deadlock arose as the prescribed majority vote of
75%(now 66%) was not passed.
¢ NCLT held preference be given to the decision by the
majority of creditors.
¢ RP proposed by creditors holding 61.84% vote was
appointed
46

MULTIPLE ASSIGNMENTS BY IP
NCLT Hyd. IDBI Bank Ltd. v. Lanco Infratech
¢ IRP proposed should not ideally handle multiple
assignments as he will not be able to devote adequate
time to each of his assignments.
¢ NCLT took note of Para 22 of the Code of Conduct for
IPs in First Schedule of the IBBI (IP) Regulations,2016
and observed:
IP must refrain from accepting too many assignments, if
he is unlikely to be able to devote adequate time to each
of his assignments.
¢ Most of the activities prescribed in Code are time bound
and such IP would not find sufficient time to act as IRP.
¢ They may make some money in the short term but are
running a huge risk of losing their reputation, respect
and credibility in the long run
47

SHARVAN KUMAR VISHNOI VS. CROWN ALBA
WRITING INSTRUMENTS P. LTD
¢ The AA (NCLT Allahabad) appointed IP other than
as proposed in the CIRP application on the ground
that he was already appointed as RP in another
matter.
¢ The NCLAT observed that except for special
circumstance and good reasons, the AA should not
replace an RP, if named and approved by the FC or
CoC.
¢ But was not inclined to interfere with the impugned
order of the AA.
¢ However made clear that the said order will not
affect the career of the appellant. 48

RESIGNATION BY IRP
Takkshill Enterprises Vs IAP Co. Pvt Ltd.
¢ Application admitted on 28.02.18, IP selected out of
the empanelment list provided by IBBI
¢ Order not received by IP nor uploaded on NCLT
website
¢ IP collected order through representative on
15.03.18
¢ Withdrew consent on 17.03.18 and filed application
¢ IBBI impleaded as a party
¢ Application dismissed with cost of Rs. 50,000
¢ Order to commence duty within 3 days
¢ Direction to IBBI to initiate appropriate action
against IP 49

NCLAT
¢ Appellant filed the application before the said date
on 21.03.2018 without waiting for another 9 days. In
this background, if the AA has refused to accept his
request for discharge, we find no reasons to
interfere with its decision.
¢ AA’s directions to impose cost and to refer the
matter to IBBI for initiating action against the
Appellant is uncalled for.
¢ For the reason aforesaid, we set aside the part of
the impugned order by which the AA (i) imposed
cost on the Appellant, (ii) passed strictures against
him and (iii) directed the IBBI to initiate disciplinary
proceeding. 50

REPORT OF THE INSOLVENCY LAW
COMMITTEE DT. 26 MARCH, 2018
¢ The Committee considered if provisions for
resignation of an IP appointed as an IRP, RP, or
liquidator may be provided in the Code, similar to
section 146 of the Code which provides for
resignation of a bankruptcy trustee. Similar
provisions for resignation have been provided in
other jurisdictions too.
¢ The Committee noted that in practice, it is unlikely
that that an IP is prohibited from resigning in
extenuating circumstances.
51

¢ During the CIRP, a person appointed as an RP may
request the CoC for her replacement by utilising
section 27.
¢ Therefore, the Committee decided that no change
may be required under the Code to explicitly
provide for resignation by an insolvency
professional, and it shall be dependent on the facts
of each case.
52

IP ON PENAL OF BANK
¢ Mussadi Lal Kishan Lal Vs Ram Dev
International Ltd.
NCLT Principal Bench held that:
¢ IP on Penal of a member of CoC cannot be
regarded as independent umpire to conduct CIRP
¢ NCLAT held that:
¢ except for pendency of a disciplinary proceeding or
ineligibility in terms of provisions of the I&B Code,
there is no bar for appointment of a person as RP.
¢ RP if empanelled as an Advocate or CS or CA with
one or other FC cannot be a ground to reject the
proposal, if otherwise there is no disciplinary
proceeding is pending or it is shown that the person
is an interested person being employee or in the
payroll of the FC.
53

APPOINTMENT OF LIQUIDATOR OTHER THAN THE
RP BY COC
¢ Devendra Padamchand Jain (RP) Vs. State Bank of
India
¢ AA removed RP and appointed another IP as liquidator.
¢ The RP stated in the appeal that the AA has no
jurisdiction to replace him and a RP can be replaced
only for the reasons mentioned in section 34 of the
Code.
¢ The NCLAT held that the AA has jurisdiction to remove
the RP, if it is not satisfied with his functioning, which
amounts to non-compliance of section 30 (2) of the
Code.
¢ SC directed deletion of adverse remarks made against
the RP by NCLAT) questioning his competence but
dismissed the appeal challenging appointment of
another RP 54

SANDEEP KUMAR GUPTA (RP) VS.
STEWARTS & LLOYDS OF INDIA LTD. & ANR.
¢ RP challenged the appointment of another IP as
Liquidator on the ground that as per section 34 (1)
of the Code, the RP can only act as liquidator and
he can be replaced by the AA only on the ground
mentioned in section 34 (4).
¢ NCLAT held that the AA was not satisfied with the
performance of the RP and, therefore, the AA was
well within its jurisdiction to engage another person
as RP or Liquidator.
¢ It further held that if any person is appointed out of
the list of RPs made available by the IBBI to the
AAs, it should be treated to be an appointment of
RP/Liquidator on the recommendation of the IBBI. 55

Brian Lau Vs S3 Electrical and
Electronics Pvt. Ltd
57

NCLAT
¢ Order(s), if any, passed by the Learned AA
appointing any 'IRP' or declaring moratorium,
......... and action, if any, taken by the ‘IRP',
including the advertisement, .........are declared
illegal and are set aside. (Para 8)
¢ Learned AA will fix the fee of 'IRP', if appointed
and the appellant-'CD' will pay the fees of the
IRP, for the period he has functioned. (Para 9)
58

NCLT DELHI (PB)
¢ We do not find that the claim made by IRP
suffers from any arbitrariness or is excessive.
¢ Minimum fee suggested by a Statutory
Institution of Cost and Works Accountants of
India, cannot be regarded as excessive.
¢ Fee charged Rs.15,000 per day for 17 visits to
CD and cost of manpower @ Rs. 1000 per
person for 5 persons for 64 days.
¢ Total fee charged Rs. 5,25,000 by IRP
59

SUPREME COURT
¢ On Appeal NCLAT refused to intervene in
the matter
¢ Supreme Court held:
¢ Regulation 33(3) indicates that the applicant is to
bear expenses incurred by the RP, which shall then
be reimbursed by the CoC to the extent such
expenses are ratified.
¢ No CoC was ever appointed as the interim
resolution process did not reach that stage.
¢ In these circumstances, whatever the AA fixes as
expenses will be borne by the creditor who
moved the application. 60

PAYMENT OF FEE BY COC
¢ NCLAT in Alok Kaushik Vs ASREC (India) Ltd.
¢ IRP is entitled for payment of fees as approved by the
CoC.
¢ He should not be allowed to wait for liquidation as it is not
yet clear if the matter will be resolved or liquidation order
will be passed.
61

NCLAT- COC OF SMARTEC BUILD SYSTEMS
PVT. LTD. VS. B. SANTOSH BABU & ORS.
¢ AA while passing order of liquidation, directed the
‘CoC’ to pay the fees and cost incurred by the ‘IRP’
¢ IRP was not appointed liquidator.
¢ ‘CoC’ disputed fees and costs of the ‘IRP’ to be
borne by the Applicant who filed application under
Section 9.
¢ NCLAT Held:
¢ CoC is to pay the fees and cost incurred by IRP, who
also acted during the resolution process beyond 30
days till the date of liquidation, having not been
allowed to continue as Liquidator.

¢ OC cannot be asked to pay the dues as he may not
receive any amount during liquidation as an
unsecured creditor
¢ Cost of Rs, one lakh imposed on CoC for frivolous
litigation
63

NCLT CHANDIGARH IN JEENA AND CO.
¢ The fee of the lRP assessed at Rs. 3 Lakh. Out
of the total fee of Rs. 3 Lakh, the "OC" has paid
Rs. 1.75 Lakh to the lRP which has already
been reimbursed to them by the 'CD'.
¢ Direction to pay the remaining amount of Rs.
1.25 lakh to the lRP by the CD within two weeks
64

NCLT KOLKATA IN BERGER PAINTS I LTD
¢ IRP has accepted Rs.1,00,000 as remuneration
¢ IRP appointed as RP on 29.06.17 by CoC at a
remuneration of Rs. 2,00,000
¢ CoC in meeting on 11.8.17 approved
remuneration of RP at Rs. 3,00,000
¢ NCLT Observations: It is pertinent to mention
here that IRP has given his consent to accept
Rs. 1,00,000 then how his remuneration is
increased from Rs. 1,00,000 to Rs. 3,00,000, is a
matter of concern and CoC will decide on the
matter in its next meeting. 65

SHRI SHRIKRISHNA RAIL ENGG P LTD VS
MADHUCONN PROJECTS LTD
¢ Total Claim of OC including interest – Rs.
4.16 crore.
¢ IRP fee first month Rs. 5 crore; Subsequent
Rs. 1.75 crore p.m. Total Rs. 14 crore
¢ Salary of 2 MDs & CEO of CD Rs.60 lakh
p.a.
¢ Remuneration of 2 Whole Time Directors
Rs. 50 Lakh p.a.
¢ Matter referred to IBBI for appropriate action
67

NCLT MUMBAI - SN PLUMBING PVT. LTD. VS
WADHWA HOLDINGS PVT LTD
¢ RP filed Sec 9 applications against 14 debtors of
the CD including Wadhwa Holdings
¢ Proposed his wife as IRP for a fee of Rs. 1 Crore till
first CoC meeting and Rs. 75 lakh pm thereafter
¢ NCLT dismissed application
¢ Held abuse of systems and misuse of position
¢ Imposed cost of Rs. 1 lakh on RP to be paid to the
CD
68

RAJ STEEL V. SANJAY STRIPS PVT LTD.
¢ Originally proposed total fee of Rs. 85.50
lakh for six months period in addition to
actual cost of public announcement, cost of
valuation by two valuers, cost of
appointment of Advocate/Solicitor etc.
¢ However, when the revised fee structure
was submitted, it was substantially reduced
to only Rs. 9 lakh in addition to other actual
cost of public announcement etc. as
mentioned above….”
69

BANK OF BARODA VS BINANI CEMENTS LTD
¢ RP has not taken care to ensure that
resolution costs are not unreasonable,
outsourced most of the work to his
interested persons
¢ They liberally and casually suggested cost
and fees by themselves and fixed the cost
and fee without getting any supporting data
in respect of fixation of fees to the
professionals.
¢ The cost must be on the basis of the volume
of work and complexity of the resolution
process.
70

CIRP COST
Consultant Purpose Lakh Rs.
BOB Legal Cost CIRP application 38.73
Luthara & Luthara Legal Cost 73.50
Insurance for RP 72.50
RP Fee 80.00
Deloitte Pre audit fee 65.00
Deloitte RP Facilitator 240.00
Hari Bhakti Forensic Audit 17.00
Security Agency Security 67.90
Holtech Plant operation & Mkt 14.50
Alvares & Marshall Evaluation of Bids 200.00
Holtech Valuation 31.50
PWC Valuation 40.00
Argus CoC Legal Adviser 10/15 K /hr
71

PUNJAB NATIONAL BANK VS. DIVYA JYOTI
SPONGE IRON PVT. LTD.
¢ The AA took judicial notice of exaggerated
insolvency resolution cost, inclusive of fixation
of fee of RP in a lump sum manner by the CoC
without applying its mind in regards fate of CD, the
volume, nature and complexity of CIRP.
¢ AA observed that it is time to have legitimate
guidelines or regulation so as to safeguard and to
ensure the prospects of revival of a dying CD.
¢ It hoped that the IBBI would frame necessary
regulations/ guidelines for fixation of fees and
resolution cost by a RP.
72

VERY LOW FEE CASES
¢ Applied Electro Magnetics Pvt Ltd., Sanwud
Shoppe Pvt. Ltd., etc. the IP quoted a fee of
Re.1 to act as IRP
¢ In Rajesh Gems and Jewels Pvt. Ltd.,
Fenace Auto Limited, etc. IP quoted a fee
of Rs.1000 to act as IRP
73

जय ह द Jai Hind
ध यवाद Thanks
Madhusudan Sharma
Advocate, Insolvency Professional, FCMA, FCS
madhusudan.ip@outlook.com; M 8817311444
Website: www.madhusudansharma.in 74

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