Liquidator must refund wrongly collected fees from scheme proponent under Regulation 2B of Liquidation Regulations 2016

The NCLAT dismissed the liquidator's appeal challenging an order directing refund of fees charged from a scheme proponent. The liquidator claimed Rs. 23,01,000 as liquidation fee for the period during which a compromise and arrangement scheme was under consideration. The NCLAT held that under Regulation 2B of the Liquidation Regulations, 2016, liquidators can only claim costs incurred in relation to compromise arrangements, not liquidation fees, from scheme proponents. The liquidator was entitled only to expenses totaling Rs. 1,11,172, requiring refund of Rs. 22,77,108. The tribunal modified the refund amount but upheld the adjudicating authority's direction to refund wrongly collected fees.

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Issues Involved:
1. Whether the Liquidator is entitled to receive a fee from the Scheme Proponent for the period of compromise and arrangement.
2. Whether the Liquidator's claim to retain the amount received from the Scheme Proponent is justified.
3. Whether the Adjudicating Authority committed any error in directing the refund of the amount to the Scheme Proponent.

Summary:

Issue 1: Entitlement of Liquidator's Fee from Scheme Proponent
The Liquidator claimed a fee of Rs.23,01,000/- from the Scheme Proponent for the period of compromise and arrangement. The Liquidator justified this fee based on Regulation 4(2)(a) read with Proviso to Regulation 2B(3) of the Liquidation Regulations, 2016, arguing that the fee is necessary to prevent non-serious proposals from halting the liquidation process without consequences. However, the Adjudicating Authority held that the Liquidator is not entitled to receive any fee from the Scheme Proponent. The Tribunal emphasized that Regulation 2B only refers to the cost incurred by the Liquidator in relation to compromise or arrangement and does not include any fee. The Liquidator's fee must be paid from the proceeds of the liquidation estate as per Section 34, sub-sections (8) and (9) of the Insolvency and Bankruptcy Code, 2016.

Issue 2: Justification of Retaining the Amount
The Liquidator received a total amount of Rs.23,88,280/- from the Scheme Proponent towards the liquidation fee and costs. The Adjudicating Authority directed the Liquidator to refund this amount, stating that the liquidation cost, including the fee, was wrongly claimed from the Scheme Proponent. The Tribunal noted that the Liquidator can only claim the cost incurred in relation to the compromise or arrangement from the parties proposing it, and not the fee. The Tribunal found the Liquidator's claim to retain the amount unjustified and unsupported by any statutory scheme.

Issue 3: Error in Directing Refund
The Tribunal supported the Adjudicating Authority's decision to direct the refund of the amount. It was determined that the Liquidator was not entitled to the claimed fee of Rs.23,01,000/- and was only entitled to expenses amounting to Rs.1,11,172/-. Consequently, the Tribunal modified the refund amount to Rs.22,77,108/-, as per the Liquidator's own calculation of expenses.

Conclusion:
The Tribunal concluded that the Liquidator was not entitled to claim any liquidation fee from the Scheme Proponent and upheld the Adjudicating Authority's order for refund, with a modification in the amount to Rs.22,77,108/-. The Tribunal also directed that a copy of the order be forwarded to the Insolvency and Bankruptcy Board of India for information and appropriate action. The appeal was dismissed.

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