2022 (4) TMI 1657 - AT - IBC

Resolution Professional Fees Limited to Active CIRP Period, Proportionally Paid by Financial Creditors Under Specific Timeframe

IndusInd Bank Ltd. Versus Mr. Rajendra K. Bhuta, Resolution Professional of Trust House Commerce Centre Pvt. Ltd. & Ors.

SC modified the Adjudicating Authority's order regarding Resolution Professional (RP) fees. The RP is entitled to fees only from 13th June, 2018 to 25th ... Entitlement of fee to be paid to the Resolution Professional - Appellant contends that even when Insolvency Proceedings were stayed, certain expenses were incurred by the RP which payment cannot be denied - HELD THAT:- When the Hon’ble Supreme Court by Interim Order dated 26th November, 2018 has stayed the insolvency proceedings which proceedings ultimately were set aside by the final Judgment dated 2nd September, 2019, the Resolution Professional is not entitled for any fee after 26th November, 2018. The RP is entitled for fee from 13th June, 2018 to 25th November, 2018 hence the Order of the Adjudicating Authority in Paragraph 17 is modified to the above extent that RP fee shall be entitled to fee from the period 13th June, 2018 to 25th November, 2018. No fee shall be entitled with effect from 26th November, 2018. The order passed in paragraph 17 is modified to this extent. Appeal allowed in part. 1. ISSUES PRESENTED and CONSIDERED- Whether the Resolution Professional (RP) is entitled to fees for the period during which the insolvency proceedings were stayed by the Hon'ble Supreme Court's interim order dated 26th November, 2018.- Whether the fees claimed by the RP from 13th June, 2018 to 02nd September, 2019, as allowed by the Adjudicating Authority, are justified and payable by the Financial Creditors in proportion to their shareholding in the Committee of Creditors (CoC).- Whether the other expenses incurred by the RP, as indicated in the impugned order, are payable by the Corporate Debtor despite the stay on insolvency proceedings.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Entitlement of Resolution Professional's fees during the period of stay of insolvency proceedingsRelevant legal framework and precedents: The Insolvency and Bankruptcy Code (IBC) governs the Corporate Insolvency Resolution Process (CIRP) and the appointment and remuneration of the Resolution Professional. The Code envisages that the RP's fees are payable for services rendered during the CIRP. The Hon'ble Supreme Court's interim order dated 26th November, 2018 stayed the insolvency proceedings, thereby suspending the CIRP temporarily.Court's interpretation and reasoning: The Tribunal noted that the insolvency proceedings were stayed by the Supreme Court's interim order and subsequently set aside by the final judgment dated 2nd September, 2019. The Tribunal reasoned that since the CIRP was stayed, the RP could not be entitled to fees for the period after the stay was imposed (i.e., from 26th November, 2018 onwards). The RP's entitlement to fees is tied to the active conduct of the CIRP, which was suspended during the stay.Key evidence and findings: The Adjudicating Authority had allowed fees for the entire period from 13th June, 2018 to 02nd September, 2019. The interim order of the Supreme Court dated 26th November, 2018 was a material fact that affected the continuation of the CIRP.Application of law to facts: The Tribunal modified the Adjudicating Authority's order to restrict the RP's fee entitlement to the period prior to the stay, i.e., from 13th June, 2018 to 25th November, 2018. No fees were allowed for the period post 26th November, 2018, as the insolvency proceedings were stayed and no active CIRP was in progress.Treatment of competing arguments: The Appellant argued that no fees should be payable during the stay period, while the RP contended that expenses incurred during the stay justified fee payment. The Tribunal rejected the RP's claim for fees post-stay but acknowledged that certain expenses might still be payable.Conclusions: The RP is entitled to fees only for the period when the CIRP was active and not during the stay imposed by the Supreme Court. Accordingly, fees are payable from 13th June, 2018 to 25th November, 2018.Issue 2: Payment of RP fees by Financial Creditors proportionate to their shareholding in the CoCRelevant legal framework and precedents: Under the IBC framework, the fees and expenses of the RP are typically borne by the Corporate Debtor but may be apportioned among creditors as per the CoC's decisions or relevant orders. The Adjudicating Authority had apportioned the RP's fees between two Financial Creditors-IndusInd Bank and Abhyudaya Co-operative Bank Limited-in proportion to their shareholding in the CoC.Court's interpretation and reasoning: The Tribunal did not disturb the Adjudicating Authority's apportionment of fees among the Financial Creditors. It accepted the calculation that IndusInd Bank, holding 93.96% share, would pay Rs. 28,95,583/-, and Abhyudaya Co-operative Bank Limited, holding 6.04%, would pay Rs. 1,86,136/-.Key evidence and findings: The Adjudicating Authority's detailed calculation of fees and the shareholding percentages of the Financial Creditors in the CoC were undisputed.Application of law to facts: The Tribunal upheld the proportional payment of fees by Financial Creditors as per their shareholding for the period during which fees were allowed (13th June, 2018 to 25th November, 2018).Treatment of competing arguments: No significant contest was raised against the proportional payment mechanism; the primary dispute related to the entitlement period.Conclusions: The fees payable to the RP are to be borne proportionately by the Financial Creditors according to their CoC shareholding for the allowed period.Issue 3: Payment of other expenses incurred by the RP during the CIRPRelevant legal framework and precedents: The IBC permits reimbursement of expenses incurred by the RP in the conduct of CIRP. Such expenses may include administrative costs, legal fees, and other operational expenditures necessary for the process.Court's interpretation and reasoning: The Tribunal affirmed the Adjudicating Authority's order directing the Corporate Debtor to pay other expenses aggregating Rs. 5,34,119/-. The Tribunal observed that these expenses were separate from the RP's fees and were legitimately incurred.Key evidence and findings: The expenses were itemized in the IA 3251 of 2019 and were not challenged in terms of their legitimacy or quantum.Application of law to facts: Since these expenses were incurred in the course of the CIRP and were distinct from the RP's fees, the Tribunal held that they must be paid by the Corporate Debtor as ordered.Treatment of competing arguments: The Appellant did not dispute the payment of expenses, focusing instead on the fees issue.Conclusions: The Corporate Debtor is liable to pay the other expenses incurred by the RP as per the Adjudicating Authority's order.3. SIGNIFICANT HOLDINGS'When the Hon'ble Supreme Court by Interim Order dated 26th November, 2018 has stayed the insolvency proceedings which proceedings ultimately were set aside by the final Judgment dated 2nd September, 2019, we are of the view that Resolution Professional is not entitled for any fee after 26th November, 2018. The RP is entitled for fee from 13th June, 2018 to 25th November, 2018 hence the Order of the Adjudicating Authority in Paragraph 17 is modified to the above extent that RP fee shall be entitled to fee from the period 13th June, 2018 to 25th November, 2018. No fee shall be entitled with effect from 26th November, 2018.''In regard to the Order of expenses as ordered in paragraph 18 of the Impugned Order, we affirm the Order of the Adjudicating Authority in paragraph 18 and the same be paid as directed by the Adjudicating Authority in paragraph 18.'Core principles established include the linkage of the RP's fee entitlement strictly to the active period of the CIRP and the non-entitlement of fees during periods when insolvency proceedings are stayed by a competent court. Additionally, expenses legitimately incurred in the CIRP are payable by the Corporate Debtor notwithstanding any stay on the proceedings.The final determinations are that the RP's fees are payable only up to the date prior to the Supreme Court's stay order, apportioned