Resolution Professional Can Manage Debtor, Incur Expenses, But Needs Committee Approval for Salaries and New Professionals.

The National Company Law Appellate Tribunal ruled that the Resolution Professional (RP) can manage the corporate debtor as a going concern and incur necessary expenses, subject to ratification by the reconstituted Committee of Creditors (CoC). Payments for statutory compliance and professional services are allowed, with potential refunds if not ratified. Salary payments are deferred for CoC approval. The RP is restricted from engaging new professionals until further notice. The decision emphasizes maintaining the corporate debtor's operations in line with the Insolvency and Bankruptcy Code while ensuring creditor oversight.

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The judgment from the National Company Law Appellate Tribunal, Principal Bench, New Delhi, addresses several core issues concerning the management of a corporate debtor during the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC). The primary focus is on the appointment of a new Resolution Professional (RP) and the associated financial management of the corporate debtor.

Issues Presented and Considered:

The Tribunal considered the following key legal questions:

• Whether the newly appointed RP is entitled to manage the operations of the corporate debtor as a going concern and incur necessary expenses.
• The extent to which the RP can make payments for statutory compliances and professional services without prior approval from the reconstituted Committee of Creditors (CoC).
• Whether the Tribunal should allow the RP to make payments for salaries and other operational expenses before the reconstitution of the CoC.

Issue-wise Detailed Analysis:

1. Management of Corporate Debtor as a Going Concern:

• Relevant Legal Framework and Precedents: The IBC mandates that the RP must manage the corporate debtor as a going concern. The Tribunal referred to previous orders, including an interim order preventing further steps in pursuance of the impugned order.
• Court's Interpretation and Reasoning: The Tribunal emphasized the need for the RP to ensure statutory compliances and manage the debtor's operations, albeit with restrictions due to the pending reconstitution of the CoC.
• Key Evidence and Findings: The Tribunal noted that the RP was appointed following an order that also directed the reconstitution of the CoC, which had not yet occurred.
• Application of Law to Facts: The Tribunal allowed the RP to incur necessary expenses to maintain the debtor as a going concern, subject to ratification by the reconstituted CoC.
• Treatment of Competing Arguments: The Central Bank of India and Arrow Engineering Ltd. opposed the payments without CoC approval. The Tribunal balanced these concerns by allowing necessary expenses with the condition of future CoC ratification.
• Conclusions: The RP can manage operations and incur necessary expenses, but payments are subject to CoC ratification.

2. Payment for Statutory Compliances and Professional Services:

• Relevant Legal Framework and Precedents: Section 18 of the IBC outlines the duties of the RP, including maintaining the corporate debtor as a going concern.
• Court's Interpretation and Reasoning: The Tribunal permitted payments for statutory auditors, practicing company secretaries, and the RP, as these were deemed essential for statutory compliance.
• Key Evidence and Findings: The Tribunal referred to earlier orders allowing statutory compliance steps, underscoring the necessity of these payments.
• Application of Law to Facts: Payments for statutory compliance were allowed, with the condition of refund if not ratified by the CoC.
• Treatment of Competing Arguments: The Tribunal addressed objections by allowing payments but required an undertaking for potential refunds.
• Conclusions: Statutory compliance payments are permitted, subject to CoC ratification and refund conditions.

3. Payment of Salaries and Operational Expenses:

• Relevant Legal Framework and Precedents: The Tribunal considered the Supreme Court judgment in 'Sunil Kumar Jain & Ors.' Vs. 'Sunaresh Bhatt & Ors.' which emphasized that CIRP costs should only cover employees who worked during the CIRP period.
• Court's Interpretation and Reasoning: The Tribunal decided that salary payments should be considered by the reconstituted CoC, aligning with the principle that only necessary expenses should be covered.
• Key Evidence and Findings: The RP's application included requests for salary payments, which the Tribunal deferred to the CoC.
• Application of Law to Facts: The Tribunal required that salary payments be approved by the reconstituted CoC, ensuring alignment with statutory requirements.
• Treatment of Competing Arguments: The Tribunal balanced the need for operational continuity with the requirement for CoC approval, deferring salary payments to the CoC's decision.
• Conclusions: Salary payments are deferred to the reconstituted CoC for approval.

Significant Holdings:

The Tribunal established several core principles and determinations:

• The RP is permitted to incur necessary expenses for statutory compliance and essential operational costs, subject to CoC ratification and potential refunds if not approved.
• Salaries and other non-essential payments require CoC approval before disbursement.
• The Tribunal emphasized the importance of maintaining the corporate debtor as a going concern, in line with the IBC's objectives.
• The RP is restricted from engaging new professionals in the CIRP process until further notice.

These holdings underscore the Tribunal's approach to balancing the need for operational continuity with adherence to statutory processes and creditor oversight. The judgment reflects a careful consideration of the IBC's framework, ensuring that the corporate debtor's management aligns with legal and procedural requirements while awaiting the reconstitution of the CoC.

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