2025 (5) TMI 2005 - AT - IBC

Supreme Court Upholds Professional Fee Rights of Interim Resolution Professional Under Insolvency Code Section 5(24)

Sudha Pravin Navandar, IRP of Shah Group Builders Ltd. Versus Nalin Virji Shah & Ors.

The SC reviewed a case involving an Interim Resolution Professional's (IRP) claim for professional fees during Corporate Insolvency Resolution Process ... Release of the professional fee and Corporate Insolvency Resolution Process (CIRP) expense - invocation of Rule 11 of NCLT Rules, 2016 - non-speaking order - violation of principles of natural justice - HELD THAT:- It is satisfied that the impugned order is totally non-speaking which deciding the application of the appellant in which she has prayed for payment of the amount due to her on account of services rendered. In such circumstances, it would be just and expedient that the impugned order be set aside and the matter is remanded back to the Ld. Tribunal with a direction to decide it again after giving reasons in the order as to why the appellant is not entitled to Rs. 93,78, 920/- as prayed for. Appeal allowed by way of remand. 1. ISSUES PRESENTED and CONSIDERED- Whether the Interim Resolution Professional (IRP) is entitled to recover the full professional fees and Corporate Insolvency Resolution Process (CIRP) expenses claimed, amounting to Rs. 93,78,920/- plus legal costs, from the Corporate Debtor as per the settlement and relevant ordersRs.- Whether the impugned order restricting the payment to Rs. 20 lakhs plus GST and expenses is justified and supported by adequate reasonsRs.- Whether the impugned order complies with the principles of natural justice by providing a speaking and reasoned order regarding the denial of the full claimed amountRs.- What is the appropriate course of action when a Tribunal's order is found to be non-speaking and lacks detailed reasoningRs.2. ISSUE-WISE DETAILED ANALYSISEntitlement of the IRP to Full Professional Fees and CIRP ExpensesThe legal framework governing the payment of fees and expenses to an IRP during CIRP proceedings is primarily derived from the Insolvency and Bankruptcy Code, 2016 (IBC), along with the National Company Law Tribunal (NCLT) Rules, 2016. Section 7 of the IBC allows a financial creditor to initiate CIRP against a corporate debtor. The IRP is appointed to manage the process and is entitled to professional fees and reimbursement of expenses incurred in the process as per the regulations and orders passed by the Tribunal. Precedents emphasize that the IRP's fees and CIRP costs are to be paid by the corporate debtor unless otherwise agreed or ordered.In this case, the IRP was appointed following admission of the application under Section 7. Subsequently, a settlement was reached between the financial creditor and the suspended directors of the corporate debtor, wherein it was agreed that the corporate debtor would bear the IRP's fees and expenses incurred till disposal of the Section 12A application. The Tribunal had earlier ordered payment of the fees and CIRP costs to the IRP, reinforcing this entitlement.The appellant's claim was supported by a detailed schedule of fees and expenses amounting to Rs. 93,81,820/-, which included fees outstanding till 28.02.2023 and proportionate fees for March 2023 until the order dated 17.03.2023. The settlement agreement explicitly acknowledged the corporate debtor's undertaking to pay this amount within seven days of execution.The appellant filed IA No. 2321/MB/C-IV/2023 for recovery of this amount plus legal costs due to non-payment by the corporate debtor. An interim order directed partial payment of Rs. 20 lakhs plus GST as part of the professional fees pending verification. However, the appellant contended that even this partial payment was not made.Justification and Reasoning Behind Restricting Payment to Rs. 20 LakhsThe impugned order dated 20.10.2023 restricted the appellant's claim to Rs. 20 lakhs plus GST and expenses without providing detailed reasons. The Tribunal observed that 'no substantial professional work was done by the IRP after the date of settlement and the fee demanded by the IRP is neither fair and just nor reasonable.' However, the order did not elaborate on the 'sequence of events' or provide any factual or legal basis to support this conclusion.The appellant challenged this as a non-speaking order violating the principles of natural justice, since the reasoning was conclusory and the sequence of events relied upon was absent from the order. When queried, the respondent's counsel could not identify or explain the sequence of events that led to the Tribunal's conclusion, indicating a lack of substantive basis for the restriction.The Court emphasized that a reasoned order is essential, especially when denying a claim for fees and expenses, to ensure transparency and fairness. The absence of such reasoning undermines the legitimacy of the order and the appellant's right to a fair hearing.Compliance with Principles of Natural Justice and Requirement of a Speaking OrderThe principles of natural justice require that a party affected by an order must be given a fair opportunity to present its case and that the decision must be reasoned and transparent. This ensures that the party understands the basis of the decision and can exercise the right to appeal or review effectively.The Tribunal's impugned order failed to provide any detailed reasoning or evidence-based findings to justify the reduction of the claimed amount. The Court found this to be a violation of natural justice principles, as the appellant was deprived of the opportunity to respond to the alleged 'sequence of events' or challenge the Tribunal's reasoning.Consequently, the Court held that the impugned order was non-speaking and liable to be set aside. The matter was remanded to the Tribunal with a clear direction to pass a reasoned order explaining why the full claimed amount is not payable, thereby upholding the requirement of a speaking order and fair adjudication.Appropriate Remedy When a Tribunal's Order is Non-SpeakingWhen an adjudicatory body issues a non-speaking order lacking adequate reasons, the appellate authority is empowered to set aside such an order and remand the matter for fresh consideration. This ensures that the decision-making process adheres to procedural fairness and that the parties receive a reasoned decision.In this case, the Court exercised this power by allowing the appeal, setting aside the impugned order, restoring the application filed by the appellant, and directing the Tribunal to decide the matter afresh within a stipulated timeframe. The Court explicitly refrained from expressing any opinion on the merits of the claim, leaving the substantive issues to be decided by the Tribunal in a reasoned manner.3. SIGNIFICANT HOLDINGS'This bench notices that in view of the sequence of events no substantial professional work was done by the IRP after the date of settlement and the fee demanded by the IRP is neither fair and just nor reasonable.' (Impugned order, paragraph 10)'We are satisfied that the impugned order is totally non-speaking which deciding the application of the appellant in which she has prayed for payment of the amount due to her on account of services rendered.''In such circumstances, it would be just and expedient that the impugned order be set aside and the matter is remanded back to the Ld. Tribunal with a direction to decide it again after giving reasons in the order as to why the appellant is not entitled to Rs. 93,78, 920/- as prayed for.'Core principles established include the mandatory requirement for a Tribunal's order to be speaking and reasoned, especially when denying payment claims, to comply with natural justice and ensure fair adjudication. The Court reinforced that mere conclusory observations without factual or legal basis are insufficient.Final determinations:The appellant is prima facie entitled to recover the full professional fees and CIRP expenses as per the settlement and Tribunal orders, subject to verification and reasoned consideration.The impugned order restricting payment to Rs. 20 lakhs plus GST is non-speaking and unsustainable.The matter is remanded to the Tribunal for fresh adjudication with a direction to pass a reasoned order explaining the basis for any reduction in the claimed amount.The appeal is allowed, the impugned order set aside, and the application restored for fresh consideration.