2025 (9) TMI 682 - AT - IBC

Appeal dismissed: IRP withdrew fees without CoC ratification; refund ordered and replacement valid under IBC, CIRP regs

Nirav Tarkas Versus Vikash Jain, Ahmedabad

NCLAT affirmed the AA's finding that the interim resolution professional (IRP) withdrew fees without CoC ratification, rendering withdrawals unauthorized ... Withdrawal of fees by the IRP - seeking directions of the Adjudicating Authority for refund of the fees which had been drawn by the IRP without ratification of the CoC - lack of correct appreciation on the part of the Adjudicating Authority of statutory entitlement of an IRP for his fees - jurisdiction of Monitoring Committee (MC) to maintain the present application post approval of the resolution plan - HELD THAT:- The IRP being the person responsible for drawing up these minutes cannot deny the authenticity of these minutes. To be fair to the Appellant, the veracity of these minutes has not been controverted by him nor do we notice any denial on his part that the CoC did not ratify the fees of the IRP. The only defence which has been taken by the Appellant is that since SBI was the sole CoC member and it had already given its in-principle approval for fees at the time of issuing the appointment letter and had assured to process the fees during the 1st CoC meeting, no formal resolution of the CoC was required. As far as the alleged assurance given by the SBI is concerned, there are no substance in this argument canvassed by the IRP as the CoC minutes at page 102 of Appeal Paper Book do not show any such assurance having been extended by SBI - there are no infirmity in the impugned order that the withdrawal of fees by the IRP was unauthorised and in contravention of the statutory provisions of IBC and CIRP Regulations as well as the order of the Adjudicating Authority dated 31.08.2021. It is an incontrovertible fact that IRP had withdrawn Rs. 2,62,564/- in April 2022 and Rs. 9,83,684/- during CIRP towards fees without the approval of the CoC. Unless the fee was ratified by the CoC, the IRP could not have taken such fee from the account of the Corporate Debtor. The CoC having refused to ratify the fees clearly rendered the withdrawal of fees by the IRP as an unauthorized act. Once the Corporate Debtor had been admitted into the rigours of CIRP, it is the responsibility of the RP to take custody of the assets of the Corporate Debtor. Hence, the RP cannot be faulted for having sent an e-mail to the IRP seeking refund of the fees which had been unauthorisedly drawn - the Adjudicating Authority has taken the correct view that since the withdrawal of fees by the IRP was done in an unauthorized manner and was in breach of the statutory provisions of IBC and CIRP Regulations but also the order of the Adjudicating Authority dated 31.08.2021, the said amount was directed to be reversed to the account of the Corporate Debtor. It cannot be denied that with the approval of the resolution plan, the role of the RP comes to an end and so does the CoC cease to exist. Regulation 38 of CIRP Regulation, however, envisages an MC to come into position for overseeing the implementation of the plan. There is no statutory bar on the MC which is entrusted with overseeing the plan implementation to delegate on to the erstwhile RP to pursue applications/court proceedings if the MC is either authorised either by the terms of the plan or by the stakeholders to act accordingly. On looking at Section 27 of IBC, there can be no disagreement that the process of the replacement of IRP is complete when the required decision is taken by the CoC in its meeting with requisite majority. The law nowhere says that the CoC is required to give an opportunity for hearing to the IRP or to adduce reasons for seeking replacement of the IRP. It is well settled that the relationship between the IRP and the CoC is one of trust and confidence. In the present case, the CoC decided to replace the IRP in the 1st CoC meeting which was followed up by an application before the Adjudicating Authority which was subsequently affirmed by the Adjudicating Authority on 25.04.2022 approving the replacement of the IRP with another RP. That being the case, once the IRP lost the trust of the CoC and the CoC as per its wisdom decided to replace the IRP, that decision should have been accepted gracefully by the IRP. There are no hesitation in holding that the replacement of the IRP was done by following the due process and this order having acquired finality on 25.04.2022 cannot be open for challenge now. There are no substance in the submissions raised by the Appellant to warrant any interference in the impugned order. The impugned order passed by the Adjudicating Authority, not suffering from any infirmities, is hereby affirmed including the directions to refund Rs. 12,46,248/- to the Corporate Debtor’s account by 10.10.2025 - appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether withdrawal of fees by the Interim Resolution Professional (IRP) from the corporate debtor's account without ratification by the Committee of Creditors (CoC) violated the Insolvency and Bankruptcy Code (IBC) and CIRP Regulations and warranted refund. 2. Whether an application for recovery of IRP fees (instituted before approval of the resolution plan) remains maintainable after approval of the resolution plan and whether the Monitoring Committee (MC) can authorise the erstwhile Resolution Professional (RP) to pursue such application post-plan approval. 3. Whether the conduct of the IRP (delays, alleged non-cooperation and post-replacement withdrawals) affected entitlement to fees or the outcome of the application for refund. 4. Whether the replacement of the IRP by the CoC, followed by adjudicatory approval, was vitiated by denial of natural justice or otherwise irregular. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of withdrawal of fees by IRP without CoC ratification Legal framework: Section 5(13) IBC defines 'insolvency resolution process costs' to include fees payable to any person acting as a resolution professional. Regulations 33 and 34 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) provide that (i) the applicant (financial creditor) shall fix expenses to be incurred on or by the IRP, (ii) where applicant has not fixed expenses Adjudicating Authority shall fix them, (iii) the applicant shall bear expenses which shall be reimbursed by the CoC to the extent it ratifies, and (iv) amounts ratified by the CoC shall be treated as CIRP costs. Regulation 34 requires the CoC to fix expenses for the RP and treat them as CIRP costs. Precedent treatment: The judgment relies on direct statutory/regulatory text and an IBBI circular (as understood in the record) emphasizing formal CoC ratification; no contrary judicial precedent is relied upon or overruled. Interpretation and reasoning: A plain reading of Section 5(13) together with Regulations 33-34 shows that fees become part of CIRP costs only upon CoC ratification. The Adjudicating Authority's initial order limiting interim payment to Rs. 2,00,000/- until CoC decision underscores that further drawing requires formal approval. The IRP did not produce evidence of CoC ratification; CoC minutes confirm refusal to ratify. Alleged informal or in-principle consent by the sole CoC member (financial creditor) without a formal resolution does not satisfy the statutory/regulatory requirement. Withdrawals after replacement (April 2022) lacked legal basis. The IRP's failure to controvert CoC minutes or explain withdrawals undermines his position. Ratio vs. Obiter: Ratio - Fees paid/drawn by an IRP without CoC ratification do not qualify as CIRP costs and are unauthorised withdrawals subject to refund. Obiter - Observations on discrepancy in invoiced amounts and credibility of informal assurances. Conclusion: The withdrawals totalling Rs. 12,46,248/- were unauthorised and in contravention of IBC, CIRP Regulations and the Adjudicating Authority's interim directions; refund to the corporate debtor's account was warranted. Issue 2 - Maintainability of IA for recovery of fees after resolution plan approval and MC's authority to pursue the IA Legal framework: Regulation 38 of the CIRP Regulations contemplates constitution of a Monitoring Committee (MC) to oversee implementation of the approved resolution plan. There is no statutory provision that approval of a resolution plan automatically extinguishes or terminates pending CIRP-related proceedings before the Adjudicating Authority; CoC ceases post-plan approval, but MC is created to supervise plan implementation and may act as delegated authority. Precedent treatment: The Court applied statutory text and the sequence of events rather than relying on external judicial authorities. Interpretation and reasoning: The IA for recovery was filed before plan approval. The subject matter concerned CIRP costs intrinsic to insolvency proceedings. The MC, vested with oversight of plan implementation and stakeholder interests, may authorise the erstwhile RP (acting as MC chairman) to pursue pending applications if the MC so resolves and the subject matter falls within the Adjudicating Authority's jurisdiction. The MC's 3rd meeting contained a unanimous resolution authorising the chairman/erstwhile RP to continue handling IA No. 92 of 2023 for stakeholders' benefit. No record was shown that the MC exceeded its mandate in so authorising. Therefore, maintainability of the IA and locus of the authorised RP were sustained. Ratio vs. Obiter: Ratio - Applications relating to CIRP costs instituted prior to plan approval survive adjudication post-plan approval; the MC can authorise an authorised representative (including the erstwhile RP as MC chairman) to pursue such proceedings on behalf of stakeholders. Obiter - Statements on the absence of a statutory bar to continuation of pre-approval proceedings. Conclusion: The IA remained maintainable after plan approval; the Monitoring Committee validly authorised the former RP to continue prosecution of the IA and thus had locus to pursue recovery. Issue 3 - Impact of IRP's conduct on entitlement to fees and adjudication Legal framework: Duty of RP to protect corporate debtor's estate and maximise value; CoC decision-making per statute; replacement and oversight mechanisms under IBC/CIRP Regulations. Professional conduct and regulatory oversight (IBBI orders) inform credibility and fitness but entitlement to fees is governed by ratification and statutory process. Precedent treatment: The judgment references regulatory action (suspension of IRP's licence by IBBI as recorded) as contextual support but decides on statutory compliance rather than regulatory sanctions alone. Interpretation and reasoning: Allegations of delay and non-cooperation (e.g., late convening of the first CoC meeting, absence from the 2nd CoC meeting) were noted; however the Court declined to adjudicate allegations of professional misconduct in detail because the primary legal question was statutory entitlement to fees and whether due process was followed for replacement. The IRP failed to provide medical documentation for delays and did not contest CoC minutes regarding non-ratification. The IBBI suspension order, while not the central basis for the refund, corroborated concerns about the IRP's conduct and supported the CoC's loss of trust. Ratio vs. Obiter: Ratio - Lack of CoC ratification, non-cooperation and withdrawals after replacement materially affected the adjudication on entitlement; professional conduct issues are relevant context for replacement but do not alter the statutory requirement of ratification for fee entitlement. Obiter - Detailed factual findings on conduct beyond what was necessary to decide ratification and replacement. Conclusion: The IRP's conduct (including unauthorised withdrawals and failure to rebut CoC minutes) supported the conclusion that fees were not lawfully payable absent ratification; conduct did not prevent refund order and underpinned the CoC's replacement decision. Issue 4 - Validity of CoC's replacement of the IRP and natural justice complaint Legal framework: Section 27 IBC empowers the CoC to replace the IRP at any time during CIRP. The relationship between IRP and CoC is fiduciary, rooted in trust and confidence. The CoC's resolution with requisite majority followed by filing of an application before the Adjudicating Authority is the statutory mode for replacement; the Adjudicating Authority confirms replacement. Precedent treatment: The Court applied statutory provision directly; no decision overruling or distinguishing precedents was required. Interpretation and reasoning: Section 27 does not mandate an opportunity to be given by the CoC to the IRP before passing a replacement resolution. The CoC passed a resolution in its first meeting, filed an application and the Adjudicating Authority approved replacement on 25.04.2022. Once the CoC decides with requisite majority and the Adjudicating Authority confirms, the process is complete; alleged denial of a chance to defend before the CoC is not prescribed by the statute and does not render the replacement invalid. Given the procedural compliance and subsequent finality of the adjudicatory order, the replacement could not be challenged in the present appeal. Ratio vs. Obiter: Ratio - CoC's power to replace an IRP under Section 27 is exercisable by resolution; statute does not require CoC to afford the IRP a hearing prior to replacement, and subsequent confirmation by the Adjudicating Authority renders the replacement final. Obiter - Comments on expected professional courtesy or best practice do not alter statutory scheme. Conclusion: Replacement of the IRP by CoC followed by Adjudicating Authority approval complied with statutory procedure; the natural justice argument did not vitiate the replacement. Relief and final disposition Conclusions synthesised: Withdrawals without CoC ratification were unauthorised and required refund; the IA filed pre-plan approval remained maintainable and the Monitoring Committee validly authorised the erstwhile RP to pursue recovery; allegations concerning conduct and replacement did not negate the statutory requirement of CoC ratification or invalidate the replacement process. The impugned order directing refund was affirmed.