2025 (11) TMI 524 - AT - IBC

No professional fees for IRP during 19-month stay; actions were impermissible and not reasonably compensable

NCLAT dismissed the appeal and upheld the tribunal's refusal to fix or award professional fees for the interim stay period (14.08.2023-18.03.2025). The ... Seeking for withdrawal of the CIRP process of the Corporate Debtor, while declining to fix or direct the payment of any fee to the Appellant, who was the Resolution Professional of the Corporate Debtor - whether after the stay order, the activities undertaken at the behest of the Interim Resolution Professional was at all permissible to be continued owing to the implications of the stay of the proceedings by the Hon’ble High Court of Karnataka? - HELD THAT:- It was rightly observed by the Ld. Tribunal, that as a matter of fact, there is no practical or rational distinction between the two terms of “stay of proceedings” and “stay of the CIRP”, because the ultimate conclusion of either of the two expressions, for which the distinction was attempted to be drawn by the Appellant, would be the same, and therefore, the period from 14.08.2023 till 18.03.2025 would be an exclusion period, where no work relating to CIRP could not have possibly been carried out by the IRP, Ld. Tribunal further observed that had the CIRP proceeded further, consequent to vacation of stay, that stood imposed by the Hon'ble High Court's order of 14.08.2023, the IRP would have applied for exclusion of such period from CIRP timelines and that if the Appellant in the capacity of being an IRP on his volition has been filing applications including the progress reports and operating bank accounts of the CD, it is only to project that he is functioning during the stay period, which otherwise was not at all warranted. As the Appellant couldn't have exercised any control over the business activities and the functioning, administration, or any other related activities of the Corporate Debtor. The factual situation, that would emerge would be that, whatsoever the activities, which were being performed by the Interim Resolution Professional was on his own volition and it will be of no relevance for the purposes to justify the payment of the fee for the period when there operated a stay order as no effective activities in relation to the CIRP process was carried or could have been carried also. Besides that, since the main company petition have been proceeded to be decided on the basis of an application of withdrawal of the company petition, in fact it is established that there was no effective discharge of official duties as an Interim Resolution Professional during the period of stay. Hence, the finding recorded by the Ld. Tribunal declining to fix the fee to the Appellant for the aforesaid period during which their operated stay of proceedings by Hon'ble High Court was absolutely justified. Claim to payment of a fee by a professional will always depend upon the principles of quid pro quo, meaning that entitlement of a fee would be only in lieu of the services discharged by the Interim Resolution Professional in his official capacity. There was nothing on record, which was brought by the Appellant to show that he had effectively discharged any of the functions, which could be correlated with the principles of quid pro quo, to fall to be an act carried in furtherance of CIRP process, during the period of interim stay. Hence, denial to fix the fee for the aforesaid period, of 19 months being the period of interim stay, which was subject matter of application, by the impugned order dated 23.06.2025 cannot be faulted in any manner whatsoever. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an interim stay of further proceedings granted by a High Court under challenge to initiation of CIRP effectively amounts to a stay of the CIRP process for the period of such interim order. 2. Whether an Interim Resolution Professional (IRP) is entitled to remuneration/fees for the period during which the CIRP proceedings were kept in abeyance by a High Court interim order. 3. Whether acts undertaken by the IRP during the interim stay (such as filings, interactions with authorities, operating bank accounts, preparing accounts, and filing progress reports) can justify payment of fees on the principle of quid pro quo when the CIRP was under judicial stay. 4. Whether a Committee of Creditors' (CoC) approval of certain expenses and fees (excluding the stay period) and referral to the Adjudicating Authority for fixation of fees for the stay period affects the entitlement of the IRP to fees for that period. 5. Whether Regulation 34B (threshold fee fixation) or other IBBI Regulations / IBC provisions mandate payment of fee for a period during which CIRP proceedings are stayed. ISSUE-WISE DETAILED ANALYSIS Issue 1: Effect of High Court interim stay on CIRP - Legal framework The Court considered the interplay between a High Court interim order staying 'further proceedings' in a writ challenging initiation of CIRP and the continuity of the CIRP process under the Insolvency and Bankruptcy Code (IBC). The relevant statutory provisions engaged include Section 10A (temporal restriction on insolvency initiation during Covid period, as pleaded) and the general scheme under which CIRP is conducted. The Tribunal treated an order staying further proceedings on the subject matter of CIRP as operative to keep the CIRP in abeyance. Precedent Treatment No prior judicial authorities were relied upon or distinguished in the judgment; the conclusion is reached on statutory construction and practical effect. Interpretation and reasoning The Court reasoned that there is no practical or rational distinction between 'stay of proceedings' and 'stay of the CIRP' where the stay specifically pertains to steps in initiation or continuation of the CIRP. A stay of proceedings in relation to the subject-matter of the CIRP necessarily halts the CIRP process because the process consists of those proceedings and steps. Ratio vs. Obiter Ratio: A judicial stay of further proceedings concerning initiation/continuation of CIRP operates to keep the CIRP in abeyance (i.e., it is effectively a stay of the CIRP) for the period of the interim order. Conclusions The Court concluded that the interim order by the High Court (14.08.2023-18.03.2025) amounted to exclusion of that period from the CIRP; no work constituting the CIRP could lawfully be carried out during that interval. Issue 2: Entitlement to remuneration for the stay period - Legal framework The Court examined entitlement to fees under the general contractual/statutory principles governing professionals in insolvency (quid pro quo), the role of the CoC in approving fees and expenses, and the role of the Adjudicating Authority in fixation of fees. Reference was made to Regulation 34B (threshold fee concept) as invoked by the IRP. Precedent Treatment No precedent was expressly followed or overruled; the Tribunal applied principles of service-for-consideration (quid pro quo) and the practical effect of the stay order. Interpretation and reasoning The Court held that entitlement to remuneration depends on actual discharge of duties and services in the official capacity of IRP - quid pro quo. Where the CIRP was kept in abeyance by a competent court, the IRP could not lawfully discharge the functions that trigger entitlement to fee. The mere fact that the CIRP had not been finally set aside but only stayed, does not, in the Court's view, mean that the IRP functioned during the stay for purposes of fee entitlement. The Tribunal further noted that filing interlocutory applications or making isolated entries does not equate to effective discharge of CIRP duties when the process was stayed. Ratio vs. Obiter Ratio: Remuneration of an IRP for a period is contingent on lawful and effective discharge of duties during that period; where a judicial stay prevents performance of CIRP functions, fee entitlement for that period is not established merely by filings or isolated actions. Conclusions The Court concluded that the IRP was not entitled to fees for the period of the interim stay because no effective CIRP work could have been carried out lawfully; denial by the Adjudicating Authority to fix fees for the stay period was justified. Issue 3: Validity of acts performed by IRP during stay and their sufficiency to create fee entitlement - Legal framework The Tribunal considered whether acts alleged to have been performed during the stay (public announcements already made, interlocutory applications filed, interactions with authorities, operating bank accounts, preparation of accounts, filing progress reports) can establish fee entitlement when the overarching stay barred further proceedings. Precedent Treatment No case law was cited; assessment was fact-driven and based on principles of lawful performance and bona fides. Interpretation and reasoning The Court observed that many of the actions claimed either preceded the stay or were filings that did not result in effective orders or directions because the main process was kept in abeyance. Filing interlocutory applications without effective pursuit to secure relief, or performing acts that would contravene the stay, do not demonstrate bona fide and effective discharge of CIRP duties. The Tribunal expressed concern over the bona fides where multiple applications were filed during the stay without active steps to procure their adjudication. Ratio vs. Obiter Ratio: Acts done in contravention of or beyond the scope permitted by a judicial stay, or mere filing of interlocutory applications without effective pursuit, do not constitute discharge of duties sufficient to support fee entitlement. Conclusions The Tribunal found no material to correlate the alleged activities during the stay with requisite services that would attract remuneration, and thus upheld the refusal to fix fees for the said period. Issue 4: Effect of CoC approval and Section 12A withdrawal on fee fixation - Legal framework The Court reviewed the CoC's unanimous approval of Form FA under Section 12A to withdraw the CIRP and its approval of certain CIRP expenses and IRP fee excluding the stay period, together with CoC's request that the IRP seek fixation of fee for the stay period before the Adjudicating Authority. Precedent Treatment No authority was cited. The Tribunal treated CoC approvals as relevant but not determinative where the underlying legal entitlement is absent. Interpretation and reasoning The Tribunal held that CoC approval to reimburse expenses and fix fees for the CIRP period excluding the stay does not alter the legal principle that fee entitlement for the stay period must rest on actual lawful performance of duties. The fact that the main petition was ultimately withdrawn under Section 12A reinforces that there was no effective discharge of IRP duties during the stay. Ratio vs. Obiter Ratio: CoC approval of fees/expenses cannot create an entitlement to remuneration for a period where the process was judicially stayed and no lawful services in respect of CIRP were rendered. Conclusions The Tribunal held that CoC's approvals and Section 12A withdrawal did not require the Adjudicating Authority to fix fees for the stay period when no effective CIRP work was performed; the Adjudicating Authority's refusal was sustainable. Issue 5: Application of Regulation 34B and regulatory threshold to claimed fee Legal framework Regulation 34B (threshold fee fixation) was invoked by the IRP to assert a minimum entitlement. The Court considered whether regulatory minima operate to mandate payment during a judicial stay. Precedent Treatment No specific regulatory precedent was applied; the Tribunal interpreted the regulation against the factual matrix. Interpretation and reasoning The Tribunal indicated that regulatory thresholds govern fixation of fee where services are provided; they do not create entitlement where the services could not lawfully be performed due to a judicial stay. Regulatory minima cannot override the basic principle of quid pro quo and lawful discharge of duties. Ratio vs. Obiter Ratio: Regulatory provisions for fee fixation do not confer a fee entitlement for periods during which the CIRP was judicially stayed and no lawful CIRP functions were performed. Conclusions The Tribunal declined to fix fee for the stay period notwithstanding invocation of Regulation 34B, finding the refusal consonant with the statutory and equitable principles governing remuneration. Final Disposition (Consolidated Conclusion) The Court affirmed the Adjudicating Authority's refusal to fix remuneration for the IRP for the period the CIRP was stayed by the High Court, concluding there was no lawful or effective discharge of CIRP duties during that period and, consequently, no entitlement to fees for that exclusion period. The appeal was dismissed for lack of merit.