TaxTMI 
TaxTMI 
2021 (9) TMI 984
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....ority (National Company Law Tribunal), Mumbai Bench in Para 23 of the impugned order dated 23.03.2021 passed in M.A. No. 3714 of 2019 in C.P. (IB) No. 2714 of 2018. By the impugned order, while approving the Resolution Plan submitted by Successful Resolution Applicant- 'Prestige Estates Projects Ltd.', the Adjudicating Authority disagreed with the Committee of Creditors ("CoC" for short) which has approved 'success fees' to the Resolution Professional of an amount of Rs. 3 Crores. 3. Impugned Para 23 of the impugned order (Page 59) is as under:- "23. Even though the plan is approved, we would like to disagree with the decision of the COC wherein it has approved the success fees to the RP. It has been made clear by the Hon'ble NCLAT in the matter of Mr. Devarajan Raman, Resolution Professional Poonam Drum & Containers Pvt. Ltd v. Bank of India Ltd. [Company Appeal (AT) (Insolvency) No. 646 of 2020] that the fees of the RP is not the commercial wisdom of the COC. The following para from the said judgment is hereby reproduced: "...Fixation of fee is not a business decision depending upon the commercial wisdom of the Committee of Creditors. We accordingly find this....
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....e compendium - Vol. III. It is stated that such success fee is permissible and that the Adjudicating Authority erred in Para 23 of the impugned order in interfering with the decision taken by the Committee of Creditors in this regard. Considering the issue involved, we request Advocate Mr. Sumant Batra to assist us as Amicus Curiae. The Counsel for the Appellant to send the copy of the appeal and its annexures to the Amicus Curiae. List the Appeal 'For Admission Hearing' on 25th June, 2021." 6. Thus, Advocate Mr. Sumant Batra came to be appointed as Amicus Curiae to assist us in the decision of the issue which has arisen in this matter. It is necessary for us to consider whether the 'success fees' could be charged, and the manner in which it has been charged. 7. The Appellant has filed Written Submissions as well as we have the Written Submissions filed by the Amicus Curiae and we have also heard Learned Senior Counsel for the Appellant as well as the Learned Amicus Curiae. Before discussing the submissions made, it may be appropriate to refer to the relevant parts of documents as are available in this matter. 8. The Corporate Insolvency Resolution Proces....
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....ers. The Agenda does not have any link to this chart made available by the Appellant- Resolution Professional. If the chart is perused, the fine print has various entries of CIRP expenses in which there is one entry 'Success Fees' with an *(Asterisk) and a fine print footnote stating that 'Amount of Success Fees to be decided by the COC'. 11. Then there are minutes of 20th CoC meeting dated 12.11.2019 with the adjourned meeting dated 13.11.2019. The document is at Annexure A-1 in the Appeal (Page 63). In these minutes, Item No.4 shown is 'Subject to the decision of the Hon'ble NCLT Mumbai Bench, to evaluate Resolution Plans, to finalize the Resolution Applicant, decide the distribution matrix and way forward'. The minutes then show the discussion with regard to the Resolution Plans received. Then Item No.5 may be referred. The same reads as:- "5. TO RATIFY THE CIRP COST INCURRED TILL DATE AND TO APPROVE THE BUDGET FOR FURTHER EXPENSES TO BE INCURRED AND DECIDE WAY FORWARD FOR FURTHER FUND RAISE IN THIS CONNECTION: The Chairman informed that he has circulated list of expenses incurred during the CIRP Process of the Corporate Debtor along with the notice of 20th ....
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....hours." 12. The Appellant claims that he then filed I.A 3714/2019 for approval of the Resolution Plan and when the order approving the Resolution Plan came to be passed the impugned order with para 23 was passed by the Adjudicating Authority which is being impugned. 13. The Appeal has referred to the various efforts made by the Appellant during the course of CIRP. It is argued that the assets of the Corporate Debtor were worth Rs. 1,089 Cr. and the same were handled and safeguarded by the Appellant; that he convened 20th CoC meeting; that there were more than 20 hearings before the Adjudicating Authority, Appellate Tribunal and the Hon'ble Supreme Court; that there were different classes of stakeholders which included approx. 100 number of Financial Creditors, approx. 400 number of homebuyers, who were required to be dealt with; that various meetings arranged between homebuyers and Resolution Applicant to harmoniously resolve the issues and concerns of homebuyers; that the Appellant successfully convened CoC meeting and got CoC's approval on the Resolution Plan. Learned Senior Counsel for the Appellant submitted that the issue can be only reasonableness of 'success fees'. Acc....
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....ice? Should best practice for determination of fee good enough for regulation of fee? v. Should the fee payable for various services under CIRP be further (beyond disclosures and best practices) regulated? If so, how should the fee payable to the IRP/RP, IPE and professionals engaged under CIRP be regulated? Should there be a ceiling, a floor or a band for fee payable to the IRP/RP, IPE and other professionals. Should it be a percentage linked to some variable of the corporate debtor? Should it be decided based on estimation of man hours of services required in a CIRP? Please elaborate. vi. How should the fee and costs associated with CIRP be ascertained and minimized? vii. Is there any further suggestion / comment on costs and fee associated with CIRP? 15. The comments and suggestions may please be mailed at [email protected] latest by 20th April, 2018." 15. The Learned Senior Counsel then submitted that suggestions were invited by IBBI and after considering suggestions, the Circular dated 12.06.2018 was issued. The Circular reads as under:- "Insolvency and Bankruptcy Board of India 7th Floor, Mayur Bhawan, Connaught Place, New....
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....ed "Regulation of fee payable to insolvency professionals and other process costs under Corporate Insolvency Resolution Process" on its web site on 1st April, 2018 seeking comments thereon. The comments received from stakeholders have been considered in consultation with the Insolvency Professional Agencies. 6. Keeping the above in view, the IP is directed to ensure that:- (a) the fee payable to him, fee payable to an Insolvency Professional Entity, and fee payable to Registered Valuers and other Professionals, and other expenses incurred by him during the CIRP are reasonable; (b) the fee or other expenses incurred by him are directly related to and necessary for the CIRP; (c) the fee or other expenses are determined by him on an arms' length basis, in consonance with the requirements of integrity and independence; (d) written contemporaneous records for incurring or agreeing to incur any fee or other expense are maintained; (e) supporting records of fee and other expenses incurred are maintained at least for three years from the completion of the CIRP; (f) approval of the Committee of Creditors (CoC) for the fee or oth....
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....l concluded CIRPs by 15th July, 2018, and (b) for ongoing and subsequent CIRPs within the time as specified in the relevant Form. 10. An Insolvency Professional Agency shall - (a) disseminate the disclosures made by its IPs on an appropriate electronic platform within three working days of receipt of the same; (b) monitor disclosures made by its IPs and submit a monthly summary of non-compliance by its IPs with this circular to the IBBI by 7th of the succeeding month; (c) take appropriate measures to ensure compliance by its IPs. 11. This circular is issued in exercise of the powers conferred under clause (h) of sub-section (1) of section 196 read with regulation 34A of the IBBI (Corporate Insolvency Resolution Process for Corporate Persons) Regulations, 2016, in consultation with all the three registered Insolvency Professional Agencies. Yours faithfully, -Sd- (Dilip Arjun Khandale) Deputy General Manager Email: [email protected]" (Emphasis supplied) 16. The Learned Senior Counsel pointed out the Circular from the convenience compilation (Diary No.28625 at Page 7....
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....is not inconsistent with the applicable regulations. 25A. An insolvency professional shall disclose the fee payable to him, the fee payable to the insolvency professional entity, and the fee payable to professionals engaged by him to the insolvency professional agency of which he is a professional member and the agency shall publish such disclosure on its website. 26. An insolvency professional shall not accept any fees or charges other than those which are disclosed to and approved by the persons fixing his remuneration. 27. An insolvency professional shall disclose all costs towards the insolvency resolution process costs, liquidation costs, or costs of the bankruptcy process, as applicable, to all relevant stakeholders, and must endeavour to ensure that such costs are not unreasonable.". III. The IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 Chapter IX of the Regulations reads as under: "Chapter IX INSOLVENCY RESOLUTION PROCESS COSTS Insolvency Resolution Process Costs 31. "Insolvency resolution process costs" under Section 5(13)(e) shall mean- (a) amounts due....
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....the resolution professional. Disclosure of Costs. 34 A. The interim resolution professional or the resolution professional, as the case may be, shall disclose item wise insolvency resolution process costs in such manner as may be required by the Board." IV. Circulars Issued by the IBBI The circular No. IP/004/2018 dated 16th January, 2018 provides as under: "3. In view of the above, it is clarified that an insolvency professional shall render services for a fee which is a reasonable reflection of his work, raise bills / invoices in his name towards such fees, and such fees shall be paid to his bank account. Any payment of fees for the services of an insolvency professional to any person other than the insolvency professional shall not form part of the insolvency resolution process cost. 4. Similarly, any other professional appointed by an insolvency professional shall raise bills / invoices in his / its (such as registered valuer) name towards such fees, and such fees shall be paid to his / its bank account." (Emphasis supplied) 17. Learned Counsel for Appellant insisted on reading Para 3 of the Circular dated 12.06.....
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.... Illustration: X is appointed as an IRP. She can charge a cumulative of fixed fee to suspend the board of directors and have the public announcement made, fee per hour spent on collecting and verifying claims, and a fee based on the percentage of assets handled for running the business as a going concern. (iii) An insolvency professional should consider the following factors while determining the quantum of fee to be charged: (a) value and nature of the assets dealt with, (b) time properly given by the insolvency professional and her staff in attending to the affairs of the debtor, (c) the complexity of the case, (d) exceptional responsibility falling on the insolvency professional, (e) the effectiveness with which the insolvency professional carries out her duties. Illustration: X, an insolvency professional, may choose to charge higher fee if- (a) the properties of the corporate debtor are in multiple locations all over the country (nature of property), (b) key trade suppliers are also unpaid creditors and thus hostile (complexity of the case), or (c) if the existing management is not c....
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....ttee of Creditors. 21. Learned Senior Counsel for the Appellant accepted that there is no judgment of the Hon'ble Supreme Court of India which has considered whether or not quantum of fees accepted, is or not a commercial decision. 22. Referring to the Judgment relied on by the Adjudicating Authority in impugned order Para 23 in the matter of "Mr. Devarajan Raman, Resolution Professional Poonam Drum & Containers Pvt. Ltd. v. Bank of India Ltd." [Company Appeal (AT) (Insol.) No. 646 of 2020], Learned Senior Counsel submitted that the facts of that matter were different. It is stated that in that matter the Appellate Authority had set aside the CIRP and directed the Adjudicating Authority to decide the fee to be paid to the Resolution Professional. The Resolution Professional later on found that the fees fixed by the Adjudicating Authority was inadequate and filed another Appeal and at that occasion, this Tribunal stated that fixation of fees is not a business decision depending upon the commercial wisdom of the CoC. Thus, it is claimed that the observations of this Tribunal in that matter could not have been relied on for interfering with the decision of the CoC. Relying on ju....
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....ations, 2016 ("IP Regulations" for short:- "Remuneration and costs. 25. An insolvency professional must provide services for remuneration which is charged in a transparent manner, is a reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations. 25A. An insolvency professional shall disclose the fee payable to him, the fee payable to the insolvency professional entity, and the fee payable to professionals engaged by him to the insolvency professional agency of which he is a professional member and the agency shall publish such disclosure on its website. 26. An insolvency professional shall not accept any fees or charges other than those which are disclosed to and approved by the persons fixing his remuneration. 27. An insolvency professional shall disclose all costs towards the insolvency resolution process costs, liquidation costs, or costs of the bankruptcy process, as applicable, to all relevant stakeholders, and must endeavour to ensure that such costs are not unreasonable." 25. The submissions are that the Resolution Professional can charge remuneration only in a ....
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.... b. Fee should be a reasonable reflection of the work necessarily and properly undertaken by RP [Refer Para 25 of Code of Conduct, IP Regulations, page 243 of Vol. 2 of Compilation filed by Amicus Curiae]; c. Fees should not be inconsistent with the applicable regulations [Refer Para 25 of Code of Conduct, IP Regulations page 243 of Vol. 2 of Compilation filed by Amicus Curiae]; d. Fee should be charged in transparent manner; [Refer Para 25 of Code of Conduct, IP Regulations, page 243 of Vol. 2 of Compilation filed by Amicus Curiae.] e. The RP shall maintain written contemporaneous record of decision taken in respect of fees. [Refer Para 16 of Code of Conduct, IP Regulations, page 243 of Vol. 2 of Compilation filed by Amicus Curiae]; f. The RP shall take reasonable care and diligence while performing his duties associated with charging fees and process associated therewith.; and [Refer Section 208(2) of the Code]; and g. There shall be item wise disclosure by RP to all stakeholders [Refer Regulation 27 of Code of Conduct, IP Regulations] and to IBBI [Refer Regulation 34A of CIRP Regulations]." 27. Referring to the Circular dat....
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....e Circular further states, What is reasonable is context specific and it is not amenable to precise definition. Clearly therefore, the context and objective of the Circular is to emphasise that fees to be charged by insolvency must be 'reasonable'. Various related directions were also issued. 12. Recognising that what is reasonable is context specific and not amenable to a precise definition, IBBI provided an 'illustrative' list of factors to be considered in determination of what is 'reasonable' by referring to (and extracting them in Annexure B to the Circular), the Best Practice Guidelines issued by the Society for Insolvency Practitioners of India("SIPI"), namely, "Payment of fee and Reimbursement of Out of Pocket expenses" [Refer Pg. 246 of Vol. 2 of Compilation filed by Amicus Curiae]. 13. It is apparent from reading of the Circular that reference to SIPI Best Practices in the Circular is only to illustrate factors to be considered in determination of what is 'reasonable'. This is further clear from the title of Annexure B of the Circular, namely "What is Reasonable Cost and Reasonable Fee". 14. Reference to success f....
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....lations, it can be reviewed by the Adjudicating Authority. The Learned Amicus Curiae stated that the absence of Regulation quantifying the fee is with the expectation that the market players will self-regulate themselves and behave in a reasonable manner. The IBBI has power to take disciplinary action in the event of misconduct or breach by Insolvency Professional. In the absence of such power with Adjudicating Authority, the matter of fees would be completely unchecked and devoid of scrutiny. Para 30 of the Written Submissions filed by the Learned Amicus Curiae may be reproduced. The same reads as follows:- "30. There are many decisions in which AA or IBBI has found of charge fees (including success fees) as unreasonable and in contravention of regulations. [Refer, Mr. Devranjan Raman, Resolution Professional Poonam Drum & Containers Pvt. Ltd. Vs. Bank of India Ltd being Civil Appeal (AT) (IB) No. 646 of 2020 passed by. the Hon'ble NCLAT on 30.07.2020 (refer Pg. 328 of Vol.II of Compilation filed by Amicus Curiae). It was held that fixation of fee of the Resolution Professional is not a business decision depending upon the commercial wisdom of the Committee of Credito....
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.... who responsible for managing the affairs of the company as a going concern and preserving its One of the duties of the RP under the Code is to act with objectivity in his professional dealings by ensuring that his decisions are made without the presence of any bias and also to ensure that all costs incurred during CIRP are reasonable." 29. Referring to the Written Submissions, Learned Amicus Curiae submitted that in cases where the fees fixed were unreasonable, the Adjudicating Authority have stepped in and even disciplinary committee has taken action. 30. Learned Amicus Curiae submitted that the Discussion Paper dated 01.04.2018 and the Press Release issued on 01.04.2018 were put up on the site of IBBI. Learned Amicus Curiae has filed copy of the Press Release with Diary No.28552 which reads as follows: "Insolvency and Bankruptcy Board of India Press Release 1st April, 2018 IBBI invites suggestions on regulation of fee payable to insolvency professionals and other process costs under Corporate Insolvency Resolution Process. Today, the Insolvency and Bankruptcy Board of India (IBBI) released a discussion paper on regulation of fee....
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....visions and the Regulations concerned which were reproduced as Annexure-A and illustrative list of factors as to what is reasonable as at Annexure-B. It is argued that Annexure-B is only a collection of statement of best practices as stated by 'Society for Insolvency Practioners of India'. It is stated by Mr. Sumant Batra, Learned Amicus Curiae that this is only illustrative list referred as context and not decision of IBBI as the directions given are in Paras 6 to 10 of the Circular dated 12.06.2018, which at the most would be relevant to follow. 32. Having heard Learned Counsel for both sides, we do agree with the Learned Amicus Curiae that Annexures- A and B attached with the Circular dated 12.06.2018 were referred by way of introduction. Learned Amicus Curiae has rightly submitted that what is referred as best practices in Annexure-B is only illustrative but the directions are as given in Paras 6 to 10 of the Circular. We have already referred to the Circular and if these paragraphs are considered, in substance the IBBI has directed the Insolvency Professional that the fee payable to them should be reasonable; that the same should be 'directly related to and necessary for th....
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....cerned with performance of his duties under the Code for reasonable fees and it cannot be result oriented. 33. Again, the Learned Amicus Curiae is right in his submissions that Circular dated 12.06.2018 is only a Circular which cannot be equated with the Rules and Regulations framed under the provisions of the IBC. Although reference has been made that Circular is issued in view of powers exercised under Section 196(1) (h) read with Regulation 34A of the CIRP Regulations, both the provisions have not been carefully referred to. Section 196(1) (h) relates to calling for any information and records from Insolvency Professional Agencies, Insolvency Professionals and Information Utilities. Regulation 34A of the CIRP Regulations relates to 'disclosure of costs'. The Regulation specifies that the IRP or the RP shall disclose item wise insolvency resolution process costs in such manner as may be required by the Board. It is stated that the Circular has Annexure-C showing as 'Cost Sheet for Insolvency Resolution of Corporate Debtor' which is a format. The Learned Amicus Curiae submitted that even if Regulation 34A is relevant for the said purpose reference to Section 196(1) (h) was not ....
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....ts table attached with it, the Learned Amicus Curiae pointed out that the Appellant calculated his fees for Rs. 1,84,00,000/- till 25th October, 2020 in addition to success fee of Rs. 3,00,00,000/-. It is stated that even after approval of Resolution Plan Resolution Professional continued to charge "Fixed Cost of Rs. 5 Lakh" as was approved in First CoC Meeting, on monthly basis which is unjustified. 35. The Learned Amicus Curiae further submitted that the minutes of Item No.5 recorded in 20th CoC meeting that it was the Resolution Professional who brought about the successful Resolution Plan cannot be accepted as a reason for the success fee as provisions of the IBC and Regulations provide that the Resolution Professional is merely a facilitator and it is the CoC members who have to deliberate with the prospective Resolution Applicant and it is their efforts which leads to the Resolution Plan getting settled down so as to be approved. The Amicus Curiae rightly argued that if the minutes of Item No.5 of the 20th CoC meeting are perused, it is a case of approving a big gift for the Resolution Professional which can be only at the cost of Creditors waiting in line and whose percen....
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....percentage of other claimants of the Corporate Debtor and the Corporate Debtor about to be resolved. Learned Amicus Curiae has also relied on judgment in the matter of "Alok Kaushik vs. Bhuvaneshwari Ramanathan & Ors."- [(2015) 5 SCC 787] to submit that the Hon'ble Supreme Court has held that NCLAT has got power to determine fees and expenses etc. payable to a professional. It is stated that in that matter dispute arose with regard to fee payable to registered valuer who had been appointed and not paid fee ratified by CoC, when CIRP was set aside. According to the learned Amicus Curiae, reading the provisions of the Code, Rules and Regulations and taking a conspectus view, no fault can be found with the impugned paragraph of the impugned order. Perusal of the judgment shows the Appellant in that matter had been appointed registered valuer and his professional fees and expenses had been ratified by the CoC. NCLAT had set aside the CIRP and matter was remitted to NCLT to decide CIRP costs. NCLT determined the fees payable to the IRP but not regarding fee payable to the Appellant who had been appointed as registered valuer as the valuer had been paid Rs. 50,000/- by the Resolution ....