TaxTMI 
TaxTMI 
2026 (1) TMI 1085
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Vivek, for R1. Mr. Dhananjaya Sud, for R-3. JUDGMENT Per: Barun Mitra, Member (Technical) The present set of three appeals filed under Section 61 of Insolvency and Bankruptcy Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated 18.04.2024 (hereinafter referred to as 'Impugned Order') passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I) in I.A. No. 1435 of 2022 in C.P. (IB) No. 1567/MB/2018. By the impugned order, the Adjudicating Authority has allowed the I.A. No 1435 of 2022 filed by Resolve Support Services Pvt. Ltd. for repayment of Rs. 67,74,109/- claimed by them as interim finance provided by them in the CIRP of the Corporate Debtor-Orient Tourism Pvt. Ltd. Aggrieved by the impugned order, three separate appeals have been filed. 2. Aggrieved by the above impugned order, three separate appeals have been filed viz Appeal No. 1346 of 2024 filed by interim finance provider-Resolve Support Services Pvt. Ltd. ("Resolve" in short); Appeal No. 1057 of 2024 filed by Religare Finvest Pvt. Ltd. ("Religare" in short)-CoC member and Appeal No. 1199 of 2024 filed by the Resolution Professional ("RP" in short). The prayer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 12A of the IBC. This application was dismissed by the Adjudicating Authority after nearly 2 years on 08.02.2021. After dismissal of the Section 12A application, the RP approached Resolve for raising interim finance of Rs. 1 Cr. and a Loan Agreement dated 15.02.2021 was entered into between them. The RP on 16.02.2021 requested Resolve to disburse interim finance facility of Rs. 50 lakhs and followed up with subsequent letters for additional disbursement of interim finance loan. The RP subsequently informed the CoC about the Loan Agreement to raise interim finance of Rs. 1 Cr. at a rate of interest of 15% p.a. from Resolve during its second meeting held on 22.02.2021. The CoC in its third meeting held on 14.06.2021 unanimously passed the resolution for initiating liquidation process of the Corporate Debtor. The RP thereafter filed IA No. 1626 of 2021 seeking the liquidation of the Corporate Debtor which was allowed by the Adjudicating Authority on 05.08.2021 following which a Liquidator was appointed. The RP thereafter informed the Liquidator vide e-mail dated 27.08.2021 to repay to Resolve the interim finance alongwith interest and default interest @ 2% p.m. in case of delay. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ach of trust. Reliance was also placed on the judgment of this Tribunal in IndusInd Bank Ltd. Vs Mr. Rajendra K. Bhuta, RP in CA(AT)(Ins) No. 177 of 2022 to contend that when insolvency proceedings are stayed, the RP is not entitled for any fee. In the present case, since the Section 12A withdrawal application had been filed immediately after admission of the Corporate Debtor into CIRP, the CIRP proceedings was as good as stayed for which no fees could be claimed. 6. The Ld. Counsel making submissions on behalf of the Resolve refuted the contentions of Religare to submit that the RP had apprised the members of CoC to contribute to the Corpus Fund during the first meeting of CoC and it was only in pursuance of CoC's approved resolution by 100% vote-share that the RP had approached Resolve to provide interim finance and entered into a Loan Agreement on 15.02.2021. Further Religare cannot claim that it was unaware about raising of interim finance particularly when the minutes of the second CoC clearly record that the RP had apprised the CoC including Religare about the approval in the first CoC meeting to the raising of interim finance. The RP could also not have been faulted for r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the CoC and that RP had in the present case acted in terms of the resolution passed by the CoC in the first meeting to enter into a Loan Agreement with Resolve to raise interim finance. It was strenuously contended that RP had made due related party disclosures in terms of IBBI circular for raising the finance from a related party. It was also stated that in the second CoC meeting, the Appellant had informed the CoC that the CIRP cost sheet had been circulated alongwith the meeting notice. It was asserted that the draw-down from the interim finance and its utilisation towards CIRP costs was in consonance with the cost sheet circulated with the second CoC meeting notice. Moreover, though Section 12-A application had been filed, as there was no stay on the CIRP of the Corporate Debtor, the RP was not prohibited legally from claiming his own professional fees and fees for the legal professional even for the period excluded from CIRP time-line by the Adjudicating Authority. It was therefore stated that when the RP had not violated the provisions of IBC in any manner, the Adjudicating Authroity travelled beyond its jurisdiction in making adverse observations against the RP in the impu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....solution to that effect with 100% vote share. It was submitted that Religare cannot claim to have been unaware of the raising of interim finance until filing of IA No. 1435 of 2022 as the minutes of the second CoC clearly show to the contrary that the RP had apprised the CoC including Religare about the approval during the first CoC meeting for raising of interim finance. It was only in pursuance of CoC's approved resolution that the RP had approached Resolve to provide interim finance and entered into a Loan Agreement on 15.02.2021. Though admittedly Religare had declined to approve the minutes of the second CoC, it was asserted that Religare failed to explain how the RP had acted inconsistently with the decision taken by the CoC in its first meeting. Echoing similar contentions, it was contended by the RP that the first CoC had not only approved the appointment of RP as well as his fees but had resolved that interim finance at a maximum interest rate of 15% p.a. be raised to meet CIRP costs including the fees of RP and legal fees. It was emphatically asserted that in the second CoC meeting, the RP had also annexed the CIRP cost sheet with the meeting notice. The CoC never objecte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e on 15.02.2021. The two relevant agenda items of the second CoC meeting are as extracted below: "4. To table and approve the minutes of the 1st Meeting of the CoC held on 13th November, 2019: The Chairman informed the members that the minutes of the 1st meeting of the CoC were duly circulated to the participants of the meeting. No objections/suggestions for any changes or inconsistencies were received from them and hence requested the members to take the same on record. City Union Bank stated that as they were not part of the 1st CoC they are not approving the minutes. Religare Finvest Limited stated that they also refrain from approving the minutes of 1st CoC. The RP clarified that since City Union Bank was not a participant, it cannot approve or disapprove taking the same on record. More so, the minutes had already been shared with them on 09.12.2019 and no observations were received from them. Religare Finvest Limited also did not point out any inconsistency in the minutes after circulation on 15.11.2019 till date and also during this meeting; so, it is not appropriate that the minutes are not taken on record without raising any particular inconsistency. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... earlier to the RP objecting to the proceedings recorded in respect of the first CoC meeting. It is pertinent to also notice that the gap between the first and second CoC meeting was nearly fifteen months but during this long intervening period, the RP took no steps to keep the CoC apprised about the negotiations being undertaken to finalise the Loan Agreement. Instead, the RP had executed the Loan Agreement even before convening the second CoC meeting on 22.02.2021. In other words, the Loan Agreement which contained the exact terms of interim finance arrangement had been decided unilaterally by the RP without the approval of CoC. This action on the part of the RP does not appear to be compatible with CIRP Regulations 34-A and 34-B which obligated the RP to disclose to the CoC insolvency resolution process costs including fees/expenses to be incurred by the RP. 16. A defence was taken by the RP that CIRP cost sheet was annexed to the notice of the second CoC meeting on which the terms of the interim finance was predicated. It was pointed out that the minutes of the second CoC meeting also records that CIRP costs incurred till date was circulated by the RP to the CoC members. A p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt filed by the RP before the CoC on what action or efforts were taken by the RP. We also find that when the second CoC meeting was held which happened after the dismissal of Section 12-A application, City Union Bank which was one of the CoC members had objected to the payment of fees to the RP for the period excluded by the Adjudicating Authority and had questioned the reasonability and justification of the fees claimed by the RP. 19. It is equally pertinent to note that the second CoC meeting had also noticed that there was minimal business operation of the Corporate Debtor with no substantial revenue generation during this period when the Section 12-A withdrawal application remained pending as all employees had left and business was gravely impacted by lockdown. We also take cognisance of the fact that while rejecting the Section 12A application, the Adjudicating Authority had excluded the litigation period from 06.11.2019 to 08.01.2021 from the CIRP time-lines. We are therefore inclined to agree that though CIRP as such was not stayed, however, the very fact that the RP had filed the Section 12A withdrawal application immediately after admission of the Corporate Debtor into ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., namely, Vishal, accounted for Rs. 11.48 lakhs which was next big ticket of payment. 23. When we further look at the material placed on record, we find that Vishal who was a related party was appointed as the legal professional. This legal professional hired by the RP happened to be director of Resolve from whom interim finance was raised and interim finance was purportedly transferred from the HUF account of Vishal to the account of the Corporate Debtor which was being handled by the RP. Given this backdrop, this was a clear case of conflict of interest since Vishal, on the one hand, was financing the Corporate Debtor through the RP, and on the other hand, was dipping into the corpus of interim finance through the RP by claiming legal fees. The RP had also not disclosed to the CoC the relationship it had with the Resolve as the Loan Agreement had been executed by RP without placing the specific terms thereof for approval of the CoC. This non-disclosure to the CoC of appointment of related parties as interim finance provider and legal professional by the RP clearly violated the principles of transparency and fiduciary duty exercisable by the RP under the IBC. 24. It was vehe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been raised from a related entity. 27. From the material placed on record and foregoing discussions, we find no good grounds to disagree with the Adjudicating Authority that the interim finance had been raised by the RP from a related party and has been used to clear his own fees as well as that of the legal professional. We have already noticed that the approval of the first CoC to the raising of interim finance was only preliminary and prefatory in nature and that the RP had gone ahead and inked the Loan Agreement with the interim finance provider without obtaining formal approval of the CoC on the terms and conditions of the Loan Agreement. It is for the CoC to ratify, modify or set aside the CIRP cost and in the present case when CIRP cost was not shown to have been placed before the CoC for its examination, consideration and decision, it was not open for the RP to expend on CIRP costs unilaterally. We therefore do not find any infirmity with the directions of the Adjudicating Authority in the impugned order not to allow refund of interim finance to the interim finance provider in respect of interest payment and processing fees. We have however find sufficient basis in the c....