DEVARAJAN RAMAN versus BANK OF INDIA LIMITED on 5 January 2022

1. This appeal arises from a judgment of the National CompanyLaw Appellate Tribunal[1] dated 30 July 2020 in Company Appeal (AT)Insolvency No 646 of 2020[2].

2. The issue in dispute relates to the payments of costs andexpenses incurred by the Resolution Professional[3]. Pursuant to an emaildated 4 February 2019 of the respondent, who was a financial creditorof Poonam Drums and Containers Private Limited (the CorporateDebtor), the appellant submitted his technical and financial bid on 5February 2019 for appointment as an Interim Resolution Professional.On 8 March 2019, the respondent filed a petition under Section 7 of theInsolvency and Bankruptcy Code 2016[4] against the Corporate Debtor.On 20 September 2019, the Corporate Debtor was admitted to theinsolvency resolution process by the National Company Law Tribunal[5]and the appellant was appointed as an Interim Resolution Professional.The order of appointment of the appellant is reflected in operativedirection VI of the order of the NCLT, which reads as follows:

“VI. That this Bench at this moment appoints Mr DevarajanRaman, a registered Insolvency Resolution Professional 1 “NCLAT or appellate authority”

2 Mr Devarajan Raman, Resolution Professional Poonam Drums & ContainersPvt Ltd v Bank of India Ltd 3 “RP”

4 “IBC”

5 “NCLT or adjudicating authority”

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Ahaving Registration Number [IBBI/IPA-002/IP-N00323/2017-Number 18/10928] as Interim ResolutionProfessional to carry out the functions as mentioned underI&B Code. The fee payable to IRP/RP shall comply withthe IBBI Regulations/Circulars/Directions issued in thisregard.”

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3. On 19 December 2019, the order of the NCLT was set aside inappeal[6] by the NCLAT at the behest of the Directors of the CorporateDebtor. By the order of the appellate authority, the proceedings wereremitted to the NCLT to decide upon the fee and costs of the CorporateInsolvency Resolution Process[7] incurred by the appellant which was toCbe borne by the respondent as a financial creditor.

4. On 30 December 2019, the appellant addressed a letter to therespondent enclosing a statement showing the amount payable as feeand costs. The amount was quantified in the amount of Rs 14,75,660until 19 December 2019. An amount of Rs 5,66,667 was reimbursed byDthe respondent leaving in balance, according to the appellant, an amountof Rs 9,08,993.

5. The appellant moved the NCLT in an application on 17 January2020 for obtaining the release of the remaining fee and costs. The principalrelief which was claimed was in the following terms:E

“1.That the Respondent Bank of India, be directed to makepayment of the CIRP cost including fees of the ApplicantResolution Professional as per the details furnished in theAnnexure D.”

F6. On 24 January 2020, the respondent replied to the appellant’sletter dated 30 December 2019 stating that it had verified the details ofthe fee and costs stated by the appellant and found them in conformitywith the technical and financial bid based on which he had been awardedthe assignment, together with the approval of the Committee of Creditors[8].The respondent stated that it would release the payment to the appellant,Gupon receipt of an order of the NCLT. By its order dated 7 February2020, the NCLT disposed of the application in the following terms:

6 Company Appeal (AT) Insolvency No 1092 of 20197 “CIRP”H8 “CoC”

DEVARAJAN RAMAN v. BANK OF INDIA LIMITED[DR. DHANANJAYA Y CHANDRACHUD, J.]

“MA 223/2020 is filed by the Resolution Professional for his fees.On hearing both sides, the Respondent Bank is directed to pay allthe expenses incurred by RP and Rs.5,00,000 /- plus GST towardsthe fee of the RP.

Accordingly, MA 223/2020 is allowed and disposed of.”

7. The appellant filed an appeal before the NCLAT. Among thegrounds of appeal, the relevant ground of challenge is extracted below:

“(vi) That the abovementioned application filed by the appellantwas taken up and heard by the National Company LawTribunal, Mumbai Bench, on 7[th] February, 2020. On thesaid date, even though the appellant explained to the Hon’bleBench that the financial creditor had duly accepted the feequoted by him, and there was no contest whatsoever onthe part of the respondent financial creditor to the paymentof the c.i.r.p. cost incurred by the appellant, including hisfee, the Hon’ble Mumbai Bench proceeded to pass theimpugned order reducing the c.i.r.p. costs and fee quotedby the appellant, without citing any reasons for the same,or even noticing the appellant’s contentions in the saidregard. In fact, the respondent bank affirmed during thecourse of the hearing on 7th February, 2020, that it wasagreeable to paying the said amount. However, the samewas also disregarded, and in fact, was not even noticed inthe order. Copies of the minutes of meeting between theappellant and respondent financial creditor, and of the otherdocuments evidencing their agreement as to the fee to bepaid to the appellant, are annexed herewith and marked asAnnexure - C (Collectively). Annexed as Annexure D is astatement showing the amount paid by the respondent tothe appellant after the passing of the impugned order, whichis a sum of Rs. 7,09, 154/-. An amount of Rs. 1,99,839/-therefore yet remains to be paid, and this is reflected in thesaid statement as well.”

8. The NCLAT, while dismissing the appeal, observed that:

(i) The appellant had worked for about three months as RP;

(ii) The expenses had been allowed in full and the consolidatedamount of Rs 5,00,000 plus GST allowed as fee of the RPfor the entire period was not unreasonable; and A

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A(iii)Fixation of the fee is not a business decision depending onthe commercial wisdom of the CoC.

9 Ms Anjali Sharma, counsel appearing on behalf of the appellant,challenged the order of the NCLAT principally on the following grounds:

(i) The statement of fee and expenses submitted by the appellantBwas in terms of the technical and financial bid;

(ii) It was categorically stated in the letter of the appellant dated30 December 2019 that the fourth CoC meeting held on 10December 2019 had ratified all the expenses up to 30November 2019, after which no meeting took place; C

(iii) The respondent, as a matter of fact, by its letter dated 24January 2020, found, upon verification, that the fee andexpenses as claimed were admissible;

(iv) The NCLT did not scrutinize or verify the factual positionand merely awarded an ad hoc figure of Rs 5,00,000 whileDthe NCLAT has committed a similar error on the groundthat an amount of Rs 5,00,000 was found to be reasonable;and

(v) The appellant worked as an IRP for three months which ishalf the period of one hundred and eighty days envisagedEfor completing the process.

10. In this backdrop, counsel submitted that in terms of the decisionof this Court in Alok Kaushik v Bhuvaneshwari Ramanathan[9], theadjudicating authority would have jurisdiction under Section 60(5)(c) ofIBC. In the present case, the jurisdiction has (it is urged) been improperlyFexercised in the sense that there has been no application of mind to thebasis of the claim and the figures which were accepted by the financialcreditor.

11. On the other hand, Mr Vadlamani Seshagiri, counsel appearingon behalf of the respondent, submitted that the appellant accepted theorder of the NCLAT dated 19 December 2019 remitting the proceedingsGback to the NCLT for determining the costs and fee payable to the RP.Moreover, it was sought to be urged that the payment which has beenmade to the RP is commensurate with the work which was done over aperiod of three months.

12. Responding to the above submissions, it has been urged onbehalf of the appellant that the appellant did not challenge the order ofthe NCLAT remitting the proceedings back to the NCLT for determinationof the costs and fee because it was not necessary for the appellant to doso. Moreover, it has been submitted that the real grievance of the appellantis that the claim has not been assessed or analyzed in terms of what wasagreed, when the appellant submitted his bid or in terms of the circularof the Insolvency and Bankruptcy Board of India dated 12 June 2018.

13. At the outset, it must be noted that the jurisdiction of theadjudicating authority to consider the claim of a registered valuer wasconsidered in the judgment of this Court in Alok Kaushik (supra). Inthat case, the NCLT held that once the CIRP was set aside, it wasrendered functus officio. The order of the adjudicating authority wasupheld in appeal. In that context, this Court, after adverting to theprovisions of the relevant Regulations, observed as follows:

“19. Though the CIRP was set aside later, the claim of the appellantas registered valuer related to the period when he was discharginghis functions as a registered valuer appointed as an incident of theCIRP. NCLT would have been justified in exercising its jurisdictionunder Section 60(5)(c) of the IBC and, in exercise of our jurisdictionunder Article 142 of the Constitution, we accordingly order anddirect that in a situation such as the present case, the adjudicatingauthority is sufficiently empowered under Section 60(5)(c) of theIBC to make a determination of the amount which is payable toan expert valuer as an intrinsic part of the CIRP costs. Regulation34 of the IRP Regulations defines “insolvency resolution processcost” to include the fees of other professionals appointed by theRP. Whether any work has been done as claimed and if so, thenature of the work done by the valuer is something which neednot detain this Court, since it is purely a factual matter to be assessedby the adjudicating authority.

14. Regulation 34 of the the Insolvency and Bankruptcy Board ofIndia (Insolvency Resolution Process for Corporate Persons) Regulations,2016 provides as follows :

“34.Resolution professional costs.—The committee shall fix theexpenses to be incurred on or by the resolution professionaland the expenses shall constitute insolvency resolutionprocess costs.

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Explanation.—For the purposes of this regulation,“expenses” include the fee to be paid to the resolutionprofessional, fee to be paid to insolvency professional entity,if any, and fee to be paid to professionals, if any, and otherexpenses to be incurred by the resolution professional.”

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B15. The Insolvency and Bankruptcy Board of India has issued acircular on 12 June 2018. The circular, inter alia, requires the insolvencyprofessional to ensure that the fees payable to him during the CIRP arereasonable and the approval of the CoC for the fee or other expenses isobtained, wherever approval is required.

C16. In the present case, after the NCLAT set aside the order ofthe NCLT initiating the CIRP, the proceedings were remitted back fordetermining the insolvency resolution costs. It is material to note that theappellant had addressed a letter to the respondent on 13 December 2019prior to the filing of the application to which the respondent respondedon 24 January 2020 stating that, upon verification, the costs and feesDwere found in conformity with both the technical and financial bid, basedon which the assignment was awarded. In the application which wasfiled by the appellant before the NCLT, the appellant annexed a statementof costs, the amount which was reimbursed with the balance dues atAnnexure ‘D’. The order of the NCLT, however, reveals that none ofEthe submissions of the appellant have been considered. The adjudicatingauthority merely directed the respondent to pay the expenses incurredand an amount of Rs 5,00,000 plus GST towards the fee of the RP.Neither the basis of the claim nor its reasonableness has been consideredby the adjudicating authority. The appellate authority has merelyproceeded in an ad hoc manner on the ground that the amount of RsF5,00,000 as fee, in addition to the expenses, appears to be reasonable.Both the orders suffer from an abdication in the exercise of jurisdiction.In the absence of any reasons either in the order of the NCLT or theappellate authority, it is impossible for the Court to deduce the basis onwhich the payment of an amount of Rs 5,00,000 together with expensesGhas been found to be reasonable. Consequently, an order of remandbecomes necessary.

17. We accordingly allow the appeal and set aside the impugnedjudgment and order of the NCLAT dated 30 July 2020. Similarly, theorder of NCLT dated 7 February 2020 is set aside. MA No 223/2020 inHCP (IB) 970/MB/2019 is restored to the file of the NCLT for a decision afresh. The NCLT, upon remand, is requested to expedite the disposalof the MA and to complete the process within a period of one monthfrom the date of receipt of a certified copy of this order on its record.

18. The appeal is disposed of in the above terms.

19. Pending application, if any, stands disposed of.

Ankit Gyan

Appeal allowed.

(Assisted by : Aarsh Choudhary, LCRA)

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