Jayesh Sanghrajka vs The Monitoring Agency Nominated By The ...

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No. 392 of 2021 [Arising out of Order dated 23.03.2021 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai, in M.A. No. 3714 of 2019 in C.P. (IB) No. 2714 of 2018]

In the matter of:

Mr. Jayesh N. Sanghrajka, Erstwhile R.P. of Ariisto Developers Pvt. Ltd. ....Appellant Vs.

The Monitoring Agency nominated by the Committee of Creditors of Ariisto Developers Pvt. Ltd. ....Respondent For Appellant: Mr. Dhruv Mehta, Senior Advocate with Mr. Tishampati Sen, Ms. Riddhi Sancheti, Mr. Ashish Perwani, Mr. Devesh Juvekar, Ms. Jyoti Goyal and Mr. Dikshat Mehra, Advocates. For Respondents: (Notice not issued)

Mr. Sumant Batra, Ld. Amicus Curiae

JUDGMENT

(20 September, 2021) th

A.I.S. Cheema, J.

1. This Appeal has been filed by the Resolution Professional of Corporate

Debtor- 'Ariisto Developers Pvt. Ltd.'. The Respondent- Monitoring Agency of

the Corporate Debtor is formal party.

2. The Appeal is filed against observations and findings of the Adjudicating

Authority (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 2

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 appeal lacking merit. The appeal is accordingly dismissed. No costs."

Therefore, we believe that by disallowing the success fees to the RP, we are not intruding in the commercial wisdom of the COC. Further, we believe the success fees amounting of Rs.3 Crores is unreasonable. Also, it was only in the last meeting of the COC that the fees was claimed. We have been supervising this matter and are aware of all the scenarios since its admission and therefore, are aware that even the RP was uncertain about the success of the Resolution Plan. It was this Bench who had warned the RP time and again and thus, we believe that the success fees is merely an afterthought. We believe that if the RP was so certain, he should have claimed/ asked for the success fees in the beginning itself and now when the plan is approved. It was only in the distribution matrix that he/CoC had approved the success fees to the RP.

With this observation, we direct the RP and the CoC to proportionately distribute the said amount of Rs.3 Cr. among the employees/ underpaid operational creditors/unsecured creditors of the corporate debtor

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and if left, it is to be proportionately distributed among the underpaid operational creditors."

4. Against above part of the impugned order, the present Appeal has been

filed. The grievance raised is that the approval of the success fees was a

commercial decision of the CoC and the Adjudicating Authority could not have

interfered with the same while approving the Resolution Plan and directing

distribution of the amount set apart for success fees.

5. When this Appeal come up before us, it was noted that the Respondent

is the Monitoring Committee and the Appellant claimed that it is formal party.

It being more a legal issue, we had observed on 07.06.2021 that it is not

necessary to call the response of the Respondent- CoC as the CoC had already

(supposedly) expressed itself in the minutes of meeting. We had observed that

considering the issue involved, we may appoint an Amicus Curiae. On

14.06.2021, we had passed the following order:-

"14.06.2021: In this matter the issue relates to approval of fee to Resolution Professional which is stated to be success fee to the extent of Rs.3 Crores. Learned Senior Counsel for the Appellant refers to Circular No. IBBI/IP/013/2018 dated 12th June, 2018, which is stated to be filed on Page 771 of the 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."

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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 Process (CIRP) was initiated on

20.11.2018. In the first CoC meeting dated 24.12.2018, the appointment of

Appellant was approved by the CoC as Resolution Professional. The proposal

and resolution in this regard of the first CoC meeting can be seen from Page

1 @ Page 5 in the convenience compilation (Diary No. 28117) filed by the

Learned Amicus Curiae. The Proposal-9 may be reproduced:-

"9. To propose CA Jayesh Sangrajka as RP :

One member of the COC, Shri Rasik Chheda, proposed the name of one IP CA Jayesh Sanghrajka as RP at a fees of Rs. 3,00,000 + taxes and Fixed Cost of Rs. 5,00,000.00.

The name of Shri Rasik Chheda is proposed to be voted in the e-voting as an additional resolution. Members voting in favour of Resolution No. 5 can not vote in favour of this resolution, which may please be noted.

RESOLVED THAT CA Jayesh Sanghrajka be proposed as RP of the company at a monthly fees of Rs. 3.00 lakhs plus taxes and Fixed Cost of Rs. 5.00 lakhs."

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9. Now, it would be relevant to refer to the Agenda of the 20th CoC meeting

scheduled for 12.11.2019. The same is in Diary No.28117 (Page 222). The

Agenda Item No.5 was regarding evaluation of Resolution Plans, to finalize the

Resolution Applicant and decide the distribution matrix and way forward. In

this Item, Resolution Plans of three entities including the Successful

Resolution Applicant were to be put up. With the Agenda 5 having main

subject of approval of Resolution Plan and CIRP time running out, there is

Agenda Item No.7 which is relevant for present matter and may be

reproduced:-

"ITEM No. 7

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 It is proposed to discuss and ratify the total expenses incurred till date and further to raise fund to meet Legal expenses for various matters at NCLT and NCLAT, fees of professionals, fees of RP and supporting professionals, site protection, property tax, insecticide treatment charges, salary and various other expenses etc."

10. At Page 226 is a chart of CIRP expenses as on 10.11.2019. The Learned

Amicus Curiae has submitted that he has collected all these copies of minutes

of meetings from the Appellant and cannot say if this chart was part of the

agenda when it was sent to the CoC Members. 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'.

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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 COC Meeting.

The COC members appreciated the efforts made by the RP and his team in bringing successful Resolution Plan of the Corporate Debtor with increment in upfront receipts, which was initially Rs.200 Crores offered by Keystone Realtors Pvt Ltd as refundable deposit and now been enhanced to R5.370 Crores offered by Prestige as non- refundable deposits and bringing down the timeline of the project from 11 years offered by Keystone Realtors Pvt Ltd to 4 years by Prestige for repayment/area share to Financial Creditors and Operational Creditors.

The COC members discussed and deliberated on CIRP Cost incurred till date, budget of expenses and success fee of the RP. After detailed discussion of the COC, it was decided by the COC that Rs.3 Crores is just, fair and reasonable success fee of the RP in the light efforts made by the RP in bringing successful Resolution Plan. (Copy of the List of expenses incurred till date, budget including success fee of Rs.3 Crores of the RP is annexed herewith as Annexure -D).

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Post which, the Chairman proceeded to conduct voting on CIRP Cost incurred till date including budgeted expenses and success fee of Rs.3 Crores, by way of ballot paper in the Meeting.

After completing each agenda item, the Chairman declared voting results of the item no. 4 and 5 of this Meeting, which is as follows:

Agenda Voting Particulars Voting Annexure Item No. achieved in favour 4 To Approve Resolution 85.52% E Plan of H1Resolution Applicant (M/S Prestige Estates Projects Limited) as per the Evaluation Matrix and the RFRP as decided in the adjourned 20th COC Meeting held on 13th November 2019 5 To ratify the CIRP cost 86.67% F incurred till date and to approve the budget for further expenses to be incurred

After declaring voting results, the Chairman informed that since requisite majority votes have been achieved for approval of Resolution Plan of Prestige, he is filing application before the Hon'ble NCLT, Mumbai Bench for approval of Resolution Plan. He further informed that since only one day is left in completion of CIRP of the Corporate Debtor, voting of Homebuyers and Financial Creditors, who have not voted in the meeting and who were absent in the Meeting, will begin on 14th November 2019 and will end on 15th November 2019, voting will remain open for 24 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.

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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'. According to the Senior

Counsel, only CoC can consider if the success fees is to be paid and what

should be the success fees. According to the Learned Senior Counsel, the

Adjudicating Authority cannot look into this aspect as it is part of commercial

wisdom of the CoC. Another contention is that if the Adjudicating Authority

did not agree with the success fees, the Resolution Plan has to be sent back

and Adjudicating Authority could not have meddled with the CIRP costs which

are part of the Resolution Plan.

14. Learned Counsel for Appellant referred to IBBI Discussion Paper dated

01.04.2018, copy of which is filed as Document No.9 by the Appellant (Diary

No. 28625) to submit that the IBBI has discussed the aspect with regard to

the Resolution fees payable to the Resolution Professional. The argument is

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that as to what should be the fee, the question has been left open. The Learned

Counsel accepted that such Discussion Paper does not have any reference to

'Success Fees'. The Learned Counsel referred to the Discussion Paper dated

01.04.2018 and instances quoted wherein either excessively high fees were

sought by IRP/ RP or very low fees were fixed. It is stated that the IBBI

discussed the issue with regard to the Resolution fee and invited comments

from stakeholders as mentioned in Paras 14 and 15 of the Discussion Paper.

The said Paras 14 and 15 read as under:-

"14. It has been the endeavour of the Board to engage with the stakeholders through public consultation. It believes that public consultation enables collective choice and imparts legitimacy to decisions. In this spirit, the Board invites comments as under:

i. Whether the elements of costs listed in Annexure-I are comprehensive? Are the elements of costs / fee classified / grouped appropriately? Please suggest modifications. ii. Should the elements of the IRPC, including fee payable to IPs, Insolvency Professional Entities (IPEs) and other Professionals, be regulated?

iii. Should the fee be disclosed by IRP/ RI), and then published on the web site of the respective Insolvency Professional Agency or the IBBI? Is disclosure of fee good enough for regulation of fee?

iv. Should the industry and /or the Board promote development of best practices in respect of fee of the IRI) and the RP and other fee associated with CIRP? What should be the elements of best practice? 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?

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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 feedback@ibbi.gov.in 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 Delhi-

110001

CIRCULAR No. IBBI/IP/013/2018 12th June, 2018

To All Registered Insolvency Professionals All Recognised Insolvency Professional Entities All Registered Insolvency Professional Agencies (By mail to registered email addresses and on website of the IBBI)

Dear Madam / Sir,

Sub: Fee and other Expenses incurred for Corporate Insolvency Resolution Process

When a corporate debtor undergoes corporate insolvency resolution process (CIRP), an Insolvency Professional (IP) is vested with the management of its affairs and he manages its operations as a going concern. He complies with the applicable laws on behalf of the corporate debtor. He conducts the entire CIRP. Such responsibilities of an IP require the highest level of professional excellence, dexterity and integrity. He needs to be compensated for his professional services commensurate to his ability, duties and responsibilities. He also needs to pay fee or

Company Appeal (AT) (Insolvency) No.392 of 2021 11

incur other expenses for various goods and services required for conducting the CIRP and or managing the operations of the corporate debtor as a going concern.

2. The relevant provisions of the Insolvency and Bankruptcy Code, 2016 (Code) and regulations made thereunder having a bearing on fee and other expenses of CIRP are at Annexure A.

3. An IP is obliged under section 208(2)(a) of the Code to take reasonable care and diligence while performing his duties, including incurring expenses. He must, therefore, ensure that not only fee payable to him is reasonable, but also other expenses incurred by him are reasonable. What is reasonable is context specific and it is not amenable to a precise definition. An illustrative list of factors considered in determination of what is reasonable is given in Annexure B.

4. Para 16 of the Code of Conduct for IPs in the Schedule to the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 provides that an IP must maintain written contemporaneous records for any decision taken, the reasons for taking the decision, and the information and evidence in support of such decision. This shall be maintained so as to sufficiently enable a reasonable person to take a view on the appropriateness of his decisions and actions.

5. The IBBI had put out a discussion paper titled "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;

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(f) approval of the Committee of Creditors (CoC) for the fee or other expense is obtained, wherever approval is required; and

(g) all CIRP related fee and other expenses are paid through banking channel.

7. The Code read with regulations made thereunder specify what is included in the insolvency resolution process cost (IRPC). The IP is directed to ensure that:-

(a) no fee or expense other than what is permitted under the Code read with regulations made thereunder is included in the IRPC;

(b) no fee or expense other than the IRPC incurred by the IP is borne by the corporate debtor; and

(c) only the IRPC, to the extent not paid during the CIRP from the internal sources of the Corporate Debtor, shall be met in the manner provided in section 30 or section 53, as the case may be.

8. It is clarified that the IRPC shall not include:

(a) any fee or other expense not directly related to CIRP;

(b) any fee or other expense beyond the amount approved by CoC, where such approval is required;

(c) any fee or other expense incurred before the commencement of CIRP or to be incurred after the completion of the CIRP;

(d) any expense incurred by a creditor, claimant, resolution applicant, promoter or member of the Board of Directors of the corporate debtor in relation to the CIRP;

(e) any penalty imposed on the corporate debtor for non-

compliance with applicable laws during the CIRP; [Reference: Section 17 (2) (e) of the Code read with circular No. IP/002/2018 dated 3rd January, 2018.]

(f) any expense incurred by a member of CoC or a professional engaged by the CoC;

(g) any expense incurred on travel and stay of a member of CoC; and

(h) any expense incurred by the CoC directly;

[Explanation: Legal opinion is required on a matter. If that matter is relevant for the CIRP, the IP shall obtain it. If the CoC requires a legal opinion in addition to or in lieu of the opinion obtained or being obtained by the IP, the expense of such opinion shall not be included in IRPC.]

(i) any expense beyond the amount approved by the CoC, wherever such approval is required; and

(j) any expense not related to CIRP.

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9. Further, the IP is directed to disclose fee and other expenses in the relevant Form in Annexure C to the Insolvency Professional Agency of which he is a member:

(a) for all 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: dilip.khandale@ibbi.gov.in"

(Emphasis supplied)

16. The Learned Senior Counsel pointed out the Circular from the

convenience compilation (Diary No.28625 at Page 771). The relevant existing

provisions and regulations which have a bearing on fee and other expenses of

the CIRP are at Annexure A of the Circular. Annexure A reads as under:-

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"Annexure-A

Provisions and Pronouncements having a bearing on Fee and other Expenses of CIRP

I. The Insolvency and Bankruptcy Code, 2016

Section 5(13) reads as under:

"(13) Insolvency Resolution Process Costs" means -

(a) the amount of any interim finance and the costs incurred in raising such finance;

(b) the fees payable to any person acting as a resolution professional;

(c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern;

(d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and

(e) any other costs as may be specified by the Board;"

Section 208(2) reads as under:

"208. (2) Every insolvency professional shall abide by the following code of conduct: -

(a) to take reasonable care and diligence while performing his duties;

(b) to comply with all requirements and terms and conditions specified in the byelaws of the insolvency professional agency of which he is a member;

(c) to allow the insolvency professional agency to inspect his records;

(d) to submit a copy of the records of every proceeding before the Adjudicating Authority to the Board as well as to the insolvency professional agency of which he is a member; and

(e) to perform his functions in such manner and subject to such conditions as may be specified.".

II. The IBBI (Insolvency Professionals) Regulations, 2016 Relevant Paras of the Code of Conduct under the Regulations read as under:

"16. An insolvency professional must ensure that he maintains written contemporaneous records for any decision taken, the reasons for taking the decision, and the information and evidence in support of such decision. This

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shall be maintained so as to sufficiently enable a reasonable person to take a view on the appropriateness of his decisions and actions.

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.".

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 to suppliers of essential goods and services under Regulation 32;

(b) amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d);

(c) expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 33;

(d) expenses incurred on or by the resolution professional fixed under Regulation 34; and (e) other costs directly relating to the corporate insolvency resolution process and approved by the committee.

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Essential supplies.

32. The essential goods and services referred to in section 14(2) shall mean-

(1) electricity;

(2) water;

(3) telecommunication services; and (4) information technology services, to the extent these are not a direct input to the output produced or supplied by the corporate debtor.

Illustration- Water supplied to a corporate debtor will be essential supplies for drinking and sanitation purposes, and not for generation of hydro-electricity.

Costs of the interim resolution professional.

33. (1) The applicant shall fix the expenses to be incurred on or by the interim resolution professional.

(2) The Adjudicating Authority shall fix expenses where the applicant has not fixed expenses under sub-regulation (1). (3) The applicant shall bear the expenses which shall be reimbursed by the committee to the extent it ratifies. (4) The amount of expenses ratified by the committee shall be treated as insolvency resolution process costs. Explanation. - For the purposes of this regulation, "expenses" include the fee to be paid to the interim resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the interim resolution professional.

Resolution professional costs.

34. The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs. Explanation. - For the purposes of this regulation, "expenses" include the fee to be paid to the resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by 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:

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"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 12.06.2018 to link the Circular to contents of Annexure-B.

18. Annexure B of the Circular reads as follows:-

"Annexure-B

What is Reasonable 'Cost' and Reasonable 'Fee'

I. As regards reasonable costs, the Society for Insolvency Practitioners of India, in its statement of best practices on "PAYMENT OF CORPORATE INSOLVENCY RESOLUTION PROCESS COSTS" observes:

"Insolvency professionals must ensure that the costs incurred are reasonable. To determine the reasonability of these costs, they should consider if the costs are-

(a) directly related to the insolvency resolution process,

(b) necessary for meeting the objectives of the insolvency resolution process, and the Code,

(c) proportional to the work required to be done and the assets of the corporate debtor, and

(d) determined on an arms' length basis, in consonance with the requirements of integrity and independence."

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[http://www.insolindia.com/uploads_insol/draft_best_ practices/files/-1013.pdf]

II. As regards reasonable fee, the Society for Insolvency Practitioners of India, in its statement of best practices on "PAYMENT OF FEE AND REIMBURSEMENT OF OUT-

OF-POCKET EXPENSES" suggests:

"Factors to be considered while charging fee

(i) An insolvency professional may charge a fixed or variable fee to reasonably remunerate him/her for the work that he/she necessarily and properly undertakes for an appointment under the Code. In determining what is necessary and proper, the insolvency professional should consider if the work is-

(a) directly related to the insolvency resolution process,

(b) in furtherance of the exercise of the powers and functions under Code, professional standards, and the terms of agreement, and

(c) in consonance with his/her duties under the Code and the Regulations thereunder.

(ii) An insolvency professional may use one or a combination of bases to charge fee for carrying out different tasks or discharging different duties. The bases of charging fee include:

(a) time based charging,

(b) prospective fee (up to a cap),

(c) fixed fee,

(d) percentage based charging,

(e) success or contingency fee, only to the extent that it is consistent with the requirements of integrity and independence of insolvency professionals.

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:

Company Appeal (AT) (Insolvency) No.392 of 2021 19

(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 capable which requires him to expend unusual effort to run the business as a going concern (exceptional responsibility).

(iv) An insolvency professional should not increase the fee charged without the prior approval of the authority fixing his/her fee."

[http://www.insolindia.com/uploads_insol/draft_best_ practices/files/-1008.pdf]

III. Rule 1.04(b) of the Texas Disciplinary Rules of Professional Conduct, which sets forth eight factors to determine what is reasonable fee in the context of lawyers, reads as under:

"Factors that may be considered in determining the reasonableness of a fee include, but not to the exclusion of other relevant factors, the following:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

Company Appeal (AT) (Insolvency) No.392 of 2021 20

(5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent on results obtained or uncertainty of collection before the legal services have been rendered"

(Emphasis supplied)

19. Relying on Regulation 34, Senior Counsel stated that the CoC has to fix

the expenses to be incurred by the Resolution Professional and the expenses

include fee which will constitute Insolvency Resolution Process Costs.

20. Relying on the above, learned Counsel for the Appellant submitted that

Para 23 of the impugned order cannot be maintained and the Adjudicating

Authority could not have interfered with the CIRP costs which were made part

of the Resolution Plan. Referring to the impugned order, Learned Senior

Counsel for the Appellant submitted that the Adjudicating Authority did not

say that the success fees could not be charged. Learned Senior Counsel

referred to the various acts performed by the Appellant to justify the grant of

the success fees as approved by the Committee 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) (Insolvency) No.392 of 2021 21

[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

judgments in the matter of "Committee of Creditors of Essar Steel India

Limited Through Authorised Signatory vs. Satish Kumar Gupta & Ors."

[Civil Appeal No. 8766-67 of 2019] and "K. Sashidhar vs. Indian Overseas

Bank and Ors" [MANU/SC/0189/2019], it is argued that the Adjudicating

Authority or this Appellate Tribunal cannot interfere with the commercial

decision of the CoC. It is claimed that the success fee approved was part of

commercial decision. It is further argued that if the Adjudicating Authority

did not agree with the fee approved it should have sent back the Resolution

Plan to the CoC.

23. We have heard Learned Amicus Curiae also. Learned Amicus Curiae

submitted that in the IBC and the Regulations, there is no express provision

for grant of success fee. The Learned Amicus Curiae for context made

reference to Section 206, Section 5(27) and Section 5(13) of the IBC as under:-

Company Appeal (AT) (Insolvency) No.392 of 2021 22

"Section 206 of the Code provides that, "No person shall render his services as insolvency professional under this Code without being enrolled as a member of an insolvency professional agency and registered with the Board".

Section 5(27) provides that "resolution professional", means, "an insolvency professional appointed to conduct the corporate insolvency resolution process [or the pre-packaged insolvency resolution process, as the case may be,] and includes an interim-resolution professional"

Section 5(13) of the Code provides that the fees payable to resolution professional and any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern is considered as "insolvency resolution process costs"

24. Reference is made to Section 208(2) of the IBC to submit that the

Insolvency Professional is to abide by the code of conduct mentioned in

Section 208(2) including clause (a) thereof. Referring to Section 208(2)(a), it is

submitted that Insolvency Professional is duty bound to take reasonable care

and diligence while performing his duties. The Resolution Professional has to

perform function in such a manner and subject to such conditions as may be

specified. He has also referred to the provisions as referred to in Annexure A

of the Circular dated 12.06.2018. The Learned Amicus Curiae referred to Para

25 to 27 of the Code of Conduct which is First Schedule below IBBI (Insolvency

Professionals) Regulations, 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.

Company Appeal (AT) (Insolvency) No.392 of 2021 23

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 transparent manner and the remuneration should be

a reasonable reflection of the work and should not be inconsistent with the

Regulations. It is stated that all the Regulations in this regard are based on

'reasonableness'. It is stated that with regard to fees payable, the Code or

Regulations have not quantified as to what would be the remuneration or the

form in which the fees may be paid or charged. It is argued that in the scheme

of IBC and layout of Sections the Resolution Professional is appointed in the

First Meeting under Section 22 of the IBC at which stage invariably and

transparently the fee gets fixed. That, it is against transparency if at the last

moments when Resolution Plan is being approved higher amounts as fees are

squeezed in it and then to hide behind Resolution Plan. The Learned Amicus

Curiae referred to the Discussion Paper dated 01.04.2018 (Document-9, Diary

No.28625 filed by the Appellant) wherein para 2 recorded as under:-

Company Appeal (AT) (Insolvency) No.392 of 2021 24

"2. An IP needs to be compensated for his services commensurate with his qualification, experience and responsibilities. The law does not specify the amount of fee to be paid to an IP for his services in a particular process. It is partly because of contemporary economic thought that market should determine the fee and partly because of practical difficulties that no two CIRPs require the same quality and quantity of services or no two IPS render homogenous service. The Bankruptcy Law Reforms Committee (BLRC), which conceptualised the Code, considered this issue at length. It felt that the fee charged by a resolution professional (RP) would be as an outcome from market forces, and not set in the Code or provided in regulations. It dealt with fee for various processes under the Code. This note, however, limits discussion mostly to fee for CIRP."

26. It is stated that there is no express provision in the Code and

Regulations prescribing or prohibiting as to the form in which fees can be

charged or paid. The Learned Amicus Curiae submitted that a harmonious

reading of the relevant provisions of the Code and Regulations makes it clear

that the charging of fees by the Resolution Professional and manner/ method

of payment shall be subject to the following:-

"a. Approval of the committee of creditors of the corporate debtor ("CCC") by prescribed majority [Refer Regulation 33 of the CIRP Regulations];

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,

Company Appeal (AT) (Insolvency) No.392 of 2021 25

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 dated 12.06.2018 (Diary No.28625- Document

11, Page 771), it is stated by the Learned Amicus Curiae that this Circular

only seeks to guide the stakeholders as to what could constitute "reasonable"

in the matter of charging fees. According to him, it does not provide, prescribe,

recommend, promote, endorse or sanctify payment of success fees. According

to the Amicus Curiae, the claim of the Appellant that this Circular provides

for payment of success fees is misplaced. It is stated that the purpose and

context of Circular dated 12.06.2018 is entirely different. In the brief written

submissions filed by the Learned Amicus Curiae (Diary No. 29028), Paras 8

to 15 read as follows:-

"8. Concern was expressed by the Adjudicating Authority ("AA") in some cases about the unreasonable fee charged by insolvency professionals [Refer page 3 of IBBI Discussion Paper dated 1.4.2018 filed by Amicus Curiae]. There were other unhealthy practices noticed by IBBI in matter of charging fees by insolvency professionals.

Company Appeal (AT) (Insolvency) No.392 of 2021 26

9. IBBI undertook an exercise to address the concerns and published a Discussion Paper on 1.4.2018 titled "Regulation of fee payable to Insolvency professionals and other process cost under the Corporate Insolvency Resolution Process".

Comments were invited from the stakeholders on various questions listed in the Discussion Paper. It is pertinent to mention that none of the questions inquired if success fees should be permitted. [Refer page 6, 12 of IBBI Discussion Paper dated 1.4.2018 filed by Amicus Curiae].

10. After consultation with the stakeholders, IBBI issued the Circular No. IBBI/IP/013/2018 dated 12.06.2018 titled 'Fee and other Expenses incurred for Corporate Insolvency Resolution Process ("CIRP") in terms of the powers conferred under clause (h) of Section 196(1) of the Code read with Regulation 34A of CIRP Regulations, 2016, in consultation with all the three registered Insolvency Professional Agencies. [Refer Pg. 240 of Vol. 2 of Compilation filed by Amicus Curiae].

11. By way of the Circular, IBBI directed the insolvency professionals to take reasonable care and diligence while performing their duties, including incurring expenses. It further directs that the insolvency professional, "must therefore, ensure that not only fee payable to him is reasonable, but also other expenses incurred by him are reasonable." The 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].

Company Appeal (AT) (Insolvency) No.392 of 2021 27

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 fee in SIPI Best Practices and its extract in Annexure B of the Circular to illustrate the factors to be considered in determination of what is 'reasonable', cannot be read to suggest that IBBI Circular provides for payment of success fees to IP.

15. In any case, IBBI cannot, by way of a circular, provide for charging success fees when no such provision exists in the regulations."

28. According to the Learned Amicus Curiae, the provisions as appearing

in IBC and as can be seen from Regulations read with the Code of Conduct

all indicate that although quantum of fees have not been fixed that the Code

and Regulations do intend to control the manner in which Resolution

Professional charged fees and according to Learned Amicus Curiae, the

quantum of fees payable is a subject which is justiciable before the

Adjudicating Authority if it is found to be unreasonable and if the manner,

method of payment is inconsistent with the Regulations. The quantum of fees

can be fixed by the CoC but it would be subject to scrutiny by the Adjudicating

Authority as what is reasonable fee is context specific and it is not part of the

commercial decision of the CoC. The CoC exercised commercial decision with

regard to Resolution Plan which is required to be approved and although CIRP

Costs are required to be paid on priority, the reasonableness of fees is not

part of commercial decision. While referring to the judgments relied on by the

Learned Senior Counsel for the Appellant, it is stated that these judgments

Company Appeal (AT) (Insolvency) No.392 of 2021 28

did not bar the jurisdiction of the Adjudicating Authority to review the

quantum of fees charged by the Insolvency Professional or what is approved

by the CoC. Fees unreasonably high or low or disproportionate can be looked

into by the Adjudicating Authority. It is argued that, had this not been so,

there would have been no need of Sections and Regulations referred in the

Circular harping on transparency and reasonableness and it could have been

blankly left for CoC to decide fees, which is not so. The argument is that the

intention of legislature is clear from the Scheme and Regulations that the

decision of Insolvency Professional and CoC in the matter of fees is subject to

checks and balance through the provisions of the Code and Regulations and

in the event of imbalance with regard to quantum of fees charged, method of

payment being inconsistent with Regulations, 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

Company Appeal (AT) (Insolvency) No.392 of 2021 29

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 Creditors.] [Parish Tekriwal vs VRG Digital Corporation Pvt. Ltd being IA. No. 1099 of 2020 in C.P. (IB) No. 859 of 2019 passed by the Hon'ble Adjudicating Authority (Mumbai Bench) on 7.01.2021 (refer Pg. 330 of Vol. II of Compilation filed by Amicus Curiae) It was held that fixation of the fees of IRP/RP does not come within the domain of the commercial wisdom of COC and hence is justiciable. The aspect of ascertaining fees of IRP/RP is strictly guided by the mandate and parameters provided by the IBBI vide its Circular dated 12.06.2018 bearing No. IBBI/IP/013/2018] [Shri Shrikrishna Rail Engineers Private limited vs. Madhucon Projects Limited in C.P (IB) No. 4322/9/HDB/2017 passed by the passed by the Hon'ble Adjudicating Authority (Hyderabad Bench) on 22.11.2017 (refer Pg. 335 of Vol. II of Compilation filed by Amicus Curiae) The Hon'ble Adjudicating Authority was of the view that remuneration quoted by the IRP was quite exorbitant and the same needs to be referred to IBBI. Though there are no prescribed set of Rules and Regulations/Guidelines at present with regard to the fee to be payable to the IRP/RP, the Adjudicating Authority is of the view that the fee quoted by the professionals should be reasonable, commensurate with the work to be handled.] [Mr. Venkatesan Order No. IBBI/DC/68/2021 dated 5.03.2021 [refer Pg. 339 of vol. II of Compilation filed by Amicus Curiae] Para 3.3.5 of the Order of the Disciplinary Committee ("DC") reiterated "The DC notes that Mr. Venkatesan has allowed inclusion of a success fee clause in the engagement letter with EY for its professional services. It is observed that the same leads to escalation of CIRP costs leading to extra burden being imposed on already stressed CD. The DC further notes that the charging of success fee linked to the recovery of the debt has not been expressly barred.

Moreover, the resolution process of CD was not successful and therefore, the inclusion of success fee in the professional fee of EY did not result in any financial stress on the CD. Hence the DC finds that Mr. Venkatesan has not contravened the provisions of the Code or Regulations as alleged.] [Mr. Vijay Kumar

Company Appeal (AT) (Insolvency) No.392 of 2021 30

Garg Order No. IBBI/DC/26/2020 (refer Pg. 369 of Vol.II of Compilation filed by Amicus Curiae) It was held CIRP under the Code is a non-adversarial resolution process where the defaulting corporate debtor cedes control to an IP, 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 payable to insolvency professionals (IPs) and other process costs under Corporate Insolvency Resolution Process (CIRP). The discussion paper is available at www.ibbi.gov.in.

Company Appeal (AT) (Insolvency) No.392 of 2021 31

2. IBBI invites suggestions and comments on the issues discussed in the paper, including the following:

i. Whether the elements of costs listed in the paper are comprehensive? Are the elements of costs / fee classified / grouped appropriately? Please suggest modifications.

ii. Should the elements of the insolvency resolution process cost (IRPC), including fee payable to IPs, Insolvency Professional Entities (IPEs) and other Professionals, be regulated?

iii. Should the fee be disclosed by interim resolution professional (IRP) / resolution professional (RP), and then published on the web site of the respective Insolvency Professional Agency or the IBBI? Is disclosure of fee good enough for regulation of fee? iv. Should the industry and /or the Board promote development of best practices in respect of fee of the IRP and the RP and other fee associated with CIRP? What should be the elements of best practice? 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, Insolvency Professional Entity (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?

3. The suggestions and comments may please be mailed at feedback@ibbi.gov.in latest by 20th April, 2018."

31. Referring to the Discussion Paper dated 01.04.2018 and the Press

Release, Learned Amicus Curiae stated that nowhere in this, success fee was

taken up for discussion or deliberation. It is argued that the subsequent

Company Appeal (AT) (Insolvency) No.392 of 2021 32

Circular dated 12.06.2018 in introductory part referred to the existing

Insolvency and Bankruptcy Code provisions 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 the CIRP'; that the fee should

be determined on an arms' length basis, in consonance with the requirements

of integrity and independence; that it should not include fee or other expenses

not directly related to CIRP. Section 208(2) (a) of the IBC requires the

Insolvency Professional to take reasonable care and diligence while

performing his duties, including incurring expenses. Regulation 34 of the IBBI

(Insolvency Resolution Process for Corporate Persons) Regulations, 2016

Company Appeal (AT) (Insolvency) No.392 of 2021 33

permits the CoC to fix the "expenses" to be incurred on the Resolution

Professional and by the Resolution Professional. The "expenses" are to include

the 'fee' to be paid to the Resolution Professional. Perusal of such provisions

and Regulations clearly indicates a prior consultation of minds at initial stage

of CIRP to see as to what is the reasonable fee to be incurred on the Resolution

Professional or by the Resolution Professional. Claim of success fee squeezed

in at the last moment when the Resolution Plan is being approved is more in

the nature of taking a reward or gift than expenditure incurred on or by the

Resolution Professional. Reference to term "success fee" in Annexure-B of the

Circular dated 12.06.2018 which was view of the 'Society for Insolvency

Practitioners of India' is a term which is unguided. Rather even the said

society has a caveat to it when it mentions that the success and contingency

fee is only to the extent that it is consistent with the requirements of integrity

and independence of Insolvency Professionals. In our view, if the Resolution

Professional seeks to have success fee at the initial stage of CIRP, it would

interfere with independence of Resolution Professional which can be at the

cost of Corporate Debtor. If success fee is claimed when the Resolution Plan

is going through or after the Resolution Plan is approved, it would be in the

nature of gift or reward. "Success fee"- term is contrary to what IBBI provided

in its Circular dated 16.01.2018 that Insolvency Professional shall render

services for a fee which is a reasonable reflection of his work. The fee has to

be related to acts performed or to be performed for furtherance of the CIRP,

for dues or expenses actually incurred. It has to be directly related to acts

done or expenses incurred which are necessary for the CIRP. The role of the

Resolution Professional has to be like a dispassionate person concerned with

Company Appeal (AT) (Insolvency) No.392 of 2021 34

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 correct. The Learned Senior Counsel

for the Appellant submitted that reference to wrong provision would not effect

as the correct provision was Section 196(1) (aa) which relates to promoting

the development of, and regulating the working and practices of, insolvency

professionals. It is argued that under Section 196(1) (p), IBBI can issue

necessary guidelines to the insolvency professionals and the Circular should

be read in that context. Although the reference to wrong clause can be

ignored, still it shows that the attention of the Authority issuing the Circular

Company Appeal (AT) (Insolvency) No.392 of 2021 35

missed details while referring to opinions as in Annexure-B. The Appellant is

trying to take advantage of this so as to pick up from Annexure-B one word

'success fee' and ignoring other aspects benefit is sought to be taken. Apart

from the fact that the Code or the Regulations as existing do not provide for

fee on speculative basis, Circular dated 12.06.2018 also in the portion where

directions are given or clarification issued does not make any such 'success

fee' or 'contingency fee' payable. Thus, it cannot be said that charging of

success fee is within the provisions of the Code or the Regulations. By indirect

reference in a Circular it cannot be accepted that success fee as sought is

legally chargeable or payable.

34. The Appellant has referred to the Appeal and minutes recorded in the

20th CoC meeting to submit that the CoC appreciated his work and approved

the success fee. Appellant has also referred to the various steps taken by the

Appellant during the course of CIRP to submit that the Appellant was entitled

to the success fee and the quantum as was fixed in this CoC meeting. The

Learned Amicus Curiae has pointed out that in the 1st CoC meeting dated

24.12.2018, the name of the Appellant was proposed as Resolution

Professional for a fee of Rs.3 Lakh and fixed costs of Rs.5 Lacs. It was not

clear whether this fixed costs was for per-month. It is stated that the Appellant

has been charging Rs.8 Lakh per month and has claimed fee on that basis

not only upto the approval of the Resolution Plan and even thereafter when

the Appellant moved Adjudicating Authority and filed additional-affidavit

dated 25.10.2020. He had already received payment of Rs.1.84 Crores (till the

date of filing affidavit) as his professional fees. Referring to the Affidavit (Diary

Company Appeal (AT) (Insolvency) No.392 of 2021 36

No. 28117; Page 216) and the CIRP Costs 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 percentage of dues would consequently get reduced. It is

rightly argued that this would be a bad precedent. The alleged acts performed

were handsomely paid for in the month to month "fee' taken. The success fee

given in addition to the big amount of Rs.8 Lakh per-month is only in the

nature of gift or reward according to the Amicus Curiae. We agree with the

Learned Amicus Curiae.

36. The Learned Amicus Curiae submitted that there are many instances

of exorbitant charging of fees by the Resolution Professional and the

Company Appeal (AT) (Insolvency) No.392 of 2021 37

Adjudicating Authority has interfered so as to rationalise the same. In the

present matter, at the last stage when Resolution Plan was being approved

the Resolution Professional without putting on record necessary particulars

for the success fee got the same included. It is argued that although the fees

of the Resolution Professional under the provision which requires to pay as

CIRP Costs and the Resolution Plan has to have provisions to pay CIRP Costs

on priority, this by itself does not make the quantum of the fees of the

Resolution Professional a matter of commercial decision. CoC may be

approving the fees but as it has to be reasonable under the provisions of the

Code and Regulations, it is justiciable. We agree with the submissions of the

Learned Amicus Curiae in this regard. When the fees have to be on the basis

of the case and work performed or to be performed, the reasonability or

otherwise would be justiciable. By pushing in a big amount at last moment in

the name of success fees for the Resolution Professional and making it part

of CIRP costs at the time of approval of the Resolution Plan does not make the

same a commercial decision of the CoC. The Resolution Applicant and other

stakeholders, other than those present of CoC would not know what is being

hived off from the beneficiaries of the Resolution Plan. Fees payable to IRP/

RP have been made part of CIRP costs so as to safeguard interest of the IRP/

RP. Section 30(2) provides that the Resolution Plan should provide for

payment of Insolvency Resolution Process costs in a manner specified by the

Board in priority to the payment of other debts of the Corporate Debtor. The

protection is to the CIRP costs validly incurred. The interest of IRP/ RP cannot

be equated with the interest of the Corporate Debtor and other stakeholders,

creditors. Fees cannot be disproportionate to eat into the percentage of other

Company Appeal (AT) (Insolvency) No.392 of 2021 38

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

Professional after reducing fees. When Appellant moved Adjudicating

Authority it declined to exercise jurisdiction. The Hon'ble Supreme Court,

inter alia referred to Regulation 31 of the IRP Regulations and clause (c) which

reads as under:-

"31. Insolvency resolution process costs.- "Insolvency resolution process costs" under Section 5(13)(e) shall mean-

xxx xxx xxx

Company Appeal (AT) (Insolvency) No.392 of 2021 39

(c) expenses incurred on or by the resolution professional to the extent ratified under regulation

33................."

It was noted that this clause (c) was particularly important to the case

which enunciated expenses incurred on or by the Resolution Professional to

the extent ratified under Regulation 33. Para 19 of the Judgment reads as

under:-

"19. Though the CIRP was set aside later, the claim of the appellant as registered valuer related to the period when he was discharging his functions as a registered valuer appointed as an incident of the CIRP. The NCLT would have been justified in exercising its jurisdiction under Section 60(5)(c) of the IBC and, in exercise of our jurisdiction under Article 142 of the Constitution, we accordingly order and direct that in a situation such as the present case, the Adjudicating Authority is sufficiently empowered under Section 60(5)(c) of the IBC to make a determination of the amount which is payable to an expert valuer as an intrinsic part of the CIRP costs. Regulation 34 of the IRP Regulations defines 'insolvency resolution process cost' to include the fees of other professionals appointed by the RP. Whether any work has been done as claimed and if so, the nature of the work done by the valuer is something which need not detain this Court, since it is purely a factual matter to be assessed by the Adjudicating Authority."

Thus, although the fees of the valuer had been ratified by the CoC, in

the facts of the matter where CIRP had been set aside, the Hon'ble Supreme

Court held that the Adjudicating Authority has power to determine the

amount payable to an expert valuer as an intrinsic part of the CIRP.

Company Appeal (AT) (Insolvency) No.392 of 2021 40

37. The Learned Amicus Curiae has further rightly pointed out that the

Appellant claiming that he had done excessively well to deserve Rs. 3 Crores

of success fees, the Adjudicating Authority had made comments as to what

was the scenario when it was supervising the CIRP. We have seen the

observations of the Adjudicating Authority in impugned para 23 of the

impugned order. The Adjudicating Authority was at the ground level

monitoring the progress of CIRP and its observations cannot be simply

ignored.

38. For the above reasons, we hold that 'success fees' which is more in the

nature of contingency and speculative is not part of the provisions of the IBC

and the Regulations and the same is not chargeable. Apart from this, even if

it is to be said that it is chargeable, we find that in the present matter, the

manner in which, it was last minute pushed at the time of approval of the

Resolution Plan and the quantum are both improper and incorrect.

39. The argument that the Adjudicating Authority should have sent the

matter back to the CoC if it was not approving the success fee deserves to be

discarded as the Adjudicating Authority while not accepting the success fee

merely asked proportionate distribution which would even otherwise have

happened if "success fee" was set aside as the money would become available

improving percentage of other creditors' dues.

40. For such reasons, we do not find that there is any substance in the

Appeal. The Appeal is dismissed. No order as to costs.

Company Appeal (AT) (Insolvency) No.392 of 2021 41

41. Before parting, we record our deep appreciation for the efforts put in by

the Advocate Mr. Sumant Batra, Learned Amicus Curiae who assisted us in

the disposal of this Appeal which involves important question of law.

[Justice A.I.S. Cheema] The Officiating Chairperson

[Dr. Alok Srivastava] Member (Technical)

New Delhi Anjali

Company Appeal (AT) (Insolvency) No.392 of 2021