Pankaj Khetan vs The Jammu And Kashmir Bank Ltd

[Arising out of the order dated 22.03.2022 passed by the Adjudicating Authority, National Company Law Tribunal, Allahabad Bench in CA No.169/ALD/2019 in CP (IB) No. 124/ALD/2018]

IN THE MATTER OF:

Pankaj Khetan (Erstwhile Resolution Professional of Kushal International Ltd.) Registered Office at: K-37/A, Basement, Kailash Colony, Near Kailash Colony Metro Station, Delhi - 110048 ...Appellant

Versus

Jammu & Kashmir Bank Ltd. Registered Office at: M A Road, Srinagar 190001 Jammu & Kashmir ...Respondent

Present:

For Appellant: Mr. G.P. Madaan, Mrs. Harimohana N., Advocates with Mr. Pankaj Khetan, Appellant in person.

For Respondent: Mr. Pallav Saxena, Mr. Syed Arsalan Abid, Mr. Prateek Khaitan, Mr. Chatanya Sharma and Mr. Shitij Chakravarty, Advocates

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated

Company Appeal (AT)(Insolvency) No. 515 of 2022 1 22.03.2022 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Allahabad Bench) in

CA No.169/ALD/2019 in CP (IB) No. 124/ALD/2018. By the Impugned Order,

the Adjudicating Authority had decided on the quantum of fees and other

expenses payable to the Resolution Professional and in the course of

determination of fees/expenses had also made some adverse observations on the

conduct of the Resolution Professional in respect of insolvency proceedings of

M/s Kushal International Limited which had entered into liquidation. The

Resolution Professional (present Appellant) being aggrieved with the negative

comments made on his professional conduct as also by the reduced quantum of

fees/expenses as determined by the Adjudicating Authority in the impugned

order, the present appeal has been preferred.

2. Throwing light on the factual background of the present case, the Learned

Counsel for the Appellant submitted that following a Section 7 petition having

been admitted by the Adjudicating Authority on 08.05.2018 bringing M/s Kushal

International Limited/Corporate Debtor under the rigours of Corporate

Insolvency Resolution Process ('CIRP' in short), Shri Pankaj Khetan, was

appointed as Interim Resolution Professional ('IRP' in short) who was later

confirmed as Resolution Professional. Initiating the CIRP, the Appellant/IRP

published a public announcement on 10.05.2018 seeking claims from the

creditors of the Corporate Debtor. Having received only one claim from a single

Financial Creditor, a one-member Committee of Creditors ('CoC' in short) was

constituted by the IRP.

Company Appeal (AT)(Insolvency) No. 515 of 2022 2

3. It is submitted by the Learned Counsel for the Appellant that the IRP who

was later appointed as Resolution Professional conducted his duties diligently

and with reasonable care. As part of conduct of CIRP, four CoC meetings were

held by which the CoC was kept apprised of the CIRP developments. Regular

communications were also sent to the CoC apprising them of the financial status

of the Corporate Debtor and the conduct of the suspended management. It was

further added that several progress reports were submitted to the Adjudicating

Authority. Listing out the other manifold CIRP activities undertaken by the

Appellant, the Learned Counsel for the Appellant submitted that the Resolution

Professional had visited the office of the Corporate Debtor to obtain the records

but was provided selective documents without the books of accounts or ledgers.

Reminder emails having drawn blank response from the suspended

management, the Resolution Professional made further efforts to obtain the

details from the banks in which the Corporate Debtor held accounts. Due to non-

availability of information and documents, the Resolution Professional had filed

an application before the Adjudicating Authority under Section 19 for directions

to be issued to the Corporate Debtor to cooperate and provide material records.

The Adjudicating Authority vide orders dated 04.07.2018 and 16.07.2018 issued

directions to the suspended management and the statutory auditor to extend

cooperation to the Appellant. The Resolution Professional thereafter sent emails

to them but to no avail. Faced by persistent non-cooperation and non-

compliance to orders on the part of suspended management, the Resolution

Professional thereafter filed a contempt application before the Adjudicating

Company Appeal (AT)(Insolvency) No. 515 of 2022 3 Authority on 23.08.2018, following which the suspended management agreed to

provide all documents by 30.09.2018 but later belied their assurance. It is

further added that besides the contempt application, a complaint petition under

Section 70 of IBC was also filed by the Resolution Professional against the

suspended management on 23.08.2018 to punish their officers for not disclosing

property and other related details of the Corporate Debtor. Furthermore, since

the Sub-Divisional Magistrate concerned was also not cooperating in sharing

land details of the Corporate Debtor, an application under Section 19 was filed

against him which was taken on record by the Adjudicating Authority in its order

dated 18.09.2018.

4. Due to non-compliance of statutory requirements and persistent non-

cooperation from the suspended management in allowing CIRP to proceed, the

4th CoC meeting held on 12.10.2018 recommended that an application for the

liquidation of the Corporate Debtor be filed before the Adjudicating Authority by

the Resolution Professional. Accordingly, an application under Section 33 of the

IBC was filed by the Appellant following which the Adjudicating Authority passed

liquidation order on 28.02.2019. It is submitted that though the matter of

appointment of new liquidator was listed for hearing on 11.03.2019, the

Adjudicating Authority finally issued orders for appointment of a liquidator on

20.12.2021, after a gap of nearly three years.

5. The Learned Counsel for the Appellant further submitted that in the order

dated 20.12.2021, the Adjudicating Authority had noted that as the appointment

Company Appeal (AT)(Insolvency) No. 515 of 2022 4 of liquidator remained pending due to various reasons, the Resolution

Professional during the period from the date of passing of liquidation order till

20.12.2021 had discharged the functions of Resolution Professional cum

liquidator. Enumerating the series of activities undertaken by the Resolution

Professional between the passing of the order of the liquidation on 28.02.2019

until the orders for appointment of liquidator on 20.12.2021, it has been stated

the Resolution Professional had appointed security guards for safe custody of

assets of the Corporate Debtor. Several visits were also undertaken to the factory

site besides handling all third party notices and communications. The Resolution

Professional had also served notice on the suspended management on

04.06.2021 to scuttle their illegal attempt to lease out the assets of the Corporate

Debtor. Steps had also been taken to inform the Adjudicating Authority about

an OTS offer received from one member of the suspended management for the

Respondent. Furthermore, the Resolution Professional had appeared several

times before the Adjudicating Authority through a legal counsel to pursue

various applications filed by him including pressing for the appointment of the

liquidator.

6. It has also been claimed by the Learned Counsel for the Appellant that

following a meeting of the Resolution Professional with the Respondent, it had

been assured to the Appellant to pay the outstanding CIRP costs for the period

from 01.03.2019 till the appointment of the liquidator out of the liquidation

estate. However, since the Appellant was not paid his fees/expenses since the

passing of the liquidation order, an application was filed before the Adjudicating Company Appeal (AT)(Insolvency) No. 515 of 2022 5 Authority claiming reimbursement of fees/expenses. However, the Adjudicating

Authority on 22.03.2022 vide impugned order not only arbitrarily reduced the

quantum of fees and other expenses payable for the period he functioned as

Resolution Professional cum Liquidator but also passed adverse and derogatory

observations against him on the discharge of his duties as Resolution

Professional cum Liquidator. It was further contended that the Adjudicating

Authority passed this impugned order so as to circumvent its own shortcomings

of having inordinately delayed the appointment of the liquidator.

7. It was further pointed out that the impugned order contains certain

negative comments viz. that Resolution Professional was more focussed on

remunerations rather than closure of CIRP; that unnecessary expenditure was

incurred on appointment of security guards; that no progress reports on

liquidation process was submitted; that the fees/expenses claimed were

exorbitant and disproportionate and that certain illegal action was taken in

attaching the asset of a subsidiary of the corporate Debtor without seeking legal

opinion. It was vehemently contended that these derogatory remarks are

unwarranted and that there is sufficient material on record to prove to the

contrary and hence these observations ought to be expunged.

8. The Learned Counsel for the Respondent refuting the submissions of the

Appellant asserted that inaction and inability on the part of Resolution

Professional to follow the various steps in CIRP is clearly evident from the fact

that no Resolution Plan emerged. There was failure on the part of Resolution

Company Appeal (AT)(Insolvency) No. 515 of 2022 6 Professional to prepare and submit Information Memorandum before the CoC

and issue of Expression of Interest as required under IBC and regulations framed

thereunder. The Resolution Professional was also unable to elicit any successful

resolution plan for the Corporate Debtor within 180 days from the initiation of

CIRP. It was also contended that the Adjudicating Authority has rightly

disallowed the payment of any fee/expenses demanded by the Resolution

Professional for the period 28.02.2019 till 20.12.2021 since no substantial steps

were taken to discharge the duties of a liquidator. In support of their contention,

it has been pointed out that the Adjudicating Authority had taken due

cognizance of the fact that no status report was filed by the Resolution

Professional on what actions or efforts were made by him during the period when

the liquidator had remained to be appointed. Further, when the Adjudicating

Authority had decided to appoint another person as liquidator, the Resolution

Professional should not have tried to continue functioning as liquidator. Instead,

the Resolution Professional should have taken active steps to fill the vacuum and

ensured early appointment of liquidator to enable timely conduct of liquidation

proceedings rather than cling on to that position himself. It was also contended

that, in any case, the Appellant could not have claimed the same fee as that of

Resolution Professional while functioning as liquidator. The CoC had also never

approved any fee of the Appellant for his suo-moto work as Resolution

Professional cum liquidator. It has been submitted that the Adjudicating

Authority had rightly concluded that the Resolution Professional was only

focused upon making monetary benefits thereby derailing the objectives of the

Company Appeal (AT)(Insolvency) No. 515 of 2022 7 IBC and that the present appeal has been preferred to stave off the reference of

his conduct to the Insolvency and Bankruptcy Board of India ('IBBI' in short) as

made by the Adjudicating Authority.

9. We have duly considered the detailed arguments and submissions

advanced by the Learned Counsel for both the parties and perused the records

carefully.

10. The short issue for determination before us is whether in light of the facts

of the present case the Adjudicating Authority had erred in disallowing the

fees/expenses claimed by the Appellant and in refixing the same and whether

the negative remarks made on the conduct of the Appellant stands to reason. As

the issues outlined above are closely intertwined, we have chosen to examine

them conjointly.

11. Coming to the payment of the fees and expenses of the Resolution

Professional for discharging duties till the date of issue of liquidation order, we

note that it has been admitted by the Appellant that a sum of Rs. 10,00,000/-

plus Rs. 2,50,935/- being IRP expenses from 08.05.2018 to 04.06.2018 was

reimbursed by the CoC. The 2nd CoC meeting held on 26.06.2018 approved an

expenditure of Rs.50,000/- incurred from 05.06.2018 to 18.06.2018. The 3rd

meeting of CoC on 13.08.2018 approved the remuneration and fee of the

Resolution Professional at the rate of Rs.3,50,000/- per month besides ratifying

reimbursement of expenses of Rs.2,27,614/- for the period 06.07.2018 to

12.08.2018. It is also noted that the Resolution Professional on having filed an

Company Appeal (AT)(Insolvency) No. 515 of 2022 8 application under Section 60(5) of the IBC for issue of directions to the

Respondent for payment of outstanding fees and expenses, the Adjudicating

Authority in its order dated 19.08.2020 had noted that the CoC had claimed to

have paid the entire outstanding dues for the period till 28.02.2019. That the

fees/expenses of the Resolution Professional have been cleared up to 28.02.2019

i.e. up to the date of the passing of the liquidation order is an undisputed fact

and has also been admitted by Resolution Professional which has been excerpted

at para 13 of the impugned order, which is as reproduced below: -

"10. That the Sole Financial Creditor, Jammu & Kashmir Bank, has obligation to pay the Fee of RP and expenses incurred by the RP since inception till 20.12.2021 and the CoC in October 2020, has paid the Fee of RP and Legal expenses upto 28.02.2019 i.e. upto the date of passing of the Liquidation Order by this Hon'ble Tribunal....."

(Emphasis supplied)

12. This now brings us to the contentious issue of fees/expenses claimed as

Resolution Professional from the date of liquidation order i.e. 28.02.2019

onwards. It is the case of the Respondent that since no liquidator was appointed

at the time of passing of liquidation order, the Resolution Professional therefore

continued in the position of Resolution Professional, only technically, and hence

he cannot be allowed to claim fees/expenses without performing the obligatory

duties of a liquidator. No status report was either filed on what action or efforts

were made by Resolution Professional during the course of period when the

liquidator had remained to be appointed. It has been further submitted by the

Company Appeal (AT)(Insolvency) No. 515 of 2022 9 Respondent that the Adjudicating Authority while passing the liquidation order

dated 28.02.2019 had clearly held that in the interest of smooth functioning of

the liquidation process, it is necessary to replace the Resolution Professional by

another insolvency professional to act as liquidator as is seen at page 178 of

Appeal Paper Book ('APB' in short). The Appellant on the other hand has

contended that he had undertaken several steps including appointment of

security guards to protect the assets of the Corporate Debtor including

prevention of harm to it being aimed at through unauthorized leased deeds,

besides making several visits to the factory site etc. Beyond being a custodian of

assets of the Corporate Debtor, the Resolution Professional could not have taken

any action in furtherance of the liquidation process having not been appointed

as regular liquidator. Moreover, the CoC members had assured the Resolution

Professional that they shall pay the CIRP cost for the period from 01.03.2019 till

the appointment of Liquidator, out of the liquidation estate. Furthermore, since

he was not responsible for the delay in appointment of liquidator, he cannot be

denied his legitimate claims and fees.

13. For better appreciation of the facts, we may notice the facts and

circumstances leading to the passing of the liquidation order on 28.02.2019. The

4th CoC meeting was held on 12.10.2018 wherein the CoC with 100% vote share

decided that liquidation of the Corporate Debtor should be initiated having

denied the request made by Resolution Professional to file an application seeking

extension of CIRP. The Resolution Professional had thereafter filed an application

before the Adjudicating Authority for passing of liquidation order. We find that Company Appeal (AT)(Insolvency) No. 515 of 2022 10 the Adjudicating Authority had noted complaints of bias and corrupt conduct as

well as allegations of inaction and inability raised against the Resolution

Professional by the suspended management, while also observing that no

material was however placed on record by the suspended management to

substantiate their allegations of bias against Resolution Professional. However,

in deference to the wisdom of CoC, vide its order of 28.02.2019, it was held by

the Adjudicating Authority that for "smooth functioning of the liquidation of the

Corporate Debtor", the Appellant should not continue as liquidator. In other

words, the Adjudicating Authority had taken a conscious decision not to appoint

the Resolution Professional as the Liquidator.

14. It is also noted that the Adjudicating Authority on 20.12.2021 also did not

find the Resolution Professional fit to be appointed as liquidator and replaced

him with another insolvency professional. It is pertinent to add here that the

order of the Adjudicating Authority dated 20.12.2021 while directing the

Resolution Professional to hand over all documents/assets of the Corporate

Debtor to the newly appointed liquidator also noted that since liquidator had not

been appointed earlier, the period from 28.02.2019 till 20.12.2021 is excluded

from the liquidation process period. In such circumstances, we notice that there

is consistency in the stand of the Adjudicating Authority that the Resolution

Professional was never appointed as the Liquidator. Given this background, the

decision of the Adjudicating Authority in the impugned order dated 22.03.2022

that the Resolution Professional not having actually performed the duties of the

Company Appeal (AT)(Insolvency) No. 515 of 2022 11 liquidator and hence not entitled to the hefty fees as claimed appears to be

reasonable and justified.

15. We note that on the application filed by the Resolution Professional

demanding payment of fee for the period 28.02.2019, being the date of order of

liquidation, till 20.12.2021, being the date of appointment of liquidator, the

Adjudicating Authority has reduced the claimed amount. However, this

reduction has not been done arbitrarily but on the grounds that he had not

performed the full-scale duties of a liquidator during this period in terms of the

IBC and related regulations. The Adjudicating Authority in the impugned order

noted that no progress report on liquidation was filed by the Resolution

Professional with the Adjudicating Authority for this period. No status report is

found to have been filed on what action or efforts were made by him during the

course of period when the liquidator had remained to be appointed. The

Adjudicating Authority has noted that the Resolution Professional was fully

aware that he had not been appointed as liquidator nor was any other person

appointed as liquidator. The Respondent has further submitted that the

Adjudicating Authority had come correctly to the conclusion that the Resolution

Professional never filed any clarification application on the vacuum which arose

due to non-appointment of liquidator.

16. We have noticed that the Resolution Professional while discharging the

function of liquidator had claimed the same fees as that of Resolution

Professional. This was not in order since the fees of the Resolution Professional

Company Appeal (AT)(Insolvency) No. 515 of 2022 12 and that of a liquidator cannot be equated as their duties are different and

therefore the matrix for evaluating the reasonability of their fees would also

differ. In any case, the Resolution Professional was at best technically continuing

in the absence of appointment of liquidator. Further by his own admission,

beyond being a custodian of assets of the Corporate Debtor, the Resolution

Professional could not have taken any action in the commencement or

furtherance of the liquidation process having not been appointed as regular

liquidator. In such exceptional circumstances, the Adjudicating Authority has

therefore taken a well-considered decision to pay a lump sum amount of Rs.

2,00,000/- only to the Resolution Professional for the entire period starting from

01.03.2019 till the passing of the order. It has also correctly noted that since no

major legal services have been rendered during this period except for pursuing

applications before the Adjudicating Authority, a consolidated fee of Rs.50,000/-

only for the legal advisor would suffice. The decision to allow payment of salary

of security guards for the period their services was utilized and payment of

Rs.50,000/- towards meeting expenses to visit factory site is also found

reasonable. We find no error in the proportionate reduction of fees/expenses as

carried out by the Adjudicating Authority as the rationalization has been done

with proper application of mind. Further, to our mind, this decision of the

Adjudicating Authority is in conformity with the ratio laid down by the Hon'ble

Supreme Court of India in Devarajan Raman v. Bank of India Ltd. (2022) 3

SCC 254 since the Adjudicating Authority has assigned detailed reasons while

making an assessment of fees and expenses payable to Resolution Professional

Company Appeal (AT)(Insolvency) No. 515 of 2022 13 for the core activities performed during the period claimed by him as that of a

liquidator.

17. This now brings us to some objections raised by the Learned Counsel for

the Appellant on the adverse observations made by the Adjudicating Authority

on the discharge of professional duties by the Resolution Professional. One such

negative comment is that the Adjudicating Authority has opined that Resolution

Professional was more focused on getting remuneration and other expenses

reimbursed instead of fruitful discharge of legal duties in completing CIRP in a

time bound manner. We note that the Adjudicating Authority in its order dated

28.02.2019 has observed, after perusal of the progress report filed by the

Resolution Professional, that there are no signs of preparation of Information

Memorandum or publication of invitation for Expression of Interest and that

there were no resolution applicants who had filed Resolution Plan and we cannot

but agree to these findings. The Adjudicating Authority has also noted that

Resolution Professional had wrongly proceeded against the assets of a subsidiary

of the Corporate Debtor and held that such action shows his lack of

understanding of the provisions of IBC. We agree that this action was beyond

the jurisdiction conferred upon the RP by the IBC. However, this action alone

cannot tarnish the overall image and professional conduct of the Resolution

Professional. We cannot ignore the fact that several steps were effectively taken

by him as Resolution Professional towards conduct of CIRP like making of public

announcement, formation of CoC, collection of financial records and data of the

Corporate Debtor, holding of 4 CoC meetings in which CIRP progress reports Company Appeal (AT)(Insolvency) No. 515 of 2022 14 have been furnished, filing of section 19 and 70 IBC applications against the

concerned parties before the Adjudicating Authority etc. Moreover, the

Respondent never raised any qualms against the conduct of the Appellant

throughout the tenure of the CIRP. Further we cannot be unmindful of the

constraints faced by the Resolution Professional on the ground that delay in the

closure of CIRP was caused due to withholding of information and non-

cooperation by the suspended management in spite of clear directions of the

Adjudicating Authority. On the activities undertaken post passing of the

liquidation order, we notice that the Adjudicating Authority has returned the

findings that no progress report was filed by the Resolution Professional on the

efforts made by him during the period when the liquidator remained to be

appointed. While this is factually correct, it also cannot be discounted that he

had undertaken several steps including appointment of security guards to

protect the assets of the Corporate Debtor, prevented the suspended

management from causing harm to the property of the Corporate Debtor by way

of unauthorized leased deeds, undertook several visits to the factory site, made

several appearances for hearings before the Adjudicating Authority etc. This

finding of the Adjudicating Authority has also been challenged on the ground

that in the absence of his regular appointment as liquidator, the liquidation

process could not have moved forward and therefore there was no question of

submitting progress report. We find that these explanations offered by the

Resolution Professional are not totally unfounded and it would, therefore, be

unfair to cast aspersions on the conduct of the Resolution Professional.

Company Appeal (AT)(Insolvency) No. 515 of 2022 15

18. The second principal ground on which the Resolution Professional's

conduct has been found questionable is his having continued to function even

after passing of the liquidation order. It has been held that the Resolution

Professional chose to mechanically continue on even though the liquidation

order had not provided for his appointment as liquidator and that no conscious

efforts were taken by him to move the Adjudicating Authority to press for

appointment of a liquidator. We note that the Adjudicating Authority in the

impugned order has narrated the chronology of hearings and stated that though

the matter was heard 22 times, in none of the hearings the expeditious

appointment of liquidator without delay was emphasized. In fact there were

numerous adjournments either on request of the parties or on grounds of

settlement being under consideration between parties. The delays were

compounded by the lockdown imposed on account of Covid pandemic during the

intervening period. Though it has been contended that the Resolution

Professional had agitated the non-appointment of the liquidator before the

Adjudicating Authority several times, material facts on record do not show that

adequate efforts were made by the Resolution Professional to either seek a

pointed clarification from the Adjudicating Authority on his role after the issue

of the liquidation order or pursue the appointment of a liquidator with more

vigour. Be that as it may, for the sluggishness in the appointment of the

liquidator, it is not the Resolution Professional alone who can be held solely

responsible but the responsibility equally devolves on the CoC and as much on

Company Appeal (AT)(Insolvency) No. 515 of 2022 16 the Adjudicating Authority which took an inordinately long time in making the

appointment.

19. Another adverse observation was that security guards were appointed and

huge expenditure incurred thereon while no valuation of the property has been

done by the Resolution Professional. In his defence, the Learned Counsel for the

Appellant has stated that the appointment of security guards has no correlation

to non-appointment of valuers and that in any case the valuers could not be

appointed due to non-cooperation in providing requisite information by the

suspended management and the statutory auditor. Moreover, when the

suspended management was itself trying to interfere with the property and

unauthorisedly attempting to dispose it off, it became incumbent upon the

Resolution Professional to protect the same being the custodian of the assets of

the Corporate Debtor. Hence, we are of the considered view that the conduct of

the Resolution Professional cannot be assailed on this score either.

20. We are therefore satisfied with the findings of the Adjudicating Authority

that the fees/expenses claimed by the Resolution Professional for the period

following the passing of the liquidation order is exorbitant and not

commensurate with the work performed by him as is clearly borne out from

material on record. We are also of the considered view that the Adjudicating

Authority while re-fixing the fees/expenses has determined the same having kept

the reasonability quotient in mind. However, we are not persuaded to agree with

the adverse observations made by the Adjudicating Authority on the professional

Company Appeal (AT)(Insolvency) No. 515 of 2022 17 conduct of the Resolution Professional in view of the attendant reasons and

peculiar circumstances as cogently explained by him.

21. In result, we concur in the directions of the Adjudicating Authority as

contained in the impugned order with respect to the determination of the fees of

the Resolution Professional; expenses incurred by him on site visits; fees of the

legal advisor and salary of the security guards and direct that the same shall be

paid by the CoC within ten days from the date of uploading of this order. Further

all the adverse observations made on the conduct of Resolution Professional in

the impugned order is expunged. The appeal is disposed of with the above

observations. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) Place: New Delhi Date: 28.02.2023

PKM

Company Appeal (AT)(Insolvency) No. 515 of 2022 18