Religare Finvest Limited vs Resolve Support Services Private ...

[Arising out of the Impugned Order dated 18.04.2024 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench in I.A. No. 1435/2022 in C.P. (IB) No. 1567 of 2018] In the matter of: RELIGARE FINVEST LIMITED having its office at 406-407, 4th Floor, So Lucky Corner Building, Chakala, Andheri Kurla Road, Andheri (East), Mumbai - 99 ...Appellant Versus 1. Resolve Support Services Private Limited Through its authorized representative Mr. Hitesh Jain, having its registered office at Flat No. 1902, Plot No. 24 to 29, D Wing Sector 4, Amey CHSL, Palm Beach Road, Nerul, Mumbai-706

2. Mr. Ashish Vyas Liquidator of Orient Tourism Private Limited Having address at B-1 A, Viceroy Court CHS Thakur Village, Kandivali (East), Mumbai- 101

3. Mr. Anurag Jain Resolution Professional of Orient Tourism Pvt Ltd. Regd. No. IBBI/IPA001/IP-P01049/2017-18/11732, 1401, Oriental Heights, Sector 44, Plot No. 158, Seawoods West, Navi Mumbai, Maharashtra - 400706 .... Respondents Present: For Appellant : Mr. Saahil Bahety, Advocate.

For Respondent : Mr. Aditya Gauri & Mr. Amar Vivek, for R1.

Mr. Dhananjaya Sud, for R-3. WITH Company Appeal (AT) (Insolvency) No. 1346 of 2024 [Arising out of the Impugned Order dated 18.04.2024 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench in I.A. No. 1435/2022 in C.P. (IB) No. 1567 of 2018] In the matter of: Resolve Support Services Private Limited Through its Authorized Representative Mrs. Dimple Jain Having its Reg. Off. at: Flat No. 1902, Plot No. 24 to 29, D Wing Sector 4, Amey CHSL, Palm Beach Road, Nerul, Mumbai, Maharashtra - 400706 legal@resolvegroup.co.in ...Appellant Versus 1. ASHISH VYAS Liquidator of Orient Tourism Pvt. Ltd. Having Address at: B-lA Viceroy Court CHS, Thakur Village, Kandivali (East), Mumbai Suburban, Maharashtra-400101

2. Religare Finvest Limited Having its office at: 406-407, 4th Floor, So Lucky Corner Building, Chakala, Andheri Kurla Road, Andheri (East), Mumbai - 99

3. Anurag Jain ERSTWHILE RESOLUTION PROFESSIONAL ORIENT TOURISM PVT. LTD. Regd. No. IBBI/IPA-001/IP-P01049/2017-18/ 11732 R/o. 1401, Oriental Heights, Sector-44, Plot-158, Seawoods West, Navi Mumbai Maharashtra - 400706 ipanuragjain@gmail.com .... Respondents Present: For Appellant : Mr. Aditya Gauri & Mr. Amar Vivek, Advocates. For Respondent : Mr. Sahil Bahety, for R-2.

Mr. Dhananjaya Sud, for R-3.

Page 2 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 WITH Company Appeal (AT) (Insolvency) No. 1199 of 2024 [Arising out of the Impugned Order dated 18.04.2024 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench in I.A. No. 1435/2022 in C.P. (IB) No. 1567 of 2018] In the matter of: ANURAG JAIN ERSTWHILE RESOLUTION PROFESSIONAL ORIENT TOURISM PVT. LTD. Regd. No. IBBI/IPA-001/IP-P01049/2017-18/11732 R/o 1401, 1401, Oriental Heights, Sector-44, Plot-158, Seawoods West, Navi Mumbai Maharashtra - 400706 ipanuragjain@gmail.com ...Appellant Versus 1. ASHISH VYAS Liquidator of Orient Tourism Pvt. Ltd. Having Address at: B-lA Viceroy Court CHS, Thakur Village, Kandivali (East), Mumbai Suburban, Maharashtra-400101

2. Religare Finvest Limited Having its office at: 406-407, 4th Floor, Lucky Corner Building, Chakala, Andheri Kurla Road, Andheri (East), Mumbai - 99

3. Resolve Support Services Private Limited Through its Authorized Representative Mr. Hitesh Jain Having its Reg. Off. at: Flat No. 1902, Plot No. 24 to 29, D Wing Sector 4, Amey CHSL, palm Beach Road, Nerul, Mumbai, Maharashtra - 400706 .... Respondents Present: For Appellant : Mr. Dhananjaya Sud, Advocate. For Respondent : Mr. Aditya Gauri, Mr. Amar Vivek and Mr. Siddharth Sharma for R-3.

Page 3 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 JUDGMENT

(Hybrid Mode)

Per: Barun Mitra, Member (Technical)

The present set of three appeals filed under Section 61 of Insolvency and

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

dated 18.04.2024 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I) in

I.A. No. 1435 of 2022 in C.P. (IB) No. 1567/MB/2018. By the impugned order,

the Adjudicating Authority has allowed the I.A.No 1435 of 2022 filed by Resolve

Support Services Pvt. Ltd. for repayment of Rs 67,74,109/- claimed by them as

interim finance provided by them in the CIRP of the Corporate Debtor-Orient

Tourism Pvt. Ltd. Aggrieved by the impugned order, three separate appeals have

been filed.

2. Aggrieved by the above impugned order, three separate appeals have been

filed viz Appeal No. 1346 of 2024 filed by interim finance provider-Resolve

Support Services Pvt. Ltd. ("Resolve" in short); Appeal No. 1057 of 2024 filed by

Religare Finvest Pvt. Ltd. ("Religare" in short)-CoC member and Appeal No.

1199 of 2024 filed by the Resolution Professional ("RP" in short). The prayer

made in Appeal No. 1346 of 2024 by Resolve is for allowing modification of the

impugned order so as to secure repayment of full amount of Rs 90,80,214/- to

the Appellant with further interest of 15%p.a. and default interest of 2% p.m. till

date of full repayment. The prayer urged in Appeal No. 1057 of 2024 by Religare

is for setting aside of the impugned order; to declare that Resolve is not entitled

to any refund of amount and to declare the interim finance raised by the RP to

Page 4 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 be unauthorised; direct the RP to refund the amount appropriated towards his

fees/expenses; declare the transfer of expenses towards fees of Vishal and

towards processing fees as unauthorised. The prayer urged in Appeal No. 1199

of 2024 by the RP is for expunging the adverse remarks made by the Adjudicating

Authority in para 4.4 of the impugned order describing the conduct of RP in

raising the interim finance as deplorable.

3. Since all the three appeals arise out of one common impugned order and

stems broadly from the same set of facts, for reasons of convenience, we will

proceed to take up for consideration Appeal No. 1057 of 2024 and apply our

findings on the other two appeals also while keeping in mind distinguishing

facts, if any, in the other two appeals.

4. Coming to the brief factual matrix of the matter at hand, the Corporate

Debtor-Orient Tourism Pvt. Ltd. was admitted into the rigours of CIRP on

17.09.2019 on a Section 9 application filed by the Operational Creditor. The RP

constituted the CoC on 04.11.2019 comprising solely of Religare Finvest Pvt. Ltd.

at the time of initial constitution. The RP held the first CoC meeting on

13.11.2019 in which the RP apprised the CoC to contribute to the Corpus Fund

to meet the costs of CIRP including the fees/expenses of RP, fees of Legal

Counsel, valuation fees etc. The CoC members indicated that they would not be

able to provide any contribution to the Corpus Fund and proposed that RP may

secure interim funding including interest upto @ 15% p.a. This resolution was

put to vote and was voted 100% in favour. The Operational Creditor who had

filed the Section 9 application meanwhile entered into a settlement with the

Corporate Debtor following which the Operational Creditor had submitted an

Page 5 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 application in Form-FA for withdrawal of the CIRP process. Accordingly, the RP

filed IA No. 3595 of 2019 for withdrawal of the CIRP under Section 12A of the

IBC. This application was dismissed by the Adjudicating Authority after nearly

2 years on 08.02.2021. After dismissal of the Section 12A application, the RP

approached Resolve for raising interim finance of Rs 1 Cr. and a Loan Agreement

dated 15.02.2021 was entered into between them. The RP on 16.02.2021

requested Resolve to disburse interim finance facility of Rs 50 lakhs and followed

up with subsequent letters for additional disbursement of interim finance loan.

The RP subsequently informed the CoC about the Loan Agreement to raise

interim finance of Rs 1 Cr. at a rate of interest of 15% p.a. from Resolve during

its second meeting held on 22.02.2021. The CoC in its third meeting held on

14.06.2021 unanimously passed the resolution for initiating liquidation process

of the Corporate Debtor. The RP thereafter filed IA No. 1626 of 2021 seeking the

liquidation of the Corporate Debtor which was allowed by the Adjudicating

Authority on 05.08.2021 following which a Liquidator was appointed. The RP

thereafter informed the Liquidator vide e-mail dated 27.08.2021 to repay to

Resolve the interim finance alongwith interest and default interest @ 2% p.m. in

case of delay. The RP sent further reminder e-mails on 05.09.2021, 18.09.2021

and 05.12.2021 in this regard. On 05.12.2021, the Liquidator informed the RP

that Religare had disputed the interim finance and the CIRP cost. The Liquidator

also requested the RP to share documents relating to the interim finance raised

by him on 08.04.2022 to which the RP sent the Loan Agreement of 15.02.2021.

As the Liquidator and CoC refused to repay the interim finance provided by the

Resolve, hence, Resolve filed IA No. 1435 of 2022 before the Adjudicating

Page 6 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 Authority for repayment of Rs 90.80 lakhs alongwith interest of 15% p.a. and

default interest of 2% p.m. The Adjudicating Authority has passed the impugned

order dated 18.04.2024 allowing refund of principal amount of Rs 64,74,109/-

instead of Rs 90,80,214/- without allowing interest and processing fees.

Aggrieved by this impugned order, the three separate appeals have been filed as

noted above.

5. Making submissions on behalf of Appellant Religare in Appeal No. 1057 of

2024, Shri Rohit Gupta, Ld. Counsel submitted that the interim finance sanction

of Rs 1 Cr. obtained by the RP from Resolve alongwith interest rate and default

interest was without the final and formal approval of CoC as the RP had not

taken any steps to seek the consent from the CoC on the specific terms and

conditions recorded in the Loan Agreement. Both members of the CoC, namely,

Religare and City Union Bank had raised this concern pertaining to fees of RP

and CIRP costs. The RP had also not disclosed to the CoC the relationship it had

with the interim finance provider and this non-disclosure violated the principles

of transparency and fiduciary duty cast upon the RP under the IBC. The

Adjudicating Authority erred in directing the Liquidator to repay the interim

finance amount of Rs 64.74 lakhs to Resolve inspite of noticing clear conflict of

interest between the RP and Resolve as also the inappropriate conduct of the RP

in raising interim finance from a related party for own undue enrichment. It was

also submitted that the RP had engaged Vishal, one of the directors of Resolve

as the legal professional which was a clear case of a conflict of interest. Further,

the interim finance was utilised for the fees of the RP during the Covid period

when there was no activity undertaken towards conduct of insolvency

Page 7 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 proceedings. This constituted a misuse of funds and a breach of trust. Reliance

was also placed on the judgment of this Tribunal in IndusInd Bank Ltd. Vs Mr.

Rajendra K. Bhuta, RP in CA(AT)(Ins) No. 177 of 2022 to contend that when

insolvency proceedings are stayed, the RP is not entitled for any fee. In the

present case, since the Section 12A withdrawal application had been filed

immediately after admission of the Corporate Debtor into CIRP, the CIRP

proceedings was as good as stayed for which no fees could be claimed.

6. The Ld. Counsel making submissions on behalf of the Resolve refuted the

contentions of Religare to submit that the RP had apprised the members of CoC

to contribute to the Corpus Fund during the first meeting of CoC and it was only

in pursuance of CoC's approved resolution by 100% vote-share that the RP had

approached Resolve to provide interim finance and entered into a Loan

Agreement on 15.02.2021. Further Religare cannot claim that it was unaware

about raising of interim finance particularly when the minutes of the second CoC

clearly record that the RP had apprised the CoC including Religare about the

approval in the first CoC meeting to the raising of interim finance. The RP could

also not have been faulted for raising interim finance and in support of their

contention adverted attention to the judgement of this Tribunal in Sajeve

Bhushan Deora Vs Axis Bank Ltd. & Ors. in CA(AT)(Ins) No. 741 of 2019

wherein it was held that in terms of Section 25 of the IBC, interim finance can

be raised by the RP subject to approval of CoC. On the issue of Resolve and RP

being related party, it was asserted the IBC does not put any bar on the RP from

taking interim finance from a related party and since the RP had made the

relevant disclosure to the Corporate Debtor, there was no infirmity committed

Page 8 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 by the RP. The Liquidator and the CoC had therefore arbitrarily refused to repay

the interim finance advanced by Resolve at a time when the same had been

availed and consumed by the Corporate Debtor. Reliance was also placed on the

judgment of this Tribunal in ODAT GmbH Vs CA Santanu Brahma (IRP) in

CA(AT)(Ins) No. 1900 of 2024 wherein it has been held that of the Insolvency

and Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016 ("CIRP Regulation" in short). CIRP Regulation 34-

B(5) clearly provided that the fee of the RP can be paid from the funds available

with the Corporate Debtor and/or funds raised by way of interim finance and

shall be included in the insolvency resolution process cost. The repayment of

interim finance including the principal, interest and default interest constituted

a valid CIRP cost which was payable by the Liquidator. It was also asserted that

the amount of any interim finance and cost incurred in raising such finance

being a part of CIRP cost must be accorded priority under the water fall

mechanism before making payment to other stakeholders. The Adjudicating

Authority by disregarding and denying their legitimate claim to refund of interim

finance provided including processing fees, agreed interest and default interest

amount as set out in the Loan Agreement had caused significant financial

detriment to their interests and sought redressal on this score.

7. Making submissions on behalf of the RP, the Ld. Counsel submitted that

RP had acted in accordance with the statutory construct of IBC in discharging

his functions and obligations in the CIRP of the Corporate Debtor. It was asserted

that the RP is duly authorised by Section 25(2)(c) and Section 28(1)(a) of the IBC

to raise interim finance with the approval of the CoC and that RP had in the

Page 9 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 present case acted in terms of the resolution passed by the CoC in the first

meeting to enter into a Loan Agreement with Resolve to raise interim finance. It

was strenuously contended that RP had made due related party disclosures in

terms of IBBI circular for raising the finance from a related party. It was also

stated that in the second CoC meeting, the Appellant had informed the CoC that

the CIRP cost sheet had been circulated alongwith the meeting notice. It was

asserted that the draw-down from the interim finance and its utilisation towards

CIRP costs was in consonance with the cost sheet circulated with the second

CoC meeting notice. Moreover, though Section 12-A application had been filed,

as there was no stay on the CIRP of the Corporate Debtor, the RP was not

prohibited legally from claiming his own professional fees and fees for the legal

professional even for the period excluded from CIRP time-line by the Adjudicating

Authority. It was therefore stated that when the RP had not violated the

provisions of IBC in any manner, the Adjudicating Authroity travelled beyond its

jurisdiction in making adverse observations against the RP in the impugned

order and prayed that these remarks need to be expunged.

8. We have duly considered the arguments advanced by the Learned Counsel

for all the parties and perused the records carefully.

9. The first issue which requires our consideration is whether the RP had

raised interim finance with the prior approval of the CoC and in accordance with

the statutory construct of IBC and Regulations framed thereunder.

10. It is the case of Religare that the interim finance sanction of Rs 1 Cr. was

obtained by the RP from a related party-Resolve with interest rate of 15% p.a.

and default interest of 2% p.m. without the approval of CoC. Submission was

Page 10 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 pressed that though the minutes of first CoC meeting had authorised the RP to

avail interim finance but the structuring of the terms of interim finance was

never discussed or approved by the first CoC. Submission was pressed that

Religare had addressed an e-mail to the RP conveying disagreement with the

minutes of first CoC meeting as it did not properly record the deliberations on

the aspect of the fees of RP and CIRP cost and that they had requested the RP to

repropose the resolutions pertaining to fees of RP and CIRP costs during the next

CoC meeting which was not done. Moreover, when the Loan Agreement with

Resolve and the terms and conditions of the interim finance contained in the

Agreement was discussed in the second CoC meeting, Religare as the principal

constituent of the CoC had raised objections to the interim finance raised as well

as on the manner of appropriation of sums therefrom by the RP. It was asserted

that the Loan Agreement came to the knowledge of Religare for the first time only

during the hearing of IA No. 1435 of 2022 before the Adjudicating Authority.

When the RP had not taken the consent from the CoC prior to executing the Loan

Agreement as is clearly borne out from the minutes of the second CoC, raising

of interim finance was unauthorised and that being so any appropriation by the

RP from the corpus of the interim finance lacked legitimacy and therefore need

to be refunded by the RP.

11. Per contra, it is the case of Resolve that the minutes of the first CoC

meeting clearly recorded that RP had apprised the members of CoC to contribute

to the Corpus Fund towards meeting CIRP costs and it was the CoC which had

not only ideated the proposal to raise interim finance but also passed a

resolution to that effect with 100% vote share. It was submitted that Religare

Page 11 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 cannot claim to have been unaware of the raising of interim finance until filing

of IA No. 1435 of 2022 as the minutes of the second CoC clearly show to the

contrary that the RP had apprised the CoC including Religare about the approval

during the first CoC meeting for raising of interim finance. It was only in

pursuance of CoC's approved resolution that the RP had approached Resolve to

provide interim finance and entered into a Loan Agreement on 15.02.2021.

Though admittedly Religare had declined to approve the minutes of the second

CoC, it was asserted that Religare failed to explain how the RP had acted

inconsistently with the decision taken by the CoC in its first meeting. Echoing

similar contentions, it was contended by the RP that the first CoC had not only

approved the appointment of RP as well as his fees but had resolved that interim

finance at a maximum interest rate of 15% p.a. be raised to meet CIRP costs

including the fees of RP and legal fees. It was emphatically asserted that in the

second CoC meeting, the RP had also annexed the CIRP cost sheet with the

meeting notice. The CoC never objected to the raising of the interim finance at

that stage and only after commencement of liquidation, the Liquidator and the

CoC have arbitrarily refused payment of interim finance.

12. Having noted the rival submissions, it will be useful for us to notice the

relevant minutes of the first and second CoC meetings to see whether the CoC

had approved the raising of interim finance as well as the terms of such interim

finance. The first CoC meeting held on 13.11.2019 had recorded the following

minutes:

"n. Providing corpus fund to run the process and more importantly to complying with various tax laws and other regulations;

Page 12 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 The IRP informed the members the need for the CoC to contribute to the corpus fund to run the CIR process of the company and more importantly for complying with various tax laws and other regulations. A sheet detailing the calculation of amount of corpus fund was annexed to the notice and discussed at length by the CoC. The members stated that they will not be able to provide any such contribution and that the IRP can get interim funding at appropriate terms and that interest can be paid at 15% p.a. The CoC members however decided to put the issue for e-voting."

13. When we look at the above minutes of first CoC meeting held on

13.11.2019, which minutes also find reflected in the impugned order at para 4.1

thereof, it is clear that the CoC in its first meeting had proposed the idea to

secure interim funding at appropriate terms by the RP and had decided to put

the resolution to voting. It is also an undisputed fact that the CoC including

Religare had voted 100% in favour of this resolution. However, this resolution

only authorised the RP to avail of interim finance in general terms. Clearly there

was no discussion or approval of the final terms of the exact amount of interim

finance to be raised; the interest rate; default interest etc. that was to be

chargeable.

14. We now proceed to see what further steps were taken by the RP on the

raising of the interim finance and the minutes of the second CoC meeting

acquires special relevance. The second meeting of CoC was held on 22.02.2021

after a lapse of nearly 15 months from the holding of the first CoC meeting. More

significantly we also notice that even before the convening of the second CoC

meeting on 22.02.2021 the RP had already finalised the Loan Agreement with

Resolve on 15.02.2021. The two relevant agenda items of the second CoC

meeting are as extracted below:

Page 13 of 23

Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 "4. To table and approve the minutes of the 1 st Meeting of the CoC held on 13th November, 2019:

The Chairman informed the members that the minutes of the 1st meeting of the CoC were duly circulated to the participants of the meeting. No objections/suggestions for any changes or inconsistencies were received from them and hence requested the members to take the same on record. City Union Bank stated that as they were not part of the 1st CoC they are not approving the minutes. Religare Finvest Limited stated that they also refrain from approving the minutes of 1st CoC. The RP clarified that since City Union Bank was not a participant, it cannot approve or disapprove taking the same on record. More so, the minutes had already been shared with them on 09.12.2019 and no observations were received from them. Religare Finvest Limited also did not point out any inconsistency in the minutes after circulation on 15.11.2019 till date and also during this meeting; so, it is not appropriate that the minutes are not taken on record without raising any particular inconsistency.

9. To table the details of approved/ratified Corporate Insolvency Resolution Process (CIRP) costs incurred till date:

The RP informed that he had circulated a sheet of CIRP cost incurred till date to the CoC members. City Union Bank queried that as no service is rendered by the RP after filing of withdrawal application, then what is the justification for payment of RP fees till date. They strictly objected to the fees of the RP for the excluded period. The RP clarified that the statement that there is no service is incorrect and that though a withdrawal application was filed, the RP is incharge of the affairs of the CD, until the application is allowed. The IRP/RP conducted the first meeting of the CoC inspite of the withdrawal application and also continued to be in charge of the operations of the Corporate Debtor. In the very first meeting the IRP was confirmed as the RP. Though as an IRP he had charged a fee of Rs. 3 lacs, the CoC noting well that since there are no or minimal business operations of the CD and in view of the impending withdrawal of CIRP, which they also approve for, they humbly requested the IRP/RP to reduce his fees to Rs. 2,00,000/- p.m and the fees of the legal advisor at Rs 50,000/- p.m. on retainership basis. The IRP had stated that such a fee of Rs. 2 lacs is the bare minimum fees charged by the RPs wherein there are no operations of the CD but since there are some operations in this CD, fee of Rs. 3 lacs is reasonable, and the applicant OC had also Page 14 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 agreed for the same fee, though not being an institutional creditor.

However, at the insistence of the CoC, the IRP/RP had agreed for a lower fee of Rs. 2 lacs per month. So the fees were fixed commensurate with the work involved and at the bare minimum market rate.

Even after the first meeting, the RP had been carrying on the operations of the CD, but since there was no substantial revenue generation, and due to inability to pay the salaries, all the employees had left. The suspended directors were also not co-operating completely and the business suffered. Later on, lockdown was imposed and the whole tourism sector is gravely impacted till date."

(Emphasis supplied)

15. When we look at the above minutes, it is quite clear that Religare had

refrained from signing the minutes of the first CoC meeting. Admittedly, Religare

had also sent a written communication earlier to the RP objecting to the

proceedings recorded in respect of the first CoC meeting. It is pertinent to also

notice that the gap between the first and second CoC meeting was nearly fifteen

months but during this long intervening period, the RP took no steps to keep the

CoC apprised about the negotiations being undertaken to finalise the Loan

Agreement. Instead, the RP had executed the Loan Agreement even before

convening the second CoC meeting on 22.02.2021. In other words, the Loan

Agreement which contained the exact terms of interim finance arrangement had

been decided unilaterally by the RP without the approval of CoC. This action on

the part of the RP does not appear to be compatible with CIRP Regulations 34-A

and 34-B which obligated the RP to disclose to the CoC insolvency resolution

process costs including fees/expenses to be incurred by the RP.

16. A defence was taken by the RP that CIRP cost sheet was annexed to the

notice of the second CoC meeting on which the terms of the interim finance was

Page 15 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 predicated. It was pointed out that the minutes of the second CoC meeting also

records that CIRP costs incurred till date was circulated by the RP to the CoC

members. A pointed query was therefore made by this Bench to the Ld Counsel

of RP to show the purported CIRP cost sheet which was annexed to the second

CoC meeting notice. However, as the Ld. Counsel for the RP could not readily

show the same, he was allowed to furnish copy of the same with his written

submissions which has however not been complied to by the RP. This lends

credence to the argument canvassed by Religare that the RP took undue

advantage of the preliminary approval taken in the first CoC meeting to

unilaterally enter into a detailed agreement with Resolve for interim finance and

serving the same on the CoC as a fait accompli without fleshing out reasons as

to why Resolve which was a related entity was chosen as the lender or why the

RP had opted for a quantum of Rs 1 Cr. interim finance with interest of 15% p.a.

and default interest. Mere receipt of a general and preliminary approval in the

first CoC meeting to raise interim finance without the stamp of final approval by

the CoC on the specific terms and conditions of interim finance cannot be read

as compliance to the requirements outlined under Sections 25 and 28 of IBC

and CIRP Regulation 34-B for obtaining the specific approval of CoC before

entering into any actual interim finance transaction.

17. We next proceed to examine whether the remarks of the Adjudicating

Authority describing the professional conduct of the RP as "deplorable" was

unwarranted or not. This examination would need to be seen from the point of

view whether the fees claimed by the RP was commensurate with the services

performed and whether the funds appropriated from the interim finance was

Page 16 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 used for the benefit of RP and alleged related parties as alleged by Religare or for

furthering the beneficial interest of the Corporate Debtor.

18. From the sequence of events which has already been noticed at para 4

above, it is an indisputable fact that immediately after the admission of the

Corporate Debtor into CIRP, the Operational Creditor had entered into a

settlement with the Corporate Debtor and had decided to withdraw the Section

9 application. The RP thereafter filed the Section 12A withdrawal application

which application got rejected by the Adjudicating Authority on 08.01.2021.

During this period of nearly two years when the Section 12A application was

pending before the Adjudicating Authority, we do not find any status report filed

by the RP before the CoC on what action or efforts were taken by the RP. We also

find that when the second CoC meeting was held which happened after the

dismissal of Section 12-A application, City Union Bank which was one of the

CoC members had objected to the payment of fees to the RP for the period

excluded by the Adjudicating Authority and had questioned the reasonability

and justification of the fees claimed by the RP.

19. It is equally pertinent to note that the second CoC meeting had also noticed

that there was minimal business operation of the Corporate Debtor with no

substantial revenue generation during this period when the Section 12-A

withdrawal application remained pending as all employees had left and business

was gravely impacted by lockdown. We also take cognisance of the fact that while

rejecting the Section 12A application, the Adjudicating Authority had excluded

the litigation period from 06.11.2019 to 08.01.2021 from the CIRP time-lines.

We are therefore inclined to agree that though CIRP as such was not stayed,

Page 17 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 however, the very fact that the RP had filed the Section 12A withdrawal

application immediately after admission of the Corporate Debtor into the rigours

of corporate insolvency, the CIRP proceedings remained in a moribund state and

there is nothing on record to show that any significant work was undertaken by

the RP during this period.

20. In such circumstances, when the CIRP remained practically in abeyance

for almost a period of two years on account of filing of Section 12A application,

the claim of the full fees of the RP is clearly unsustainable. The RP can charge

fees only in a transparent manner and the fees should be a reasonable reflection

of the work undertaken and should have been validly incurred. The hefty fees

appropriated by the RP from the Corpus Fund raised through interim finance

facility does not appear justified. The RP is expected to conduct the CIRP process

with the highest sense of responsibility. Section 208(2)(a) of the IBC enjoins upon

the RP to scrupulously abide by a Code of Conduct which Code at Article 35

clearly obligates the RP to charge his fees in a transparent and reasonable

manner. We are therefore of the considered opinion that the Adjudicating

Authority did not commit any error in disapproving the conduct of the RP for

getting suddenly active in raising interim finance after dismissal of Section 12A

application and appropriating the major chunk therefrom to recover their fees.

21. We now like to address the finding returned by the Adjudicating Authority

that the RP, the legal professional-Vishal and Resolve as the entity from whom

interim finance was raised were all related parties belonging to one common

group and that these related parties acted in collusion to utilise the interim

Page 18 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 finance arrangements for their own benefit and unjust enrichment rather than

furthering the beneficial interest of the Corporate Debtor as a going concern.

22. It is the case of Religare that professional fees of RP accounted for 73%;

legal fees payment accounted for 17%; the interest and processing fees payable

to Resolve accounted for 7% and only 3% was for other expenses was

appropriated out of the Corpus Fund raised. We find that this percentage-wise

profile of appropriation of Corpus Fund is borne out by material on record and

has not been denied or controverted either by the RP or Resolve. We also notice

that besides the professional fees of RP which accounted for major part of the

amount which was appropriated from the Corpus Fund, the fees of the legal

professional, namely, Vishal, accounted for Rs 11.48 lakhs which was next big

ticket of payment.

23. When we further look at the material placed on record, we find that Vishal

who was a related party was appointed as the legal professional. This legal

professional hired by the RP happened to be director of Resolve from whom

interim finance was raised and interim finance was purportedly transferred from

the HUF account of Vishal to the account of the Corporate Debtor which was

being handled by the RP. Given this backdrop, this was a clear case of conflict

of interest since Vishal, on the one hand, was financing the Corporate Debtor

through the RP, and on the other hand, was dipping into the corpus of interim

finance through the RP by claiming legal fees. The RP had also not disclosed to

the CoC the relationship it had with the Resolve as the Loan Agreement had been

executed by RP without placing the specific terms thereof for approval of the

CoC. This non-disclosure to the CoC of appointment of related parties as interim

Page 19 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 finance provider and legal professional by the RP clearly violated the principles

of transparency and fiduciary duty exercisable by the RP under the IBC.

24. It was vehemently contended by Resolve that there was no bar on the RP

from taking interim finance from a related party for and IBBI Regulation 34-B

clearly provides that the fees of the RP can be paid from the funds available with

the Corporate Debtor which fund can also be raised by way of interim finance

and shall be included in the insolvency resolution process cost. Moreover, as the

RP had made the relevant disclosure to the Corporate Debtor to the Indian

Institute of Insolvency Professional of ICAI, there was no infirmity committed by

the RP. The RP has also contended that he is duly authorised by Section 25(2)(c)

and Section 28(1)(a) of the IBC to raise interim finance with the approval of the

CoC and in the present case he had acted in terms of the resolution passed by

the CoC to enter into a Loan Agreement with Resolve to raise interim finance

and made due disclosures in terms of IBBI circular.

25. Be that as it may, it is well settled that RP is an administrator of the IBC

and is expected to work under the directions of the CoC. The relationship

between the RP and the CoC is required to be one characterised by trust,

confidence and transparency. There is however nothing paced on record by the

RP to substantiate that the CoC was also kept apprised of this aspect of related

party arrangements which was required under Section 28(1)(f) of the IBC. The

manner in which the RP has raised interim finance and appropriated amounts

out of the same largely towards his own fees and fees of the legal professional

who was a related party shows lack of transparency on the part of the RP. The

Adjudicating Authority has therefore rightly observed that the RP had raised

Page 20 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 interim finance from a related party for the purpose of clearing his own dues and

that of related party. In this backdrop, the Adjudicating Authority was not off

the mark in finding the conduct of the RP to be deplorable and deprecatory.

26. This now brings us to the directions contained in the impugned order by

the Adjudicating Authority for refund of interim finance to the interim finance

provider as both the fees of the RP and legal fees as well as the interim finance

raised were in the nature of CIRP cost and required to be paid in priority with

the caveat that no refund of interim finance to the interim finance provider be

done in respect of payment of interest and processing fees since the funds had

been raised from a related entity.

27. From the material placed on record and foregoing discussions, we find no

good grounds to disagree with the Adjudicating Authority that the interim

finance had been raised by the RP from a related party and has been used to

clear his own fees as well as that of the legal professional. We have already

noticed that the approval of the first CoC to the raising of interim finance was

only preliminary and prefatory in nature and that the RP had gone ahead and

inked the Loan Agreement with the interim finance provider without obtaining

formal approval of the CoC on the terms and conditions of the Loan Agreement.

It is for the CoC to ratify, modify or set aside the CIRP cost and in the present

case when CIRP cost was not shown to have been placed before the CoC for its

examination, consideration and decision, it was not open for the RP to expend

on CIRP costs unilaterally. We therefore do not find any infirmity with the

directions of the Adjudicating Authority in the impugned order not to allow

refund of interim finance to the interim finance provider in respect of interest

Page 21 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024 payment and processing fees. We have however find sufficient basis in the

contention of Religare that the interim finance has been misused by the RP to

pay his own fees and that of the legal professional despite objections raised by

the CoC that no substantial work was done during the period when the Section

12A application was pending. We are of the considered view that there is

adequate justification for rationalising the fees appropriated by the RP for

himself and the legal professional and to that extent disagree with the

Adjudicating Authority for having allowed the entire amount of Rs 64,74,109/-

to the RP and in directing the Liquidator to reimburse this amount in full. We

are of the view that it would be reasonable to restrict this amount to Rs 50 lakhs

only and hold that the impugned order passed by the Adjudicating Authority

dated 18.04.2024 requires to be modified to that extent.

28. In sum, all the three Appeals are decided in following manner:

(i) Company Appeal Nos. 1346 and 1199 of 2024 are found to be devoid of

merit and are dismissed.

(ii) Appeal No. 1054 of 2024 is allowed with the following directions:

(a) Out of the principal interim finance amount of Rs 64,74,109/- raised

by the RP, the Liquidator shall pay an amount of Rs 50,00,000/- only to

the interim finance provider within a period of 30 days from the date of

the order.

(b) The balance amount of Rs 14,74,109/- shall be refunded by the RP to

the Liquidator within a period of 30 days and thereafter this amount so

refunded shall be paid to the interim finance provider within 7 days of

receipt of the said amount.

Page 22 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024

(c) We also reaffirm the directions contained in the impugned order that

interim finance shall not be refunded with any provision for interest and

no processing fees shall be payable to the interim finance provider.

(d) We also uphold the findings of the Adjudicating Authority on the

deplorable professional misconduct on the part of the RP and direct that

a copy of this order be sent by this Registry to the Insolvency and

Bankruptcy Board of India for initiating appropriate action.

(e) No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) Place: New Delhi Date: 14.01.2026

Abdul

Page 23 of 23 Company Appeal (AT) (Insolvency) Nos. 1057, 1346 & 1199 of 2024