Shri Guru Containers vs Jitendra Palande

[Arising out of order dated 07.12.2022 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench in I.A.(IBC) No.788(MB)/2022 in CP (IB) No.3630/2019]

IN THE MATTER OF:

Shri Guru Containers Through its Sole Proprietor, Mr. Som Prakash Jhunjhunwala, N-288, G & F Floor, Pkt-O, Sector-1, DSIIDC, Bawana, New Delhi - 110 039 ....Appellant

Versus

Jitendra Palande Residing at: 38, 5-3/D, New Ajanta Avenue, Paud Road, Kothrud, Pune-411038 ...Respondent

Present:

For Appellant: Ms. Shreya Munoth and Ms. Aswathi Menon, Advocates

For Respondent: Mr. Shikhil Suri, Ms. Madhu Suri, Ms. Komal Gupta and Ms. Mahima Aggarwal, 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

07.12.2022 (hereinafter referred to as 'Impugned Order') passed by the

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

Company Appeal (AT) (Insolvency) No.106 of 2023

1 I.A. No. 788(MB)/2022 in C.P. (IB) No. 3630/2019. By the Impugned Order,

the Adjudicating Authority directed Shri Guru Containers, the present

Appellant to reimburse the Interim Resolution Professional ("IRP" in short)

the total costs of Rs.5,62,000/- which was incurred by the IRP in the

discharge of his duties. Aggrieved by this impugned order, the present appeal

has been preferred.

2. The factual matrix of the present case as briefly put forth by the Learned

Counsel for the Appellant is that a Section 9 petition was admitted against

Tarang Exports Private Limited, the Corporate Debtor by the Adjudicating

Authority vide its order dated 17.02.2020, subsequently modified vide

corrigendum dated 24.02.2020. Since the Operational Creditor/Appellant

while filing the Section 9 application did not propose the name of the IRP,

hence the Adjudicating Authority while bringing the Corporate Debtor under

the rigours of CIRP appointed the IRP. Accordingly, the Operational

Creditor/Appellant, through legal counsel, intimated the IRP vide email dated

09.03.2020 regarding his appointment.

3. It was further submitted that following his appointment, the IRP had

issued a public announcement on 11.03.2020. It has been submitted by the

Learned Counsel for the Appellant that soon thereafter Covid-19 pandemic

made ingress and because of the consequential lock-down, the Operational

Creditor could not follow up on the progress of the CIRP of the Corporate

Debtor with the IRP until end-September 2020. It has been further submitted

by the Learned Counsel for the Appellant that on 30.09.2020, the Appellant

Company Appeal (AT) (Insolvency) No.106 of 2023

2 through legal counsel, contacted the IRP seeking status of the CIRP of the

Corporate Debtor to which the IRP re-sought details of the Operational

Creditor though it had been already shared earlier. The legal counsel of the

Operational Creditor thereafter re-sent the contact details on 30.09.2020 and

also sought information on CIRP progress but no response was received from

the IRP. Another follow-up email was thereafter sent to IRP by the counsel on

09.10.2020 seeking an update on the CIRP of the Corporate Debtor. The IRP

responded on 12.10.2020 to the legal counsel requesting him to refrain from

entering into further correspondence with him in the absence of any

authorisation to represent the Appellant, though previously the IRP had been

communicating with the legal counsel.

4. It was further added that while the Operational Creditor continued to

follow up with the IRP for update on CIRP but did not get any information, in

the meantime, the IRP filed an application before the Adjudicating Authority

on 16.10.2020 under Section 19 of IBC for issue of directions to the

suspended directors of the Corporate Debtor and the Appellant to furnish

requisite information for proceeding with the CIRP of the Corporate Debtor

and reimbursement of the CIRP costs. It has been submitted that the IRP did

not however pursue the Section 19 application seriously and hence the

application still remains pending.

5. Subsequently on 21.03.2022, the IRP filed an application under Section

60 of the IBC before the Adjudicating Authority, inter-alia, seeking the

termination of the CIRP initiated against the Corporate Debtor; seeking his

Company Appeal (AT) (Insolvency) No.106 of 2023

3 discharge from duties as IRP and reimbursement of costs amounting

Rs.5,62,000/- for duties performed. It is submitted by the Learned Counsel

for the Appellant that the application filed under Section 60 of IBC was heard

by Adjudicating Authority on 07.12.2022 and reserved for orders. However,

the impugned order was issued carrying the date of 07.12.2022 though

uploaded on 10.01.2023. It was added that this impugned order suffered

from three irregularities. Firstly, it was passed without considering the

submissions of the Appellant. Secondly, it was passed in violation of Rule

150 of NCLT Rules as it was not pronounced in the open court. Thirdly, the

impugned order does not contain reasons for allowing the fees and expenses

claimed by the IRP. The Learned Counsel for the Appellant strenuously

contended about dereliction of duty on the part of IRP and stated that the

Appellant was, therefore, not obligated to reimburse the IRP for his

fees/expenses.

6. It has been further submitted that the IRP had failed to disclose the

detailed item wise break-up of the fees and expenses claimed by him which is

required in terms of the Code of Conduct in terms of the IBBI (Insolvency

Professionals) Regulations, 2016 and Regulation 34-A of Insolvency and

Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) Regulations 2016 ("CIRP Regulation" in short). It has also been

pointed out that the fees charged by the IRP is exorbitant.

7. The Learned Counsel for the Respondent making the rival submissions

stated that on receipt of email dated 09.03.2020 from the Operational Creditor

Company Appeal (AT) (Insolvency) No.106 of 2023

4 regarding his appointment as IRP, he sought the contact details of the

Operational Creditor and sought information from the suspended

management for conduct of CIRP. However, no response having been received

from the suspended management, the public announcement was published

by the IRP on 11.03.2020. However, no claims were received pursuant to the

publication of the public announcement. In the absence of books of accounts,

financial statement and other relevant records of the Corporate Debtor and in

the absence of any claim having been received by the IRP from either financial

creditors or operational creditors, it was submitted that the IRP was not able

to constitute a Committee of Creditors ("CoC" in short). Further, the

Operational Creditor had neither submitted claim nor paid IRP fees as well as

other related CIRP costs. The Learned Counsel for the Respondent made

mention of the apathy and non-cooperation by the Appellant and their

disinterest in the revival of the Corporate Debtor. Further, in the given

circumstances, when the CIRP could not progress and the IRP could not

function due to reasons beyond his control, IRP was therefore, constrained to

file an application under Section 19 seeking directions from the Adjudicating

Authority to the suspended management to extend assistance and

cooperation besides reimbursement of expenditure incurred on CIRP.

8. It is further the contention of the Respondent that in terms of CIRP

Regulation 33(3), the person filing the application under Section 7, 9 or 10,

as the case may be, is required to bear the expenses incurred by the IRP which

shall then be reimbursed by the CoC to the extent such expenses are ratified.

In the present case since the CoC was not formed, the expenses has to be

Company Appeal (AT) (Insolvency) No.106 of 2023

5 borne by the Operational Creditor/Appellant who moved the Section 9

application. Further, it was contended that the counsel of the Operational

Creditor had promised to pay the cost of CIRP to the IRP in their email dated

09.03.2020. In the absence of further progress of CIRP, the IRP had filed a

Section 60 application before the Adjudicating Authority seeking

reimbursement of his fees and termination of CIRP.

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 question before us to be answered is whether in the given

facts of the present case, the IRP is entitled to claim fees and expenses

incurred in the CIRP proceedings and, if so, whether it is incumbent upon the

Operational Creditor/Respondent to bear such fees/expenses subject to their

being reasonable.

11. To begin with, we may start by going through the relevant provisions of

the IBC Code, IBBI (Insolvency Professionals) Regulations, 2016 and CIRP

Regulations, 2016: -

"Section 5(13) of IBC 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;

Company Appeal (AT) (Insolvency) No.106 of 2023

6

(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.

The IBBI (Insolvency Professionals) Regulations, 2016

Relevant Paras of the Code of Conduct specified in the First Schedule under the IBBI (Insolvency Professionals) Regulations, 2016 reads 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 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.

Company Appeal (AT) (Insolvency) No.106 of 2023

7

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.

The IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

The relevant portions of Chapter IX of the CIRP Regulations in the context of the present matter reads as under:

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.

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.

Company Appeal (AT) (Insolvency) No.106 of 2023

8 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."

12. Given the back-drop of afore-mentioned statutory provisions and the

regulations contained thereunder relating to the fees/expenses of the IRP, for

a better appreciation of the matter at hand, we may also take note of some of

the significant dates of the present case. It is an admitted fact that the CIRP

commencement date was 24.02.2020. The IRP was appointed on 09.03.2020

on which date he had sought details from the Operational Creditor and

suspended management to proceed with CIRP. IRP had issued a public

announcement on 11.03.2020 in accordance with CIRP Regulation 6. It is

also an admitted fact that no claims were filed by the Operational Creditor or

any other creditor till the time of filing of Section 19 application. The date of

filing Section 19 application before the Adjudicating Authority was

16.10.2020. It is also an admitted fact that IRP did not receive any

fees/expenses at the time of filing of Section 60 application on 21.03.2022.

13. We may now go into the factual matrix to find out whether the IRP had

discharged his duties as IRP with due diligence in furthering the CIRP and

therefore entitled to CIRP fees/expenses or not. It is the case of the Appellant

that the IRP had failed to carry out his duties under the IBC and had filed the

Company Appeal (AT) (Insolvency) No.106 of 2023

9 Section 60 application to cover up his non-performance as IRP. It has also

been contended that the Respondent /IRP had undertaken limited work as he

had only issued the public announcement. From the material on record and

the submissions made by the IRP before the Adjudicating Authority, it is clear

that on receipt of email dated 09.03.2020 from the Operational Creditor

regarding his appointment as IRP, on the same date he sought the contact

details of the Operational Creditor and also sent a communication to

suspended management requesting other related particulars, documents and

books of accounts of the Corporate Debtor so as to effectively conduct the

CIRP and manage the affairs of the Corporate Debtor. Neither the Operational

Creditor nor the suspended management had provided access to the books of

accounts, financial statement, bank account details or any other related

information to the IRP. It is also noticed that the Operational Creditor was not

in contact directly with the IRP. Instead, an advocate Mr. Saurabh Pandya

was seeking status of CIRP from IRP without any authorisation from the

Operational Creditor. The IRP had clarified that he was not bound to respond

to mails to Mr. Pandya in absence of receipt of any authority letter from the

Operational Creditor.

14. We notice that the IRP continued with his efforts to obtain information

and in terms of Sections 13 and 15 of IBC had also taken steps to issue public

announcement in two newspapers. The issue of public announcement has

not been controverted by the Appellant. It is also the claim of the IRP that the

details of the public announcements were communicated to the Operational

Creditor by emails dated 18.03.2020 and 16.09.2020 as placed at pages 170-

Company Appeal (AT) (Insolvency) No.106 of 2023

10 171 of APB. The receipt of the emails has however been questioned by the

Appellant by contending that the Respondent has failed to place on record

duly delivered version of the said emails. This is a weak defence raised by the

Appellant since the emails are found to have been addressed on the same

email address at which the IRP had been addressing other emails. There is

also force in the contention of the IRP that since the Operational Creditor had

initiated the CIRP against the Corporate Debtor, it was incumbent upon the

Operational Creditor to be vigilant about the public announcement and it was

his duty to check with the IRP and submit his claim.

15. It has been further submitted by the Learned Counsel for the

Respondent that the IRP had visited the office of the Corporate Debtor on

17.03.2020. However, the suspended directors were not available at the office

during the visit and were not traceable. It is also pointed out that the office

was in the custody and possession of the Court Receiver appointed by the

High Court of Bombay as placed at page 116-118 of APB. It is submitted by

the Learned Counsel for the Respondent that the IRP had also made

endeavours to search documents available with the Registrar of Companies

(RoC) in Mumbai to ascertain the presence of financial creditors. Steps were

also taken to seek the approval of RoC to change the status of the Corporate

Debtor on the MCA Portal. In the absence of financial records, the IRP was

hamstrung in determining the financial position of the Corporate Debtor and

hence his inability to constitute the CoC. The CIRP had come to a standstill

due to want of information and lack of claims. As no claims had been received

Company Appeal (AT) (Insolvency) No.106 of 2023

11 from either the Operational Creditor or Financial Creditors, the IRP was not

able to form the CoC for no fault on his part.

16. We do not hesitate to add that though the scope of CIRP related work

became limited and restricted by the fact that progress got stonewalled due

to lack of flow of information and lack of claims, diligence on the part of the

IRP in proceeding with the CIRP cannot be found to be wanting. Shifting the

entire blame on the IRP on grounds of non-performance of duty and making

him the scapegoat does not appear to be justified. It is equally important for

the creditors to play a catalytic role in the insolvency resolution process given

the present regime of creditor-driven IBC. The rigours of similar standards of

discipline should also apply on the creditors. This is clearly a case where the

CIRP process was being hindered due to want of cooperation and participation

from the creditors. The conduct of the Operational Creditor in the present

case is deprecatory in that once the CIRP process had commenced, the

Operational Creditor went into a sleeping mode. This position has been

further aggravated by the fact that it was the Appellant/Operational Creditor

who had triggered this judicial process and then abdicated himself from all

responsibilities. That the Operational Creditor did not seem interested in

resolution of the Corporate Debtor is evident from the fact that till date no

claim has been filed with the IRP.

17. Further we are of the considered view that Section 217 of the IBC

empowers any person aggrieved by the functioning of a Resolution

Professional to file a complaint before the IBBI. The Operational Creditor was

Company Appeal (AT) (Insolvency) No.106 of 2023

12 at liberty to report any dereliction of duty on the part of the IRP and that not

having been done, the denial to pay fees and expenses is not acceptable. In

the present case, we do not find that the Appellant has at any stage made any

complaint that the IRP had contravened the provisions of the IBC or the Rules

framed thereunder or complained about the errant conduct of the IRP. The

Operational Creditor has failed to substantiate any lapses or deficiency in the

performance of duties by the IRP. It is an admitted fact that CoC could not

be constituted by the IRP but that does not seem to be on account of any

inefficiency or laxity or leniency on the part of the IRP. We are thus of the

considered view that the IRP was entitled in this case to claim his

fees/expenses incurred on CIRP and needs to be compensated for his

professional services.

18. This brings us to the question as to who will bear the CIRP expenses in

the present case. CIRP Regulation 33 clearly provides that the applicant shall

bear the expenses to be incurred by or on the IRP. In the present case, when

the Operational Creditor had initiated the CIRP proceedings which had led to

the appointment of the IRP, it is incumbent upon the Operational Creditor to

pay for the CIRP expenses. For the Operational Creditor to claim that it is not

obligatory to reimburse the fees/expenses of IRP squarely contravenes the

Regulations and therefore cannot be countenanced. The CIRP Regulation 33

of course also provides that the reimbursement would be to the extent it is

ratified by the CoC. Ratification of fees by CoC does not arise in the present

case because no CoC could be formed for reasons already noted earlier. Given

these peculiar circumstances, we are of the considered view that in terms of

Company Appeal (AT) (Insolvency) No.106 of 2023

13 the statutory construct of IBC, it is the Operational Creditor who is liable to

bear the expense/fees of IRP in the present case.

19. It is the contention of the Learned counsel for the Respondent that in

the absence of further progress of CIRP due to reasons beyond the control of

the IRP, he was left with no choice but seek reimbursement of his fees and

termination of CIRP. It is further claimed that the counsel for the Operational

Creditor on 09.03.2020 had advised IRP to raise CIRP related invoices with

the Operational Creditor as placed at page 49 of APB and having given this

assurance cannot shirk from paying the same now. On the other hand, the

Learned Counsel for the Appellant contended that the IRP has not charged

his fees in a transparent manner and that he claimed disproportionately high

fees as compared to the limited work undertaken by him having only issued

the public announcement. Attention was also adverted to circular of IBBI

dated 21.06.2018 on fee and other expenses incurred for Corporate

Insolvency Resolution Process and the need of fees having to meet the

reasonability quotient which is as reproduced hereunder:

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

Company Appeal (AT) (Insolvency) No.106 of 2023

14 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 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;

Company Appeal (AT) (Insolvency) No.106 of 2023

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(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;

(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.]

Company Appeal (AT) (Insolvency) No.106 of 2023

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

(j) any expense not related to CIRP.

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

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:

Company Appeal (AT) (Insolvency) No.106 of 2023

17 "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."

[http://www.insolindia.com/uploads_insol/draft_best_practices/file s/-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.

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(iii) An insolvency professional should consider the following factors while determining the quantum of fee to charged:

(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/file s/-1008.pdf]

20. It has been pointed out by the Learned counsel for the Appellant that

the Adjudicating Authority in the impugned order has simply endorsed the

CIRP cost claimed by the IRP and directed the Operational Creditor to

reimburse the total costs of Rs. 5,62,000/- without analysing whether the

claim made was proportionate to the work done and the reasonableness of

the claim. It has been further submitted that the IRP has not provided any

supporting bills to substantiate his claim of expenses and that the fees

charged were therefore not transparent. It is pertinent to add here that during

oral hearing when the Learned Counsel for the Operational Creditor was

pointedly asked by this Tribunal to indicate what to their mind in the present

case constituted reasonable fees, it was stated that any amount beyond

Company Appeal (AT) (Insolvency) No.106 of 2023

19 Rs.50,000/- would become excessive. An opportunity was also offered to the

IRP to submit detailed break-up of expenditure incurred along with bills to

which the Learned Counsel for the IRP submitted that this Tribunal may take

a considered view on the reasonable quantum of fees.

21. To dwell on the reasonability aspect, we may first take note of the details

of duties carried out and corresponding expenditure incurred as claimed by

the IRP before the Adjudicating Authority which is as extracted in the tabular

chart below:

Particulars Total CIRP Cost (in Rs.)

IRP Fee 4,00,000

RP Fee Public Announcement 12,000

Legal Expenses 50,000

Company Secretary 50,000

Out of pocket expenses 50,000

Total 5,62,000

We also take note that the entire amount as claimed by the IRP in the chart

above has been approved by the Adjudicating Authority in the impugned

order.

22. The provisions as appearing in IBC and Regulations framed thereunder

read with the Code of Conduct of IRP all indicate that although quantum of

fees has not been fixed, the quantum of fees payable is context specific. Thus,

what fee is reasonable is context specific but what is context specific is not

amenable to a precise definition. However, the fee should be a reasonable

Company Appeal (AT) (Insolvency) No.106 of 2023

20 reflection of the work necessarily and properly undertaken by IRP. Further

the fees should not be inconsistent with the applicable regulations and should

be charged in a transparent manner. Keeping these broad parameters in

mind, we may now look into the reasonability of the fees/expenses which has

been allowed by the Adjudicating Authority in the present case.

23. The IRP has claimed Rs.4,00,000/- only towards fixed fee for the period

for which the CIRP had continued and this entire amount has been allowed

by the Adjudicating Authority. It is an admitted fact that a substantial portion

of this period was hit by the lockdown arising out of the Covid outbreak.

Further, we cannot lose sight of the fact that the CIRP proceedings were

stymied on account of the fact that the IRP could not lay hand on the

information required to undertake various steps of CIRP like preparation of

Information Memorandum, Expression of Interest etc. The IRP had also not

succeeded in constituting the CoC and therefore no possibility to collate

claims. It is, therefore, felt that the reasonability of the fees payable to the IRP

may be determined keeping in mind that CIRP had not made much progress

beyond its preliminary phase and there was no occasion to carry out any

exceptional responsibility. On this basis, it may suffice to restrict the

expenditure to Rs.2,00,000/- only on account of fees. We agree with the

Adjudicating Authority that the expenditure incurred on public

announcement amounting to Rs. 12,000/- deserves to be reimbursed fully

since this work was completed. As regards expenditure incurred on Legal

expenses, Company Secretary and Out of pocket expenses which have been

claimed by the IRP at the rate of Rs.50,000/- each and so allowed by the

Company Appeal (AT) (Insolvency) No.106 of 2023

21 Adjudicating Authority, we are of the view that it needs to be rationalized by

reducing it by one half. The basis of this rationalisation is that not much

work complexity was involved as is borne out by the facts of the case and that

it would suffice to restrict expenditure on the two aforementioned professional

services and miscellaneous costs at the rate of Rs.25,000/- each. We

therefore hold that payment of a consolidated amount of Rs.2,87,000/- plus

GST to the IRP would suffice towards payment of fees/expenses.

24. In result, we do not find merit in the Appeal to set aside the impugned

order. However, while we concur in the directions of the Adjudicating

Authority to the Operational Creditor /Respondent to reimburse costs to the

Appellant for discharge of his duties as IRP, we modify the quantum of

fees/expenses payable to a consolidated amount of Rs.2,87,000/- plus GST

instead of Rs.5,62,000/- The same amount should be paid within one week

from the date of uploading of this order. The appeal stands disposed off with

the above observations. No costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) Place: New Delhi Date: 22.02.2023

PKM

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