The State Trading Corporation Of India ... vs Devinder Arora & Ors

[Arising out of order dated 27.07.2023 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi Court-IV in IA/1275/ND/2022, IA/5608/ND/2022 in IB/697/ND/2018]

IN THE MATTER OF:

M/s State Trading Corporation of India Limited Jawahar Vyapar Bhawan, New Delhi-110001 ...Appellant Versus

1. Mr. Devinder Arora, Erstwhile Interim Resolution Professional, 1203-1205, Vijaya Building, 17, Barakhamba Road, Connaught Place, New Delhi-110001 2. Mr. Rakesh Prasad Khandelwal, Liquidator of Spacevision Impex Pvt. Ltd, E-504, Ispatika Apartments, Plot-29, Sector-4, Dwarka, South West, New Delhi-110078 3. M/s IDBI Bank Limited, IDBI Tower, WTC Complex, Cuff Parade, Mumbai-400005, With branch office at NMG, 7th Floor, IDBI Tower, WTC Complex, Cuff Parade, Mumbai-400005

...Respondents

Present:

Appellant: Mr. Dhiranjan Malvey, Advocates. Dr. Maurya Vijay Chandra. For Respondents: Mr. Devender Arora, Advocate for R-1. Mr. Ashok Juneja, Advocate. 2

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 Impugned Order dated 27.07.2023 (hereinafter referred to as

'Impugned Order') passed by the Adjudicating Authority (National

Company Law Tribunal, Court-IV, New Delhi) in IA/1275/ND/2022,

IA/5608/ND/2022 in CP/IB/697/ND/2018. By the Impugned

Order, the Adjudicating Authority has directed the Appellant- State

Trading Corporation to make payment of Rs 33 lakhs as fees to the

Interim Resolution Professional - Respondent No. 1 and

reimbursement of Rs 9 lakhs as CIRP expenses. Aggrieved by this

impugned order, the present appeal has been preferred by the

Appellant.

2. The Learned Counsel for the Appellant giving the factual

background stated that following the admission of M/s Spacevision

Impex Pvt Ltd - Corporate Debtor into Corporate Insolvency

Resolution Process ('CIRP' in short), the Interim Resolution

Professional ('IRP' in short) was appointed to conduct the CIRP

proceedings. Since, the CIRP proceedings could not be concluded, an

application was filed before the Adjudicating Authority for liquidation

of the Corporate Debtor which was allowed on 21.02.2022. Following

the passing of the liquidation order, the IRP filed IA No. 1275 of 2022

seeking approval of IRP fees and CIRP expenses aggregating

Rs.77,91,974/-. It was contended that the Adjudicating Authority in

deciding the fees of Rs. 33 lakhs @ Rs.1 lakh per month for 33

Company Appeal (AT) (Insolvency) No. 1386 of 2023 3

months to be paid to the IRP committed a mistake as it was fixed on

the higher side and not in sync with the work performed by the IRP.

It was further stated that while deciding the fees of the IRP, the

Adjudicating Authority failed to apply the test of reasonability and

proportionality which should have been done in terms of Clause 25

of the Code of Conduct for Insolvency Professionals as laid down in

the First Schedule of the IBBI (Insolvency Professionals) Regulations,

2016. It was also added that instead the Adjudicating Authority had

wrongly placed reliance on Regulation 34(B) of IBBI (Insolvency

Professionals for Corporate Persons) Regulations, 2016 which

Regulation was applicable only in cases where IRP were appointed on

or after 01.10.2022 while in the present case the IRP-Respondent No.

1 had been appointed on 08.05.2019.

3. Assailing the impugned order for wrong fixation of IRP fees, the

Appellant contended that though the remuneration to be provided to

the IRP should be a reasonable reflection of the work necessarily and

properly undertaken by the IRP, the fees fixed in the present case

exceeded the volume of work performed by the IRP. During the entire

CIRP period of 270 days from 08.05.2019 to 02.02.2020, the IRP had

held only three meetings of the Committee of Creditors ('CoC' in

short) which testifies the non-seriousness on the part of the IRP.

Further, fee has been claimed for the period 02.02.2020 till the

handing over of CIRP records to the Liquidator on 08.03.2022 while

no significant work was completed during this time. It is also the

contention of the Appellant that the CIRP expenses of Rs.9 lakhs as

allowed by the Adjudicating Authority is again on the higher side,

Company Appeal (AT) (Insolvency) No. 1386 of 2023 4

more particularly, the expenses shown under the heading of Advocate

fees.

4. It was vehemently contended that the IRP failed to adhere to the

timeline of IBC which stipulates the completion of CIRP within 180

days. Since the IRP could not conclude the CIRP process within 180

days, the CoC was compelled to seek further extension of 90 days.

The non-serious disposition of the IRP is also borne out by the fact

that the CIRP proceedings could not be completed even during the

extended period of 90 days leading to liquidation and that the IRP

was keen to get appointed as the Liquidator. This clearly shows that

the IRP was not serious in completing the CIRP and was more

interested in dragging the proceedings with the ulterior objective of

unjust enrichment by claiming hefty fees. It was also submitted that

the IRP to justify his fees has submitted a long list of 106 activities

but most of these items indicated in the list are of trivial and

mundane nature which deserves to be ignored. The IRP therefore

deserves to be paid fees far less than Rs.1 lakh per month and for a

period not exceeding 6 months.

5. The Learned Counsel for the IRP - Respondent No. 1 refuting

the submissions made by the Appellant stated that the IRP had made

best possible efforts to complete the CIRP process within the

stipulated time. It was the indecision and non-cooperation on the

part of the Appellant, who constituted the sole member of the CoC,

which delayed the process of CIRP. Further it was not the fault of the

IRP that inspite of publication of Form G, no Resolution plan had

been received from any resolution applicant. The CoC was therefore

Company Appeal (AT) (Insolvency) No. 1386 of 2023 5

left with no option but to move towards liquidation. It was added that

the IRP has submitted a list of 106 activities performed by him since

his appointment and emphatically asserted that all these activities

were necessary, critical and unavoidable for conduct of CIRP. It was

also pointed out that the IRP had attended several hearings before

the Adjudicating Authority; before this Tribunal and before the

Hon'ble Supreme Court. Furthermore, the IRP had submitted the

detailed chart of CIRP expenses before the Adjudicating Authority. It

has also been submitted that the IRP had suo motu reduced their

fees to Rs. 1 lakh per month and that this reduction was in

consonance with Regulation 34B of IBBI (Insolvency Professionals for

Corporate Persons) Regulations, 2016 which prescribes the

minimum fees to be charged by the IRP. Even the CIRP expenses has

been reduced from Rs.11.91 lakhs to Rs.9 lakhs and includes

payment to be made to other professionals engaged by the IRP. It was

therefore vehemently contended that the Adjudicating Authority had

not committed any error in directing the payment of IRP fees and

CIRP expenses.

6. We have duly considered the arguments advanced by the

Learned Counsels for both parties and perused the records carefully.

7. It is the case of the Appellant that the lack of earnestness and

proficiency on the part of the IRP is writ large and therefore the

fees/expenses allowed by the Adjudicating Authority needs to be

rationalised. In support of their case, it was articulated that the IRP

had conducted only one meeting of the CoC during the entire period

of 180 days which came to an end on 04.11.2019. IRP failed to

Company Appeal (AT) (Insolvency) No. 1386 of 2023 6

adhere to the timeline of IBC which stipulates the completion of CIRP

within 180 days. Even during the extended period of 90 days the

CIRP could not be concluded. This clearly shows that the IRP was not

serious in completing the CIRP. It is also the case of the Appellant

that the list of 106 activities drawn up by the IRP comprises of

inconsequential activities and that the IRP has deliberately

exaggerated his role and that the list is the product of the creativity

and imagination of IRP. Most of the items indicated in the list are of

trivial and mundane in nature which deserves to be ignored. The IRP

had made no worthwhile contributions and therefore deserves a fee

far less than Rs.1 lakh per month and for a period not exceeding 6

months.

8. To the contrary, it is the contention of the IRP - Respondent No.

1 that the IRP had made best possible efforts to complete the CIRP

process within the stipulated time. The Appellant was the only

member of the CoC and it was the indecision and non-cooperation

on the part of the Appellant as the sole member of the CoC which

delayed the process of CIRP. On the list of 106 activities performed

by him since his appointment, it was emphatically asserted that all

these activities were necessary, critical and unavoidable for conduct

of CIRP. Moreover, it is submitted that they had attended 48

hearings before the Adjudicating Authority; 13 hearings before this

Tribunal and once before the Hon'ble Supreme Court.

9. To come to our findings, we have gone through the minutes of

the three CoC meetings. We notice that during each of the CoC

meetings, the IRP had meticulously listed out the entire gamut of

Company Appeal (AT) (Insolvency) No. 1386 of 2023 7

activities carried out by him for the smooth conduct of CIRP. In the

1st CoC meeting at Agenda item 4, the IRP had explained in details to

the CoC of the steps taken by the IRP which included public

announcements in the newspapers; communications entered into

with the suspended management; visits undertaken to the office of

the Corporate Debtor; collection, verification and filing of documents

with Registrar of Companies; verification of claims received;

constitution of CoC and filing of status reports with the Adjudicating

Authority. This finds place at pages 72-74 of Appeal Paper Book

('APB' in short).

10. Similarly, the IRP has detailed out the steps taken by the IRP at

the time of the 2nd CoC meeting which included filing of application

under Section 19 of IBC; appearances before Adjudicating Authority

and this Tribunal; collection of financial documents of the Corporate

Debtor and correspondence with the bankers; appointment of

registered valuers; preparation of Information Memorandum,

Request for Resolution Plan and Evaluation Matrix and publication

of Form-G as may be seen at pages 78-84 of the APB. Similarly, in

the 3rd CoC meeting too, the IRP also apprised the CoC of the steps

undertaken by him as placed on record at pages 86-92 of APB. The

detailed list of all these106 activities have been placed at pages 106-

119 of the APB. Though the Appellant has held that only a few of

these activities out of the entire list to be essential and the rest as

superfluous and trivial, nevertheless we also notice that the

Appellant has not outrightly denied that these activities were not

performed. We are not swayed by the opinion of the Appellant of their

Company Appeal (AT) (Insolvency) No. 1386 of 2023 8

categorisation of these activities as essential and non-essential. We

are clear in our mind that the IRP had carried out all the requisite

steps which was necessary to conduct the CIRP proceedings.

11. This brings us to the contention of the Appellant that the IRP

had held only three CoC meetings during the entire CIRP period of

270 days which shows the non-serious nature of the IRP. The

counter-contention of the IRP is that the minutes of the CoC meetings

will show that it is not the IRP who can be blamed for negligence and

inefficiency but it is the Appellant who was responsible for not

showing the optimal level of interest and decisiveness in furthering

the CIRP process and taking it to its logical culmination and for

procrastination in deciding on the IRP fees and CIRP expenses.

Attention was adverted to the IBBI circular No. IBBI/CIRP/016/2018

dated 10.08.2018 which requires that the CoC members must be

represented in the CoC meeting by such persons who are competent

and authorised to take decisions and that this was clearly being

breached.

12. When we look at the materials on record, we find that there is

no dispute over the fact that only three CoC meetings were held. The

1st, 2nd and 3rd meetings of the CoC were held on 24.06.2019,

13.11.2019 and 31.01.2020 respectively and all the three meetings

were attended by the Authorised Representatives of the Appellant.

However, when we analyse the decision-making process therein, it is

noticed that that there were clear signs of lethargy and tendency on

the part of the Appellant to defer decisions. Coming to the subject

matter of ratification of CIRP expenses incurred by the IRP and

Company Appeal (AT) (Insolvency) No. 1386 of 2023 9

appointment of legal counsel; to approve fees to be paid to the IRP @

Rs. 2 lakhs per month and appointment of Resolution Professional

and to fix his fees, we find that this had figured in the agenda for

discussion in the first CoC meeting itself but remained inconclusive

since the Appellant had informed that they would convey the

approval only after securing internal approval from their competent

authority. The same paralysis in decision-making continued in the

second CoC meeting wherein though the extension of the 90 days of

the CIRP of the Corporate Debtor was agreed to by the CoC, on the

issue of IRP fees and CIRP expenses it was informed that they would

convey the approval within 15 days after securing internal approval

from their competent authority. When we come to the subject matter

of initiation of liquidation, it is again noticed that even after the IRP

in the 3rd CoC meeting had apprised the CoC that inspite of Form-G

publication, no Resolution plan had been received from any

resolution applicant, leaving no option but to move forward towards

liquidation, even at this stage, the Appellant continued to remain

slow and lethargic in taking a decision and the liquidation resolution

was approved after a lapse of 6 months 11 days since the holding of

the 3rd CoC meeting. We also find that the Authorised Representative

of the Appellant had informed the 3rd CoC meeting that a decision on

the appointment of the IRP as a Liquidator would require the

approval of the competent higher authority. The minutes of the three

CoC meetings have been placed on record from pages 70-97 of the

APB.

Company Appeal (AT) (Insolvency) No. 1386 of 2023 10

13. It is pertinent to mention here that when the IRP had filed IA

No. 806/ND/2021 before the Adjudicating Authority for issuance of

directions for liquidation of the Corporate Debtor, the Adjudicating

Authority while allowing the said application on 21.02.2022 has also

noted:

"That the application for liquidation of the Corporate Debtor has been delayed due to the following reason:

1. Late receipt of written approval from the sole CoC member;

2. A number of approvals regarding appointment of IRP, fixation of fees of IRP/RP, approval of CIRP expenses including fees of valuers are still pending;

3. That Mr. Devinder Arora suffered Covid 19 which was detective positive as per test report dated 20.11.2020." This order clearly shows that the Adjudicating Authority had pinned the delay on the Appellant in filing the liquidation application and for procrastinating on the fees of IRP. This order finds place at pages 98-106 of the APB. This order not having been challenged, the Appellant cannot now claim that they are not responsible for the delay in deciding on the fees of the IRP and CIRP expenses."

This order finds place at pages 98-106 of the APB. Clearly the

Adjudicating Authority has attributed delay on the part of the

Appellant in approving the liquidation proposal and in the fixation

of IRP fees and CIRP expenses and this order not having been

challenged by the Appellant has therefore attained finality.

13. CoC members represented in the CoC meetings are expected to

be such persons who are competent and authorised to take decisions

rather than keep them in abeyance for want of approval from higher

authorities. However, the CoC minutes show that the Appellant did

not approve these resolutions and the Authorised Representative

each time informed that they will convey the approval after getting

Company Appeal (AT) (Insolvency) No. 1386 of 2023 11

internal approval from their competent authority. In such

circumstances, it was clearly the Appellant which had been delaying

the CIRP process by deferring to take decisions in the CoC meetings

on the ground that approval of higher authorities was required. We

are therefore persuaded to hold that there is substance in the

contention of the IRP that the Appellant displayed non-responsive

behaviour and lackadaisical approach in the CoC meetings inspite of

being the sole CoC member.

14. This now brings us to the question of how the Adjudicating

Authority has determined the IRP fees and CIRP expenses. The

relevant findings from the impugned order is as reproduced below:

"It has been admitted by the Appellant that the Liquidator- Respondent No. 3 has made a provision for Rs.42 lakhs as provisional CIRP cost subject to the outcome of this appeal.

In the reply filed by State Trading Corporation of India Limited in Para No.13, the State Trading Corporation of India Limited has submitted that the fee quoted by IRP/RP in this case is excessive and Hon'ble Court may fix a reasonable amount as per the circumstances of the case. The erstwhile Resolution Professional has claimed a fee of Rs.66 lakhs at the rate of Rs.2 lakhs per month for 33 months. However, the erstwhile Resolution Professional as well as his counsel have submitted that they are agreeable for a fee @ Rs.1 lakh a month which fits in terms of Regulation 34B of IBBI (Insolvency Professional) for CP Regulations, 2016. Since the erstwhile IRP has reduced the fee to 50% of what he has claimed, we find the same as reasonable and also in consonance of Rs.33 lakhs with fee schedule prescribed by the IBBI. Over and above the fees reimbursement of expenses incurred also to be made. Having considered the facts and circumstances of the matter, the expenses have been reduced from 10,91,000/- to a sum of Rs.9,00,000/- and The State Trading Corporation of India Limited being the CoC is directed to pay the said amount within three weeks and compliance of payment may be reported to this Tribunal. Present application stands disposed

Company Appeal (AT) (Insolvency) No. 1386 of 2023 12

of in all respects. We have also heard the submissions made by the Liquidator."

15. It is the grouse of the Appellant that in deciding the fees of the

IRP, the Adjudicating Authority should not have relied on Regulation

34(B) of IBBI (Insolvency Professionals for Corporate Persons)

Regulations, 2016 and instead should have evaluated the

reasonability and proportionality of the work claimed to have been

performed by the IRP as mandated by the Code of Conduct for

Insolvency Professionals as laid down in the First Schedule of the

IBBI (Insolvency Professionals) Regulations, 2016. We have already

noted in the preceding paragraphs that the IRP was not found

wanting in the proper conduct of the CIRP proceedings despite

constraints faced on account of indecisiveness on the part of the sole

CoC member. During the entire CIRP process, the CoC neither

approved the fees of the IRP nor did it raise any objection to the

quantum of fees claimed by the IRP. It is therefore disconcerting to

find the Appellant to now raise the bogey of unjust enrichment by the

IRP at such a belated stage. Furthermore, we also notice that though

the IRP had pegged its fees initially at Rs.2 lakhs per month, it has

now suo motu reduced the same to Rs. 1 lakh per month. Thus, when

the IRP has on his own reduced his fees by 50% shows that his

endeavours has been to keep his fees reasonable, there was no error

on the part of the Adjudicating Authority to agree to the reduced

quantum of fees. The IRP had also submitted the detailed chart of

CIRP expenses before the Adjudicating Authority. Even the CIRP

expenses has been reduced from Rs.11.91 lakhs to Rs.9 lakhs. Company Appeal (AT) (Insolvency) No. 1386 of 2023 13

Hence, we do not find any cogent ground to entertain any doubt on

the application of mind on the part of the Adjudicating Authority in

finding the IRP fees and CIRP expenses to be reasonable.

16. We see no reason to interfere in the impugned order passed by

the Adjudicating Authority. The Appellant is directed to pay the

erstwhile IRP/Respondent No.1 the fees of Rs 33 lakhs within one

month from the date of the order. In so far as, payment of Rs 9 lakhs

CIRP expenses is concerned, in terms of orders of this Tribunal dated

01.11.2023, any dues thereof which still remain payable maybe made

directly to the bank accounts of those who have incurred the

expenses as per details to be provided by the IRP. The appeal is

accordingly dismissed. No costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

Place: New Delhi Date: 19.04.2024 Ashok Kr

Company Appeal (AT) (Insolvency) No. 1386 of 2023