Liquidator’s fees in Liquidation Process under IBC

 Liquidator’s fees in Liquidation Process under IBC

IBBI vide notification dated 01.06.2026 amended the Liquidation Regulations, reading as under;

# Regulation 4. Liquidator’s fee.

(1) The committee may fix the fee of the liquidator in the first meeting after the appointment of liquidator during the liquidation process, in accordance with sub-section (8) of section 34.

(2) If the committee has not fixed the fee under sub-regulation (1), the fee as a percentage of the amount distributed to the stakeholders, for the balance period of liquidation, will be as under:

Amount of Distribution (In rupees)	Percentage of fee on the amount distributed
	in the first six months	in the next six months	thereafter
Amount Distributed to Stakeholders (exclusive of liquidation costs)
On the first 1 crore	5.00	4.00	2.0
On the next 9 crore	4.00	3.00	1.50
On the next 40 crore	2.50	2.0	1.0
On the next 50 crore	1.25	1.0	0.50
On further sums realized	0.25	0.20	0.10

Explanation.- It is hereby clarified that the requirements of this regulation shall apply to the liquidation processes commencing on or after the date of the commencement of the Insolvency and Bankruptcy Board of India (Liquidation Process) (Fourth Amendment) Regulations, 2026.”

Now the questions arise;

1. Whether the committee (CoC) can fix the fees of the Liquidator on a monthly basis.

2. Whether the liquidator can be paid fees prior to the distribution of the proceeds of liquidation estate to stakeholders under the provisions of section 53 of the Code.

3. Whether the Board (IBBI) can delegate the powers/authority to fix the fees of the liquidator to CoC, in absence of any such mandate/sanctions in the Code.  

Let's look into the provisions of the Code (IBC, 2026);

Insolvency and Bankruptcy Code, 2016.

# Section 34. Appointment of liquidator and fee to be paid.—

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(8) An insolvency professional proposed to be appointed as a liquidator shall charge such fee for the conduct of the liquidation proceedings and in such proportion to the value of the liquidation estate assets, as may be specified by the Board.

(9) The fees for the conduct of the liquidation proceedings under sub-section (8) shall be paid to the liquidator from the proceeds of the liquidation estate under section 53.

# 53. Distribution of assets.—

(1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely:—

• (a) the insolvency resolution process costs and the liquidation costs paid in full;

• XXXXX

XXXXXX

(3) The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction.

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These provisions of the Code stipulate;

1. Fees of the liquidator shall be fixed  in such proportion to the value of the liquidation estate assets,  . . . . . .  . [section 34(8)].

2. The fees of the Liquidator under sub-section (8) of section 34 shall be paid to the liquidator from the proceeds of the liquidation estate under section 53. [section 34(9)] 

3. The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction. [section 53 (3)]. This provision signifies that the character/nature of the fees of the liquidator remains as “fees payable” prior to the distribution of the proceeds of liquidation estate under section 53 (1). 

4. Words (as may be specified by the Board.) of Sub-section 8 of Section 34 specifically provides that the fees of the liquidator will be specified by the Board. Code (IBC) nowhere permits the Board to delegate such authority to CoC.

Now further questions arise;

1. Whether there can be estoppel against law.

2. Whether subordinate legislation (Regulations framed by IBBI under section 240 of the Code) can override the Statute passed by the Parliament.

1). Hon’ble Supreme Court (2022.06.16) in Krishna Rai Vs. Benares Hindu University’ [Civil Appeal Nos. 45784580 of 2022] held that;

• # 31. Further in the case of Tata Chemicals Ltd. Vs. Commissioner of Customs (preventive), Jamnagar [2015 (11) SCC 628], it has been laid down that there can be no estoppel against law. If the law requires something to be done in a particular manner, then it must be done in that manner, and if it is not done in that manner, then it would have no existence in the eye of the law. Paragraph 18 of the said judgment is reproduced below:

• “18. The Tribunal’s judgment has proceeded on the basis that even though the samples were drawn contrary to law,the appellants would be estopped because their representative was present when the samples were drawn and they did not object immediately. This is a completely perverse finding both on fact and law. On fact, it has been more than amply proved that no representative of the appellant was, in fact, present at the time the Customs Inspector took the samples. Shri K.M. Jani who was allegedly present not only stated that he did not represent the Clearing Agent of the appellants in that he was not their employee but also stated that he was not present when the samples were taken. In fact, therefore, there was no representative of the appellants when the samples were taken. In law equally the Tribunal ought to have realized that there can be no estoppel against law. If the law requires that something be done in a particular manner, it must be done in that manner, and if not done in that manner has no existence in the eye of law at all. The Customs Authorities are not absolved from following the law depending upon the acts of a particular assessee. Something that is illegal cannot convert itself into something legal by the act of a third person.”

2). Hon'ble Supreme Court (24.03.2006) In Kerala Samsthana Chethu Thozhilali Union v. State of Kerala (2006) 4 SCC 327, held as follows: 

• "17. A rule is not only required to be made in conformity with the provisions of the Act where under it is made, but the same must be in conformity with the provisions of any other Act, as a subordinate legislation cannot be violative of any plenary legislation made by the Parliament or the State Legislature. 

• 37. Furthermore, the terms and conditions which can be imposed by the State for the purpose of parting with its right of exclusive privilege more or less has been exhaustively dealt with in the illustrations in sub-section (2) of Section 29 of the Act. There cannot be any doubt whatsoever that the general power to make rules is contained in sub-section (1) of Section 29. The provisions contained in sub-section (2) are illustrative in nature. But, the factors enumerated in sub-section (2) of Section 29 are indicative of the heads under which the statutory framework should ordinarily be worked out. 

• 43. The submission of Mr. Iyer that there exists a distinction between carrying out the provisions of the Act and the purpose of the Act, is not relevant for our purpose. The power of delegated legislation cannot be exercised for the purpose of framing a new policy. The power can be exercised only to give effect to the provisions of the Act and not dehors the same. While considering the carrying out of the provisions of the Act, the court must see to it that the rule framed therefore is in conformity with the provisions thereof. 

• 46. In Hotel Balaji and Others v. State of A.P. and Others (1993 Supp (4) SCC 536), whereupon Mr. Iyer placed reliance, it is stated: "The necessity and significance of the delegated legislation is well accepted and needs no elaboration at our hands. Even so, it is well to remind ourselves that rules represent subordinate legislation. They cannot travel beyond the purview of the Act. Where the Act says that rules on being made shall be deemed "as if enacted in this Act", the position may be different. (It is not necessary to express any definite opinion on this aspect for the purpose of this case.) But where the Act does not say so, the rules do not become part of the Act." 

3). Hon'ble Supreme Court (24.03.2006) State Of Tamil Nadu & Anr vs P. Krishnamurthy & Ors [Civil Appeal No.5572 & 5644 of 2005]

• # 12. There is a presumption in favour of constitutionality or validity of a sub-ordinate Legislation and the burden is upon him who attacks it to show that it is invalid. It is also well recognized that a sub-ordinate legislation can be challenged under any of the following grounds :-

• a) Lack of legislative competence to make the sub-ordinate legislation. 

• b) Violation of Fundamental Rights guaranteed under the Constitution of India.

• c) Violation of any provision of the Constitution of India.

• d) Failure to conform to the Statute under which it is made or exceeding the limits of authority conferred by the enabling Act. 

• e) Repugnancy to the laws of the land, that is, any enactment .

• f) Manifest arbitrariness/ unreasonableness (to an extent where court might well say that Legislature never intended to give authority to make such Rules).

Sub-delegation through regulations

Thus, in my opinion, the Board is not empowered to delegate the powers to fix the fees of the liquidator with CoC. Board cannot use regulations to create a power that the parent Act does not authorise. Regulations are subordinate legislation and must remain within the limits of the enabling statute.

Authority	Principle
Central Talkies Ltd. v. Dwarka Prasad, AIR1961 SC 606	A statutory power must ordinarily be exercised by the authority on whom the statute confers it; delegation depends on the statute and the nature of the power.
Sahni Silk & Pressing Factory v. Commissioner of Income Tax, (1994) 5 SCC346	Delegation may be permissible where the statute authorises it, but the authority cannot divest itself of its statutory responsibility.
Gandhi v. CWT, (1990) 2 SCC 52	The maxim against sub-delegation is applicable unless delegation is authorised expressly or by necessary implication.
NGEF Ltd. v. Chandra  Developers (P) Ltd., (2005) 8 SCC 219	A statutory authority cannot further delegate a power unless the enabling provision permits such delegation.
Barium Chemicals Ltd. v. Company LawBoard, AIR 1967 SC 295	Statutory discretion must be exercised by the designated authority on relevant material and for the statutory purpose.
P. Kannadasan v. State of Tamil Nadu ,(1996) 5 SCC 670	Delegated legislation must remain within the policy, standards and limits of the parent enactment.

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. One must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.

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Treatment of Counter Claim in Financial Creditor’s claim in CIRP

 Treatment of Counter Claim in Financial Creditor’s claim in CIRP

Pendency of a counterclaim before the DRT does not, by itself, render the financial creditor’s claim a “disputed claim” so as to require the IRP/RP to notionally admit it for Rs. 1.00 in a CIRP under the IBC. For a financial creditor, the statutory test under Section 7 is the existence of a financial debt and default; an unadjudicated counterclaim does not extinguish the debt or suspend the creditor’s right to invoke insolvency.

Issues

1. Whether a pending counterclaim before the DRT changes the character of the bank’s claim in CIRP.

2. Whether the IRP/RP is bound to treat such claim as a disputed claim and admit it only nominally for Rs. 1.00.

3. What is the correct approach to claim verification under the IBC when a counterclaim is pending elsewhere.indiacode+1

Analysis

Section 5(8) of the IBC defines “financial debt,” and Section 7 enables initiation of CIRP on proof of debt and default. The Code does not make pendency of a dispute or counterclaim a precondition to maintainability of a financial creditor’s application; that concept is materially relevant in operational debt matters, not financial debt matters.

The CIRP framework requires the IRP/RP to receive, verify, and collate claims under the regulations, particularly Regulation 13 of the CIRP Regulations. That exercise is evidentiary and administrative: the IRP/RP must examine the loan documents, account statements, and default record, and then admit the claim to the extent it is verifiable. A pending DRT counterclaim may be noted, but it does not automatically reduce an otherwise established financial debt to a token amount.

The NCLAT in Mr. G. Sundaravadivelu v. Indian Overseas Bank held that pendency of proceedings before the DRT is not a bar to initiation of CIRP and that the NCLT need not await the DRT’s decision while deciding the Section 7 application. That authority supports the proposition that parallel DRT proceedings do not control the insolvency jurisdiction.

The Supreme Court reporting in B. Prashanth Hegde v. State Bank of India is even more directly relevant on the effect of counterclaims. It states that an unadjudicated counterclaim for damages does not extinguish an admitted financial debt or suspend the creditor’s statutory right to initiate insolvency proceedings. Therefore, unless the counterclaim has been adjudicated and has resulted in a legally effective set-off or extinguishment of debt, the claim cannot be reduced to Rs. 1.00 merely because the debtor has raised a counterclaim.verdictum

Conclusion

On the present issue, the legally sound position is that pendency of a counterclaim before the DRT does not make the bank’s financial claim a disputed claim requiring notional admission for Rs. 1.00. The IRP/RP should verify and admit the bank’s claim on the basis of the proved financial debt and default, while separately recording the pending counterclaim; only a binding adjudication affecting the debt may justify reduction of the admitted amount.

Suggested formulation

“Under Sections 5(8) and 7 of the IBC read with Regulation 13 of the CIRP Regulations, the IRP/RP is required to verify and collate the financial creditor’s claim on the basis of the proved debt and default. Pendency of an unadjudicated counterclaim before the DRT does not, by itself, convert such claim into a disputed claim or warrant notional admission for Rs. 1.00.”

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. One must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.

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Section 55(6)(b) of TPA - Statutory charge on the seller’s interest in the property

Section 55(6)(b) of TPA - Statutory charge on the seller’s interest in the property

Basic idea of the statutory charge

Section 55(6)(b) TPA creates, by operation of law, a statutory charge on the seller’s interest in the property for the purchase money (and interest/costs) properly paid by the buyer, so long as the buyer has not “improperly declined to accept delivery.” This charge is in the nature of a security interest, not a transfer of ownership, and it is enforceable against the seller and all persons claiming under him.

The key practical questions are: how is this charge enforced, against whom , and within what limitation period

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Courts have consistently treated the buyer’s charge under section 55(6)(b) as a charge enforceable by a civil suit, akin to suits to enforce a mortgage or charge under Article 62 of theLimitation Act. In practice, enforcement typically takes one of these forms:

Suit to enforce charge on the property: A buyer who has paid advance/purchase money and is not in default can sue for recovery of that money with interest and seek enforcement of the statutory charge on the property, including sale of the charged property to realise the amount, under the Code of CivilProcedure’s execution machinery, in the same manner as a mortgage/charge decree.

Enforcement against “substituted security” 

The Supreme Court in Delhi Development Authority v. Skipper Construction Co. (P) Ltd.  AIR 2000 SC 573, held that the buyer’s charge under section 55(6)(b) is a statutory charge on the vendor's interest, and if that property is converted into another property or money, the charge fastens on such substituted property or money as well. Thus, a decree enforcing the charge can reach the substituted asset.

Against persons claiming under the seller:

The charge is enforceable “against all persons claiming under him”, whether or not theyhad notice of the charge. Following DDA v. Skipper Construction, courts have recognised that subsequent purchasers or claimants under the seller can be proceeded against to theextent of the charged interest.

Procedurally, the buyer typically frames the suit as one for:

• (a) refund of purchase money with interest/costs, and

• (b) enforcement of the statutory charge under section 55(6)(b) on the property (or substituted security), including, where necessary, sale of the property and application of proceeds to satisfy the decree.

Limitation period: Courts (including Kerala High Court and the Supreme Court) have treated enforcement ofthis statutory charge as falling under Article 62 of the Limitation Act, 1963, giving 12 years from the date when the money secured by the charge becomes due, not 3 years as for a simple money claim. This applies even when the charge is enforced on substituted security. 

Buyer’s conduct (“improperly declined to accept delivery”):

The statute expressly provides that the charge exists “unless the buyer has improperly declined to accept delivery”; therefore, a substantial part of the adjudication is often whether the buyer’s refusal or non‑performance was “improper.” If the buyer is found to have improperly declined delivery, the statutory charge is lost; if not, the charge remains and can be enforced.

Recent Kerala High Court decisions have emphasised that where both sides drag their feet on performance, but the buyer has paid substantial consideration and is not solely at fault, the buyer will still be entitled to the statutory charge.

Core Supreme Court authority, along with helpful High Court decisions, includes:

1. Delhi Development Authority v. Skipper Construction Co. (P) Ltd. & Ors. , AIR 2000 SC 573;also reported at 2000(1) All MR 736 (SC)

• Buyer’s charge under section 55(6)(b) is a statutory charge on the vendor’s interest.

• Enforceable against the seller and all persons claiming under him.

• Charge fastens on substituted security (converted property or money).

• Limitation for enforcing the charge is 12 years from the date when the money becomes due (Art. 62).

2. AIR 2009 Kerala 2 (Kerala High Court) Recognises buyer’s charge under section 55(6)(b) as enforceable against seller and all persons claiming under him. Holds that limitation for enforcing such statutory charge is 12 years under Article 62 ,not 3 years.

3. Other instructive decisions collected in secondary research tools (for doctrinal support on scope and commencement of charge):

i). Puthiya Purayil Ramakrishnan v. Pullani Prabhakaran (Kerala HC, 2015),

ii). Hotel ChandraTowers Ltd. v. Henry Isidore (Madras HC, 2012) – on commencement and enforcement of buyer's charge.

Various High Court decisions compiled in recent analyses clarifying the requirement that the buyer must not have improperly declined to accept delivery.

From a practical litigation strategy perspective, how would you prefer to frame the prayer clause to maximise the enforceability of this statutory charge while preserving a simple money decree as an alternative?

Nature of the buyer’s statutory charge

Section 55(6)(b) gives the buyer a statutory charge on the seller’s interest in the property to secure the purchase money (and interest/costs), provided the buyer has not improperly declined to accept delivery. Courts have treated this as a charge created by operation of law,distinct from a purely contractual charge, but functionally similar to a security interest under section 100 TPA in many respects.

That charge is an actionable property right : it can be enforced by suit, binds persons claiming under the seller, and can even fasten on substituted security as per DDA v. Skipper Construction. 

Whether this right can itself be dealt with - assigned or mortgage - by the buyer.

There is no express statutory prohibition in the TPA against the assignment or further encumbrance of a buyer’s statutory charge under section 55(6)(b). Secondary commentary on charges under the TPA recognises that, as a general rule, any actionable claim or beneficial interest in property can be assigned, and a charge-holder may create a sub‑charge or mortgage over the charged interest, subject to the nature of the underlying right.

Doctrinally: The buyer’s right under section 55(6)(b) is a proprietary security interest , not merely a personal claim for money. Such a proprietary interest can, in principle, be assigned

(as an actionable claim) or used as security (mortgaged or sub‑charged) if the parties clearly intend to transfer or encumber the benefit of the charge, and the transaction complies with TPA requirements on assignment and mortgage (including writing and registration where necessary).

Courts in related contexts (e.g., contractual charges or equitable interests) have accepted that a beneficiary of a charge can deal with that charge, though there appears to be limited direct authority specifically on “assignment of a section 55(6)(b) charge” in reported case law. The absence of prohibition plus the general principles on transfer of actionable claims supports an answer in favour.

In practice, an assignment of the buyer’s statutory charge would be structured as: 

• An assignment deed in writing, reciting:

• The underlying sale agreement and payment of purchase money.

• The existence of the statutory charge under section 55(6)(b).

• The buyer’s intention to assign to the assignee:

• the right to recover the secured amount, and the benefit of the statutory charge on the property (or substituted security).

Compliance with the law on assignment of actionable claims (section 130 TPA), including: Written instrument signed by the assignor. Proper notice to the seller and any subsequent transferees, so the assignee can assert the charge against “persons claiming under” the seller. Depending on how the right is characterised (actionable claim vs interest in immovable property), registration under the Registration Act may be advisable or required if the assignment purports to transfer a right in immovable property valued above the threshold;conservative practice would be to register.

A buyer who wishes to use the statutory charge as collateral can:

Execute a mortgage or sub‑charge deed in favour of a lender, expressly charging: The buyer’s beneficial interest under section 55(6)(b), i.e., the right to enforce the charge on the seller’s interest in the property for the specified amount and interest.

The deed should:

• Identify the underlying property and sale transaction.

• Clarify that the buyer’s statutory charge is being further charged in favour of the lender as security for the loan.

• Provide that any amounts realised by enforcing the section 55(6)(b) charge will first satisfy the lender’s secured claim, subject to priorities.

Given that this relates to immovable property, such a mortgage/sub‑charge would ordinarily need to be registered to be effective and enforceable against third parties. Priority conflicts (between the original buyer and his mortgagee, and between them and subsequent transferees of the property) would be resolved using general principles of notice and registration under theTPA and Registration Act.

Conceptualise this right in a pleading or transaction document: as an “actionable claim secured by a statutory charge” or as a “beneficial interest in immovable property by way of charge,” and what are implications for registration and priority?

Step 1: Clarify the two rights involved 

Under section 55(6)(b) TPA, the buyer has: 

• A personal right : a claim to get back the purchase money (with interest/costs) from the seller.

• A proprietary security right: A statutory charge on the seller’s interest in the immovable property to secure that money, enforceable against the seller and persons claiming under him.

Courts and commentary treat this as a charge arising by operation of law, fitting within the broader concept of “charge” under section 100 TPA. It is not a title, but a security to realise the money paid.

Step 2: What is an equitable mortgage in this context? 

In Indian law, an “equitable mortgage” usually refers to a mortgage by deposit of title deeds. Under section 58(f) TPA—creation of a security interest over immovable property by depositing title documents with intent to create a mortgage, without a formal registered mortgage deed.

So the conceptual question is: can the buyer, who holds only a statutory charge (not legal title), equitably mortgage that charged interest? 

Step 3: Can the statutory charge itself be equitably mortgaged? 

The mortgagee’s right is a proprietary security in the mortgagor’s interest in the immovable property. So the conceptual question is: can the buyer, who holds only a statutory charge (not legal title), equitably mortgage that charged interest ?

There is no direct authority saying “a section 55(6)(b) charge can/cannot be equitably mortgaged," but applying general principles:

1. Nature of the buyer’s interest

• The buyer does not have legal title to the property (section 54 TPA makes that clear),but has a charge over the seller’s interest to secure the advance. That charge is a proprietary security interest created by statute, not a mere personal claim.

2. Transferability/further encumbrance 

• Charges created by law or contract are ordinarily capable of being assigned or further charged , unless the statute expressly prohibits it.

• There is nothing in section 55 or section 100 TPA that prohibits the buyer from dealing with the benefit of the charge—courts have emphasised that section 55 is “elastic” and does not forbid parties from modifying or dealing with the rights it creates.

3. Equitable mortgage over the buyer’s interest

• The buyer cannot deposit title deeds of the property (they are with the seller), so cannot equitably mortgage the property in the usual sense under section 58(f).

• However, the buyer can treat his beneficial interest (the statutory charge plus the secured money claim) as an asset and create a sub‑charge or equitable mortgage over that interest in favour of a lender, by a suitable agreement or by deposit of documents evidencing his charged interest (e.g., the sale agreement, receipts, and an acknowledgment of the charge).

On principle, therefore:

• The buyer’s interest under section 55(6)(b) can be equitably mortgaged as a security interest over a security interest (a sub‑charge), not as a direct mortgage of the immovable property itself.

• The mortgagee then steps into the buyer’s shoes to enforce the statutory charge against the seller's interest, subject to general rules of notice and priority.

Step 4: How to structure an equitable mortgage over this statutory charge 

• Practically, if you want to structure it:

• The buyer and lender agree that the buyer’s statutory charge under section 55(6)(b) and the underlying debt (refund claim with interest) will stand as security for the lender’s loan.

• The buyer deposits the key documents with the lender (sale agreement, payment proofs,any acknowledgment or decree recognising the charge) with clear intention to create a security over his charged interest—similar to deposit of title deeds, but here the “title” is to the charge and the money secured, not to the property.

• The arrangement is documented (or at least evidenced) to confirm that the lender can, in default, enforce the buyer’s section 55(6)(b) rights directly, including filing or continuing suits to enforce the charge on the property or substituted security.

Because this is a more complex, two‑tier security, careful drafting and (ideally) registration of a short mortgage/sub‑charge deed are advisable to avoid disputes on nature and priority.

Given this, if a lender is taking security over a buyer’s section 55(6)(b) rights,frame the security clause to make it clear that what is being mortgaged is the buyer's statutory charge and the proceeds of its enforcement, rather than the underlying property itself ?

Disclaimer: The sole purpose of this article is for creating awareness and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. One must do its own research or read the original text of the judgment or seek professional advice if it intends to take any action or decision using the material covered here.

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(Courtesy - Perplexity AI)