Verification of Claims in CIRP & Doctrine of "Debts Due and Payable".

Currently there are two schools of thoughts, for application of the provisions of “The Limitation Act” in verification of claims of creditors by IRP/RP during CIRP, received in response to  Public announcement.

1. Some of the IRP/RP;s are of the view that the provisions of “The Limitation Act”. are applicable for the claims received in response to public announcement during CIRP.

2. Whereas some of the IRP/RP’s are of the view that the provisions of “The Limitation Act” are not applicable for the claim received during CIRP.

 

Let’s look into the definition of claim as per the Code & observations of the Hon’ble Supreme Court of India in various judgements.

 

Definition of Claim, Section 3(6) of the Code;

# Section 3(6) “claim” means; –

(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured, or unsecured;

(b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;

# Section 3(11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;

# Section 3(12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not 1[paid] by the debtor or the corporate debtor, as the case may be;

# Section 238A. Limitation. – The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.

 

What is conspicuous by its absence in this Section (238A) are the expressions “under this Act” or “subject to the provisions of this Act”. Thus Section 238A restricts the application of The Limitation Act to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal only.

 

Important SCI judgements on Limitation & debts due and payable.

i). Hon’ble SCI (20.04.1992) Punjab National Bank And Ors vs Surendra Prasad Sinha (Criminal Appeal No. 254 of 1992.) held that;

• "The rules of limitation are not meant to destroy  the rights of the parties.  Section 3 of  the Limitation Act only bars the remedy, but does not destroy the right which the remedy relates to. The right to  the debt continues to exist notwithstanding the remedy is barred by the limitation. Only exception in which the remedy also becomes  barred  by limitation is the right is destroyed.  Though the right to enforce the debt by judicial process  is barred, the right to debt remains. The time barred debt does not cease to exist by reason of s.3. That right can be exercised in any other manner than by means of a suit. The debt is not extinguished, but the remedy to enforce the liability is destroyed.  What s.3. refers only to the remedy but not to the right of the creditors. Such debt continues to subsists so long as it is not paid. It is not obligatory to file a suit to recover the debt."

 

ii). SCI (11.10.2018) in B.K. Educational Services Private Limited Vs. Parag Gupta and Associates [Civil Appeal  No.23988 of 2017] observed as under;

# 19. Shri Dholakia also referred to and relied upon Section 60 and 61 of the Contract Act which are set out hereunder:

• “60. Application of payment where debt to be discharged is not indicated.—Where the debtor has omitted to intimate, and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits. 

• 61. Application of payment where neither party appropriates.—Where neither party makes any appropriation the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by the law in force for the time being as to the limitation of suits. If the debts are of equal standing, the payment shall be applied in discharge of each proportionably.”

 

These Sections also recognize the fact that limitation bars the remedy but not the right. In the context in which Section 60 appears, it is interesting to note that Section 60 uses the phrase “actually due and payable to him….” whether its recovery is or is not barred by the limitation law. The expression “actually” makes it clear that in fact a debt must be due and payable notwithstanding the law of limitation. From this, it is very difficult to infer that in the context of the Contract Act, the expression “due and payable” by itself would connote an amount that may be due even though it is time-barred, for otherwise, it would be unnecessary for Section 60 to contain the word “actually” together with the later words, “whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits”.

 

# 20. Shri Dholakia went on to cite Bhimsen Gupta v. Bishwanath Prasad Gupta, (2004) 4 SCC 95, and In re Sir Harilal Nemchand Gosalia, AIR 1950 Bom 74, for the proposition that debts “due and payable” must be differentiated from debts “due and recoverable”. .

 

In the former case, Section 11(1)(d) of the Bihar Buildings (Lease, Rent and Eviction) Control Act, 1982 provided for eviction of a tenant where the amount of two months’ rent “lawfully payable by the tenant and due from him” was in arrears. This Court followed Bombay Dyeing (Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay, AIR 1958 SC 328 ), stating as follows:

• “6. Section 11 of the said Act, 1982 deals with eviction of tenants. It begins with non obstante clause. It states that notwithstanding anything  contained in any contract or law to the contrary, no tenant shall be liable to be evicted except in execution of a decree passed by the court on one or more of the grounds mentioned in Sections 11(1)(a) to (f). In this case we are concerned with the ground of default which falls under Section 11(1)(d) and which states that where the amount of two months’ rent, lawfully payable by the tenant and due from him is in arrears by reason of non-payment within the time fixed by the contract or in the absence of such contract by the last day of the month next following that for which rent is payable then such default would constitute ground for eviction. It is interesting to note that the expression used in Section 11(1)(d) is “lawfully payable” and not “lawfully recoverable” and therefore, Section 11(1) (d) has nothing to do with recovery of arrears of rent. On the contrary, Section 11(1)(d) provides a ground for eviction of the tenant in the eviction suit. It is well settled that law of limitation bars the remedy of the claimant to recover the rent for the period beyond three years prior to the institution of the suit, but that cannot be a ground for defeating the claim of the landlord for decree of eviction on satisfaction of the ingredients of Section 11(1)(d) of the said Act, 1982. In the case of Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay [AIR 1958 SC 328] it has been held that when the debt becomes time-barred the amount is not recoverable lawfully through the process of the court, but it will not mean that the amount has become not lawfully payable. Law does not bar a debtor to pay nor a creditor to accept a barred debt.”

 

It is clear that this judgment will have no application to the present case as Section 11(1)(d) had nothing to do with  recovery of arrears of rent, but furnished a ground for evicting the tenant, this being the context in which the words “lawfully payable by the tenant and due from him” had been used. This Court correctly held that the right to evict the tenant cannot be affected as the law of limitation has reference only to the remedy of recovery of arrears of rent, and such law cannot be held to stand in the way of the right to evict the tenant.

 

Similarly, in Sir Harilal Nemchand Gosalia (supra), the expression used is “amount of debts due and owing from the deceased, payable by law out of the estate” which appeared in the third schedule of the Court Fee Act, 1870. It was held that an executor of a will is entitled to pay time-barred debts and cannot be confused with a creditor who may sue the executor in relation to those debts. The creditor would fail in his action because although the debt subsists, the remedy has been extinguished due to the law of limitation. Since the executor is duty bound to pay the amounts due and owing under the will without going to Court, he is entitled to pay a time-barred debt. This, the Court held, is made clear by Section 323 of the Succession Act, 1925, which made no exception in case of time-barred debts. It is in this context that the Court noted the difference between “payable” and “recoverable”.

 

In light of the definition of the “claim” & other provisions of the Code read with the observations of the Hon’ble Supreme Court of India in various judgements mentioned supra above, it can be safely deduced that the claims received during CIRP are "Debts Due and Payable", irrespective of limitation.

 

References;

1.  Hon’ble SCI (20.04.1992) Punjab National Bank And Ors vs Surendra Prasad Sinha (Criminal Appeal No. 254 of 1992.)

2. SCI (11.10.2018) in B.K. Educational Services Private Limited Vs. Parag Gupta Associates (Civil Appeal  No.23988 of 2017)

3. SCI (03.02.2004) in Bhimsen Gupta v. Bishwanath Prasad Gupta, [(2004) 4 SCC 95].

4. SCI (20.12.1957) in Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay (AIR 1958 SC 328)

5. High Court Bombay (25.07.1949) In re Sir Harilal Nemchand Gosalia, (AIR 1950 Bom 74).

 

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. A reader 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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Reforms required for Inspection of CIRP

Recently  the Appellate Authority NCLAT in Mr Rajnish Jain vs Anupam Tiwari Resolution Professional for M/s Jain Mfg (India) Private Limited & Ors1. observed as under;

• # 31. It is apparent that every action of Resolution Professional, either about the change of status of ‘BVN Traders’ from financial to Operational Creditor or regarding the elimination of name of ‘BVN Traders’ from the ‘Committee of Creditors’ was being done in collusion with erstwhile Member of suspended Board of Directors, Promoter and Managing Director Mr Rajnish Jain. It is pertinent to mention that, the Resolution Professional even in disregard of the orders of the Adjudicating Authority dated 23rd January 2020, subsequently proposed the Resolution before ‘Committee of Creditors’ for considering BVN Traders as Operational Creditor and further for the elimination of name of BVN Traders from ‘Committee of Creditors’. It is also evident that when Appellant and Resolution Professional could not succeed in getting permission from the Adjudicating Authority to change the status of BVN Traders from Financial Creditor to Operation Creditor, Resolution Professional adopted the route of ‘Committee of Creditors’ for the elimination of name of BVN Traders from ‘Committee of Creditors’. In the last, the Appellant and RP succeeded in getting Resolution passed with 100% of the voting share for withdrawal of Petition under Section 12(A) of I&B Code, in total disregard of the Orders of Adjudicating Authority dated 23rd January 2020, whereby the Adjudicating Authority had not permitted Resolution Professional to change the status of BVN Traders from Financial to Operational Creditor.

The above observations of the Appellate Authority highlight the following;

1. Lack of regulatory control of the Board. Resolution Professional & CoC had the courage to blatantly flout the orders of the Adjudicating Authority.

2. Lack of understanding of the Code by the CoC members.

3. Lack of professionalism amongst CoC members.

To prevent such types of situations, the Board needs to beef-up its regulatory controls, which may include the following reforms in the inspection of CIRP / Liquidation processes. I understand that the Board conducts post facto inspections that too in only 15% to 20% of cases. A large no. of irregularities may / can go unnoticed. 

Board may consider moving from 15% to 20% post-facto inspection, to 100% concurrent inspection of insolvency processes. For concurrent inspections, the Board may appoint  Independent Insolvency Professionals as Inspecting Authority/non voting members in CoC. 

i). These Insolvency Professionals(IP) / Inspecting Authority (IA) may be required to perform the following functions;

1. Participate in the proceedings / discussion of CoC, but do not have the right to vote.

2. Inspection of the CIRP process & books of accounts of CD & CIRP.

3. Submit a monthly report of the concurrent inspection to the Board. If required IA may submit an interim inspection report.

Advantages;

1. This way, the Board will get regular and timely professional feedback on the working of RP & CoC. 

2. Submission of CIRP forms (1 to 7) by IRP/RP can be done away with, which will reduce the compliance burden of the IRP/RP & he will be able to devote his time & energy for insolvency & management of CD. Secondly the Board will be spared from the burden of scrutiny of CIRP forms.. 

ii). Independent Insolvency Professional, so appointed as Inspecting Authority / Non Voting CoC member,  should not be;

1. Related part of IRP/RP.

2. Related party of the members of CoC. 

3. Related party of CD & Directors of suspended BOD.

4. Member of CoC or AR of a CoC member.

5. On the panel of any of the members of CoC.

iii). Fees of the Insolvency professional so appointed by the Board, may be fixed by the Board on a sliding scale based on the amount of claims admitted and/or no. of creditors, in the CIRP. Out of pocket expenses may be paid equivalent to payable to the Under Secretary of the GOI. All the Fees & Expenses paid / payable to IP / IA to form part of Insolvency Resolution Process Cost (IRPC).

An Insolvency Professional can be appointed as Inspecting Authority, under the provisions of 

Section 218 of the Code, reading as under;

• Section 218(1). ………..the Board thereunder, it may, at any time by an order in writing, direct any person or persons to act as an investigating authority to conduct an inspection or investigation of the insolvency professional agency or insolvency professional or an information utility.

Appointment as an Inspecting Authority will not tantamount to an assignment under the Code, as such will not require AFA & secondly, the services of senior Insolvency Professional above the age of 70 years can also be availed.

Here, my observations in the blog  "Fraudulent Transactions in IBC - A case study" dated 16th July, 2020, as follows, has relevance in the matter.

Issues;

1. Independence of the working of the Resolution Professionals. RP in the present case, despite his reservations,  succumbed to the pressures of CoC, as he holds the post of RP at the will of CoC, which has the powers to replace RP without assigning any reasons [section 27]. To help RP to maintain its independence, following reforms in the conditions of appointments of RP are suggested;

• i). The provisions of the replacement of RP under section 27, may provide for specifying  the reasons for replacement in the concerned resolution of the CoC, subject to the approval of AA. 

• ii). Secondly in case CoC does not replace IRP with RP in the 1st meeting of CoC (section 22), IRP may be deemed to be appointed as RP.

 

2. Deficient regulatory control of the Board. In the instant case, regulatory control of the Board was found lacking on the following counts;

i). Board’s inspection of the resolution process failed to identify the fraudulent transaction during CIRP, may be due to; 

• (a) lack of professionalism & objectivity of the inspecting authority or; 

• (b) lack of processing of the inspection reports at the Board's back end office. 

For appointment of inspecting authority Code provides as under;

• Section 218(1). ………..the Board thereunder, it may, at any time by an order in writing, direct any person or persons to act as an investigating authority to conduct an inspection or investigation of the insolvency professional agency or insolvency professional or an information utility.

However, under the regulations Board restricted the appointment of inspection / investigating authority, to the officers of the Board, who are usually not qualified professionals;

• Regulation 2; 

• (e) “Investigating Authority” means an officer or a team of officers of the Board, which has been directed by the Board, to conduct the investigation of a service provider;

• (f) “Inspecting Authority” means an officer or a team of officers of the Board, which has been directed by the Board, to conduct the inspection of a service provider;

For objectivity & professionalism in the inspections, insolvency professionals should be associated alongwith officers of the Board, for inspections / investigations of the CIRP.

 

ii). In the instant case, the Board initiated action post facto. The Board, instead of taking post facto actions, should have some system to timely prevent such transactions. Secondly the Board is inspecting only in 15 to 20% cases, a large no. of irregularities may / can go unnoticed. To address both the issues it is suggested that the Board should have authority to appoint an independent insolvency professional as observer/non voting member in CoC, with rights to participate in the proceedings/discussion of CoC. This way, the Board will get regular and timely professional feedback on the working of RP & CoC.

 

3, Lack of professionalism in the working of the CoC. In the instant case, despite RP expressing reservations, CoC went ahead in passing resolution for payment of fees of the lender's legal counsel as IRPC. CoC further decided that if the Board does not allow this arrangement, then the fee amount will be recovered on a pro rata basis from upfront cash recovery amount to be paid to lenders. 

 

Most of the financial creditors in CoC are banks. Banks being impersonal legal entities, usually appoint their employees as their authorised representative in CoC, who are not professionals and do not understand the insolvency ecosystem. Here the provisions of the Code are of quite significance.

• # Section 24(5) Subject to sub-sections (6), (6A) and (6B) of section 21, any creditor who is a member of the committee of creditors may appoint an insolvency professional other than the resolution professional to represent such creditor in a meeting of the committee of creditors:

• Provided that the fees payable to such insolvency professional representing any individual creditor will be borne by such creditor.

 

The main import of the Section 24(5) of the code is that a financial creditor can attend the meeting of CoC, through a representative who has to be an insolvency professional other than IRP/RP.

 

The appointment of IP’s as authorised representatives of the banks in CoC will definitely improve the working of the CoC & inculcate the professionalism in the decisions of the CoC. Secondly IP's are being regulated by the Board & IPA’s, their misconduct  can be examined by the Board & IPA’s. It is suggested that the Board may make suitable provisions in the regulations and issue a circular on this aspect.

References; 

1. NCLAT 18.12.2020) in Mr Rajnish Jain vs Anupam Tiwari Resolution Professional for M/s Jain Mfg (India) Private Limited & Ors.[Company Appeal (AT) (Insolvency) No. 519 of 2020 ]

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. A reader 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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Why approval of fees of a professional by CoC, is not treated as commercial wisdom of CoC & not-justiciable ?

In a recent judgement Hon’ble Supreme Court of India in Alok Kaushik Vs  Bhuvaneshwari Ramanathan and Others1 held as under;

• Adjudicating Authority is sufficiently empowered under Section 60(5)(c) of the IBC to make a determination of the amount which is payable to an expert valuer as an intrinsic part of the CIRP costs. Regulation 34 of the IRP Regulations defines ‘insolvency resolution process cost’ to include the fees of other professionals appointed by the RP. Whether any work has been done as claimed and if so, the nature of the work done by the valuer is something which need not detain this Court, since it is purely a factual matter to be assessed by the Adjudicating Authority.

• The availability of a grievance redressal mechanism under the IBC against an insolvency professional does not divest the NCLT of its jurisdiction under Section 60(5)(c) of the IBC to consider the amount payable to the appellant. In any event, the purpose of such a grievance redressal mechanism is to penalize errant conduct of the RP and not to determine the claims of other professionals which form part of the CIRP costs.

Facts of the case ;

1. The National Company Law Tribunal, Bengaluru (“NCLT” or “Adjudicating Authority”) initiated the Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor by its order dated 21 March 2019. By an order dated 26 August 2019, the first respondent was appointed as the Resolution Professional (“RP”).

2. By a letter dated 16 September 2019, the first respondent (RP) appointed the appellant as a registered valuer (RV) of the Plant and Machinery of the Corporate Debtor.

3. The appellant’s appointment fee (Rs 7.50 lakhs plus applicable GST) and other expenses were ratified by the Committee of Creditors (“CoC”), led by the second respondent, in its meeting held on 9 December 2019.

4. The National Company Law Appellate Tribunal (“NCLAT” or “Appellate Authority”) set aside the initiation of CIRP against the Corporate Debtor by an order dated 18 December 2019. The NCLAT remanded the matter back to the NCLT to decide on the issue of CIRP costs. 

5. By an order dated 20 December 2019, the NCLT decided on the fee of the RP and reduced it by 20% from the fee ratified by the CoC.

6. In view of the order dated 18 December 2019 of the NCLAT, the first respondent (RP) cancelled the appointment of the appellant on 19 December 2019. In relation to the fee payable to the appellant (RV), the first respondent (RP) requested him to consider a waiver. In return, the appellant (RV) agreed to reduce his fee by 25% from the fee ratified by the CoC, along with the expenses payable. However, on 2 March 2020, the first respondent (RP) informed the appellant (RV) that the fee as ratified could not be paid, and paid a sum of Rs 50,000.

7. The appellant (RV) then filed an application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) before the NCLT challenging the non-payment of the fees. However, the NCLT dismissed the application by an order dated 29 June 2020 concluding that it had been rendered functus officio. In appeal, the NCLAT by an order dated 13 October 2020 rejected the contention of the appellant, noting that an amount of Rs 50,000 had already been paid over. The appellant moved Supreme  Court in an appeal under Section 62 of the IBC, for challenging the order of the NCLAT.

Now the following questions arise;

1. Whether the approval of the fees of a professional by CoC during CIRP is to be treated as commercial wisdom of the CoC & not-justiciable, or is justiciable as ordered by NCLAT in the above referred case.

2. Who is required to pay the CIRP cost in case the National Company Law Appellate Tribunal (“NCLAT” or “Appellate Authority”) set aside the initiation of CIRP against the Corporate Debtor.

In the following cases the decisions of CoC on various matters had been held as commercial wisdom of the CoC, as such not-justiciable.

a. Supreme Court of India in  K. Sashidhar vs. Indian Overseas Bank & Ors.2 held;

• However, if the opposition to the proposed resolution plan is purely a commercial or business decision, the same, being nonjusticiable, is not open to challenge before the Adjudicating Authority (NCLT) or for that matter the Appellate Authority (NCLAT)

• The legislature has not envisaged challenge to the “commercial / business decision” of the financial creditors taken collectively or for that matter their individual opinion, as the case may be, on this count.

b. NCLAT in Naveen Kumar Jain Vs. CoC of K.D.K Enterprises Pvt. Ltd. & Ors.3

held; 

• It is well settled that the commercial wisdom of the Committee of Creditors which covers matters including the replacement of the Resolution Professional does not fall within the limited scope of judicial review and is not justiciable.

• In so far as the issue regarding fee is concerned, the Adjudicating Authority has rightly observed that under Regulation 33(3) of the IBBI, fee has been fixed by the Committee of Creditors at Rs.50,000/- which does not brook interference.

c. NCLAT in Committee of Creditors of LEEL Electricals Ltd. Vs Leel Electricals Ltd. Through its IRP, Arvind Mittal4  held that;

• Appointment of RP is governed by Section 22 which provides that the first meeting of CoC shall be held within 7 days of constitution of CoC and the CoC may by a majority vote of not less than 66% of the voting share of Financial Creditors either resolve to appoint the IRP as a Resolution Professional or to replace the IRP by another Resolution Professional. It is now well settled that the decision in regard to appointment of IRP as RP or replacement of IRP by another RP falling within the ambit of Section 22 of I&B Code is a decision based on commercial wisdom of CoC which is not amenable to judicial review.

Author’s comments; When appointment/replacement of IRP/RP is a decision based on commercial wisdom of CoC which is not amenable to judicial review, how come the fees of professionals approved by CoC can be justiciable or  amenable to judicial review

d. NCLAT in Committee of Creditors of EMCO Limited Vs Mrs. Mary Mody & Sundaresh Bhat, Resolution Professional of EMCO Limited5 held that;

• Keeping in view all the aforenoted reasons and the ratio of the Hon’ble Supreme Court in ‘K. Sashidhar’ (Supra) that the commercial or business decision of the CoC is non-justiciable, and at best, the Adjudicating Authority may cause an enquiry on limited grounds, and does not have Jurisdiction to undertake scrutiny of the justness of the opinion expressed by the CoC when it has voted by a majority share, we are of the opinion that this ratio is applicable to the facts of this case as the CoC has by a majority vote rejected to raise any ‘Interim Funds’ and the Adjudicating Authority cannot direct the CoC to do the same. 

It is well established that the commercial or business decisions of the CoC are non-justiciable.

Now let’s look into the concerned CIRP Regulations about the fees of the professionals;

• # Regulation 33. Costs of the interim resolution professional.

• (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.

From the regulations it can be seen that even the fees of IRP fixed by the Adjudicating Authority needs to be ratified by CoC for to be treated as Insolvency Resolution Process Cost. Thus AA has no role to play in fixation of the fees of the professionals and also cannot sit in judgement for the fees of the professionals fixed /approved by CoC.

Now the second question arises as to who is to bear the cost of CIRP in the present situation when National Company Law Appellate Tribunal (“NCLAT” or “Appellate Authority”) set aside the initiation of CIRP against the Corporate Debtor

a. Supreme Court of India in S3 Electricals and Electronics Private Limited Vs Brian Lau & Anr.6 held that;

• A bare reading of Regulation 33(3) indicates that the applicant is to bear expenses incurred by the RP, which shall then be reimbursed by the Committee of Creditors to the extent such expenses are ratified. We are informed that, in this case, no Committee of Creditors was ever appointed as the interim resolution process did not reach that stage. In these circumstances, it is clear that whatever the Adjudicating Authority fixes as expenses will be borne by the creditor who moved the application.

b. NCLAT in M/s. Kotak Resources Vs Dharmendra Dhelaria & Ors.7  held that;

• Admittedly, Mr Dharmendra Dhelaria was nominated as ‘Interim Resolution Professional’ by the Appellant (Financial Creditor) who was subsequently confirmed as ‘Resolution Professional’ by the ‘Committee of Creditors’. He managed the operations of the ‘Corporate Debtor’ as a going concern. ARCIL was included in the ‘Committee of Creditors’ upon its constitution by the ‘Resolution Professional’ with its consent. The ‘resolution cost’ of Rs.12,12,831/- was ratified and approved by the ‘Committee of Creditors’ in its meeting dated 7th August, 2018. 

• Since the ‘Committee of Creditors’ comprised of both, Appellant and ARCIL, the ‘corporate insolvency resolution process costs’ had necessarily to be borne by them in equal proportion. 

• It is indisputable that the ‘Corporate Debtor’ could not be saddled with the liability of the ‘corporate insolvency resolution process costs’. It would be preposterous to hold that the whole amount of the ‘corporate insolvency resolution process cost’ should have been reimbursed by the ARCIL alone to the ‘Resolution Professional’. 

References;

1. Supreme Court of India (15.03.2021) in Alok Kaushik Vs  Bhuvaneshwari Ramanathan and Others  [Civil Appeal No 4065 of 2020]

2. Supreme Court of India (05.02.2019) K. Sashidhar vs. Indian Overseas Bank & Ors. (Civil Appeal No.10673 of 2018)

3. NCLAT (2020.11.03) Naveen Kumar Jain Vs. CoC of K.D.K Enterprises Pvt. Ltd. & Ors. [Company Appeal (AT)(Insolvency) No. 882 of 2020]

4. NCLAT (21.12.2020) in Committee of Creditors of LEEL Electricals Ltd. Vs Leel Electricals Ltd.Through its IRP, Arvind Mittal [Company Appeal (AT) (Insolvency) No. 1100 of 2020]

5. NCLAT (02.03.2021)  in Committee of Creditors of EMCO Limited Vs Mrs. Mary Mody & Sundaresh Bhat, Resolution Professional of EMCO Limited [COMPANY APPEAL (AT) (Insolvency) No. 307 of 2020]

6. Supreme Court of India (05.08.2019) in S3 Electricals and Electronics Private Limited Vs Brian Lau & Anr. [Civil Appeal No. 103 of 2018] 

7. NCLAT (26.06.2020) in M/s. Kotak Resources Vs Dharmendra Dhelaria & Ors.  [Company Appeal (AT) (Insolvency) No. 569 of 2020] 

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. A reader 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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