CoC Has Exclusive Power To Fix Resolution Professional Fees, NCLT Can Interfere Only If Fee Not Proposed: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has held that the Adjudicating Authority can fix the fees of the Interim Resolution Professional or Resolution Professional only in cases where the applicant initiating the corporate insolvency resolution process (CIRP) has not proposed the fee and that otherwise the power to determine such expenses lies exclusively with the Committee of Creditors (CoC).

The tribunal set aside the order of the Mumbai Bench of the National Company Law Tribunal (NCLT), which had reduced the fees payable to the resolution professional of Crystal Clear Veg Oil Refinery Pvt. Ltd., and remanded the matter for fresh consideration in accordance with law.

The coram of Judicial Member Justice Mohammad Faiz Alam Khan and Technical Member Naresh Salecha observed, “We observe that only in case, the applicant seeking initiation of CIRP, if do not propose fee of the IRP then only, there is a jurisdiction vested to the Adjudicating Authority to fix the expenses under Regulation 33(2) of the CIRP Regulations. We find that the CoC enjoys exclusive powers of fixing the fees and expenses to be incurred by the resolution professional based on the commercial wisdom of the CoC. We further observe that there is no jurisdiction vested to the Adjudicating Authority on this aspect.”

The tribunal further noted that the CIRP Regulations make it clear that the fees of the Resolution Professional form part of the insolvency resolution process costs.

Referring to the statutory scheme, the tribunal observed, “The Explanation to Regulation 34 of the CIRP Regulations read with Regulation 31(d) of the CIRP Regulations, amplify that the fees payable to the resolution professional is also a part of the expenses to be incurred by the resolution professional.”

The appeal arose from an order dated July 25, 2024, passed by the NCLT, Mumbai Bench, by which the Adjudicating Authority reduced the fees payable to the Resolution Professional from Rs 50,000 per month to Rs 10,000 per month.

Minita D. Raja, the erstwhile Resolution Professional contended that the impugned order was contrary to the Insolvency and Bankruptcy Code and the CIRP Regulations, as well as the NCLT's earlier order dated August 11, 2023 by which her fees had been fixed at Rs 50,000 per month.

She submitted that the reduction of fees was unjustified and contrary to the record, and that she continued to perform duties as RP from the commencement of CIRP on April 16, 2018, until the corporate debtor was handed back to its management on January 30, 2024 after the withdrawal application under Section 12A was allowed.

The appellant stated that the CoC had originally fixed her fee at Rs 2,50,000 per month, which was later renegotiated to Rs 2,00,000 per month, and thereafter reduced by the NCLT to Rs 50,000 per month in 2023. She submitted that she did not challenge the earlier reduction, but the further reduction to Rs10,000 per month was arbitrary and without jurisdiction.

The respondent bank opposed the appeal, contending that the RP had delayed the listing of the withdrawal application and that substantial CIRP expenses had already been incurred. It was submitted that by February 2023, CIRP expenses of Rs 1,41,84,097 had been incurred, out of which Rs 76,05,557 had been paid towards the RP and her staff, and that no substantial work was done after the withdrawal application had been filed.

The NCLAT noted that the NCLT, relying on Regulation 30A(2) of the CIRP Regulations, had held that expenses to the Resolution Professional were payable only up to the date of filing of the application under Section 12A of the Code.

However, the Appellate Tribunal held that this interpretation was incorrect, observing that under Regulation 30A(7), expenses are payable till the date of approval of the withdrawal by the Adjudicating Authority, and that such expenses include the fees of the Resolution Professional.

The tribunal also held that the Resolution Professional is duty-bound to continue performing functions until the corporate debtor is handed over after approval of the withdrawal and cannot be denied fees for that period.

Observing that the NCLT had reduced the fee from Rs 50,000 to Rs 10,000 per month without any recommendation of the CoC, the Appellate Tribunal held that the impugned order could not be sustained in law.

Accordingly, the NCLAT allowed the appeal, set aside the impugned order, and remanded the matter to the NCLT for fresh consideration in accordance with law.