Interim Resolution Professional Not Automatically Entitled To Full Fees Where Court Orders Restrict CIRP: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has upheld an equitable remedy granted by the National Company Law Tribunal (NCLT), ruling that an Interim Resolution Professional was not automatically entitled to full statutory fees where the insolvency process functioned under significant judicial restrictions.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Indevar Pandey dismissed the appeal filed by CMA Harshad Deshpande, former Interim Resolution Professional (IRP) of Shri Tradco Deesan Pvt. Ltd., against Resolution Professional and the Committee of Creditors (CoC) of the company.

“The purpose of prescribing minimum fees is to ensure reasonable professional compensation for functions performed during CIRP. Such provisions cannot be read to mean that the IRP becomes automatically entitled to full professional fees even during a period when the CIRP itself was functioning under substantial judicial restrictions and most statutory functions could not be undertaken,” the tribunal noted.

The Corporate Insolvency Resolution Process (CIRP) against Shri Tradco Deesan commenced on February 15, 2023, under Section 7 of the Insolvency and Bankruptcy Code, with Deshpande appointed as IRP. However, the admission order was soon challenged before the NCLAT by the suspended board of directors.

On February 28, 2023, the appellate tribunal restrained the IRP from constituting the CoC or taking further steps in the CIRP, while permitting only collation and verification of claims. The restriction remained in place until September 1, 2023.

During this period, Deshpande continued verifying and collating creditor claims exceeding ₹250 crore. After the restriction was lifted and the CoC was constituted, it resolved to replace him with Relan as Resolution Professional.

In later meetings, the CoC ratified ₹6,50,967 inclusive of GST towards Deshpande's fees for specified periods, while declining payment for the six-month restricted phase.

Deshpande approached the NCLT seeking remuneration at the originally proposed rate of ₹2.5 lakh per month, or alternatively the statutory minimum of ₹2 lakh under Regulation 34B read with Schedule II of the CIRP Regulations.

The CoC had already ratified ₹6,50,967 inclusive of GST for specified periods. The NCLT partly allowed Deshpande's plea by additionally directing payment of ₹50,000 per month on a pro rata basis for the restricted period between February 28 and September 1, 2023, along with reimbursement of verified expenses. Deshpande challenged this before the NCLAT.

Deshpande argued that the CIRP itself had never been stayed and that he had continued discharging statutory duties by verifying claims. He contended that the minimum fee prescribed under the regulations could not be reduced.

The CoC argued that once constitution of the CoC was stayed and substantive CIRP steps halted, the insolvency process was substantially in abeyance, and the IRP could not claim full fees for a period when most statutory functions were not being performed.

Agreeing with the NCLT's approach, the NCLAT noted that while Deshpande continued claim collation and verification, most statutory IRP functions, including constituting the CoC, advancing the resolution process, and managing the corporate debtor as a going concern, could not proceed, with the company continuing under the existing management.

“The Adjudicating Authority neither accepted the stand of the CoC that no fees were payable, nor accepted the claim of the Appellant for full fees at the rate demanded by him. Instead, it attempted to strike a balance between the two competing positions,” the tribunal ruled.

Finding no arbitrariness or legal infirmity in the NCLT's approach, the appellate tribunal dismissed the appeal