Supreme Court Refuses To Interfere With NCLAT Ruling That IRP Remuneration Is Open To Judicial Scrutiny

The Supreme Court on Wednesday refused to interfere with a National Company Law Appellate Tribunal (NCLAT) order holding that a Committee of Creditors' decision on an Interim Resolution Professional's remuneration is subject to judicial scrutiny.

However, after examining the decision on merits, the NCLAT upheld the CoC's decision to fix the IRP's total remuneration at ₹3 lakh.

A Division Bench of Justices P.S. Narasimha and Alok Aradhe after hearing the parties, refused to interfere with the NCLAT order.

The NCLAT had agreed with the National Company Law Tribunal (NCLT) on the outcome, but disagreed with its reasoning. While the NCLT had held that the CoC's commercial wisdom prevented scrutiny of its remuneration decision, the NCLAT held that such decisions can be judicially scrutinised.

The NCLAT specifically clarified that the Supreme Court's judgment in K. Sashidhar v. Indian Overseas Bank did not make every decision entrusted to the CoC under the Insolvency and Bankruptcy Code non-justiciable.

It observed, “However, this judgment does not make all decisions or duties entrusted upon the CoC under the Code as non-justiciable. As the control of the Corporate Debtor shifts to the creditors in insolvency, the decisions taken by the CoC in the course of the resolution process impacts and effects the rights of stakeholders. The CoC during the resolution process must therefore balance responsibilities towards all such stakeholders. The payment of the remuneration for the IRP falls in such category.”

The tribunal noted that K. Sashidhar primarily concerned the CoC's commercial decision to approve or reject a resolution plan. It held that the judgment did not make the fixation of remuneration payable to an IRP immune from judicial scrutiny.

Despite holding that the remuneration decision was open to judicial scrutiny, the NCLAT found that the ₹3 lakh amount was justified on the facts of the case. It held that the CoC was within its rights to assess the quantum and quality of the work performed by the IRP.

The Supreme Court, while hearing Khan's challenge to the NCLAT order, refused to interfere with the tribunal's decision. The ₹3 lakh remuneration therefore remains undisturbed.

The dispute concerned Mohd. Nazim Khan, who was appointed as the IRP of International Trenching Private Limited on August 8, 2019. He continued to discharge his duties until November 20, 2020, when he was replaced.

Khan claimed remuneration for the entire period during which he continued to discharge the functions of the Resolution Professional. He argued that the remuneration approved at the first CoC meeting was only for his role as IRP.

At its first meeting on September 21, 2019, the CoC approved ₹1.5 lakh as remuneration for Khan as IRP. A separate proposal to appoint him as Resolution Professional at a monthly remuneration of ₹1.5 lakh was rejected with 100% voting.

The CoC later approved a total payment of ₹3 lakh. The amount comprised ₹1.5 lakh for the initial period and another ₹1.5 lakh for the remaining period of Khan's services.

Khan challenged the decision before the NCLT. He argued that remuneration payable to an IRP formed part of the insolvency resolution process costs. He also contended that the issue could not be treated as a matter of the CoC's unreviewable commercial wisdom.

The NCLT upheld the CoC's decision. It held that the CoC had, in its commercial wisdom, decided to pay ₹3 lakh as remuneration for the entire period and that the Adjudicating Authority could not interfere with the decision.

Khan then challenged the NCLT's order before the NCLAT.

The appellate tribunal agreed with the NCLT on the result, but not on its reasoning. It held that the remuneration decision was open to judicial scrutiny, but found that the ₹3 lakh amount was justified on the merits.

The NCLAT noted that the first CoC meeting had rejected Khan's appointment as RP. The proposal for monthly remuneration of ₹1.5 lakh was therefore linked to his appointment as RP.

The tribunal also noted that Khan had not fully cooperated with the CoC. It observed that an IRP does not have a vested right to continue as IRP against the wishes of the CoC.

NCLAT further noted that the CoC had considered the fact that Khan had worked for more than a month. It therefore approved another ₹1.5 lakh for the remaining period, taking the total payment to ₹3 lakh.

The tribunal ultimately held that the CoC was “justified in the facts and circumstances” in fixing the monetary compensation payable to the IRP. It also held that the CoC was within its rights to assess the quantum and quality of the work performed by him.

The tribunal also considered Khan's reliance on Regulation 34B and Schedule II, which prescribe minimum monthly fees for IRPs and RPs. It held that those provisions could not assist Khan because they were introduced after he was appointed as IRP.

NCLAT ultimately dismissed Khan's appeal. It found no infirmity in the total ₹3 lakh amount, while specifically disagreeing with the reliance on K. Sashidhar.

The Supreme Court has now refused to interfere with the NCLAT's order.