Commercial Wisdom Of Creditors No Bar To Judicial Scrutiny Of IRP Remuneration: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has recently held that disputes over an interim resolution professional's remuneration are not immune from judicial scrutiny merely because they arise from a decision of the Committee of Creditors (CoC).

Clarifying the scope of the Supreme Court's ruling in K. Sashidhar, the tribunal held that the judgment, which concerns judicial review of the CoC's commercial decisions on resolution plans, could not be relied upon to decide disputes over an IRP's remuneration.

It nevertheless upheld the CoC's decision to pay the former interim resolution professional ₹3 lakh and dismissed his appeal.

A bench of Judicial Member Justice N. Seshasayee and Technical Member Arun Baroka held that the adjudicating authority had erroneously relied on K. Sashidhar while deciding the fee dispute.

The tribunal observed, "The Hon'ble Supreme Court's decision addressed the critical issue in CIRP i.e. scope of judicial scrutiny over a commercial decision taken by the CoC to approve or reject a resolution plan but not for fixing the remuneration of Insolvency Resolution Professional (IRP). This decision has put the issue beyond doubt that the commercial decision of the CoC is non-justiciable and will not be open to scrutiny by the NCLT. 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 case concerned Mohd. Nazim Khan, who continued as the interim resolution professional of International Trenching Private Limited for over 15 months until his replacement. The first CoC meeting approved remuneration of ₹1.5 lakh for him as IRP.

A separate proposal to appoint him as the resolution professional on a monthly remuneration of ₹1.5 lakh was rejected. After Khan sought payment of his dues, the CoC later resolved to pay him a total remuneration of ₹3 lakh. He challenged the decision, claiming he was entitled to monthly remuneration for the period he continued to discharge the functions.

Khan argued that an IRP's remuneration forms part of the insolvency resolution process costs and cannot be treated as a matter of the CoC's commercial wisdom. He also contended that the CoC retrospectively converted the approved remuneration into a one-time payment. HDFC Bank, representing the CoC, argued that only a consolidated remuneration had been approved for the IRP. It maintained that monthly remuneration was proposed only if Khan had been appointed as the resolution professional, which never happened.

The tribunal found that the records of the first CoC meeting made the position clear. Khan would have been entitled to monthly remuneration only if he had been appointed as the resolution professional. Since that proposal was rejected, the tribunal held that the CoC was justified in fixing his remuneration at ₹3 lakh. Although it disagreed with the adjudicating authority's reliance on K. Sashidhar, it agreed with the ultimate conclusion that Khan was entitled only to that amount.

The tribunal further observed, "We thus observe that the judgment relied upon by the CoC and by the Adjudicating Authority is distinguishable and therefore this cannot be relied upon by both COC and Adjudicating Authority. We note that the Supreme Court in K. Sashidhar (supra) primarily dealt with the powers of the Committee of Creditors (CoC) regarding the approval of a resolution plan and the limited scope of judicial review by the Adjudicating Authority (NCLT) and Appellate Authority (NCLAT) in such matters."

Referring to the Supreme Court's decisions in Devarajan Raman v. Bank of India and Alok Kaushik v. Bhuvaneshwari Ramanathan, the tribunal reiterated that the NCLT has jurisdiction to determine the fees and costs payable to professionals during the insolvency resolution process.

It nevertheless concluded that "the CoC was justified in the facts and circumstances, of the case as noted herein, to fix the monetary compensation which should be paid to the IRP," and dismissed the appeal.