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Fees payable to RP during the CIRP should be reasonable and the same requires approval from the CoC

The Supreme Court bench comprising Justices Dr. Dhananjaya Y. Chandrachud and A. S. Bopanna was hearing an Appeal where the issue in a dispute related to the payment of costs and expenses incurred by the Resolution Professional. The Bench held that the fees payable to the Resolution Professional (RP) during the CIRP should be reasonable and the approval of the CoC for the fee or other expenses has to be obtained, wherever approval was required

The apex body of the insolvency law regulator, the Insolvency and Bankruptcy Board of India (IBBI) has issued a circular on 12 June 2018. The circular, inter alia, requires the insolvency professional to ensure that the fees payable to him during the CIRP are reasonable and the approval of the CoC for the fee or other expenses is obtained, wherever approval is required.

In the present case, after the National Company Law Appellate Tribunal (NCLAT) set aside the order of the NCLT initiating the CIRP, the proceedings were remitted back for determining the insolvency resolution costs.

It is material to note that the appellant had addressed a letter to the respondent on 13 December 2019 prior to the filing of the application to which the respondent responded on 24 January 2020 stating that, upon verification, the costs and fees were found in conformity with both the technical and financial bid, based on which the assignment was awarded.

In the application which was filed by the appellant before the NCLT, the appellant annexed a statement of costs, the amount which was reimbursed with the balance dues at Annexure ‘D’. The order of the NCLT, however, reveals that none of the submissions of the appellant has been considered. The Adjudicating Authority merely directed the respondent to pay the expenses incurred and an amount of Rs 5,00,000 plus GST towards the fee of the RP.

Neither the basis of the claim nor its reasonableness has been considered by the Adjudicating Authority. The Appellate Authority has merely proceeded in an ad hoc manner on the ground that the amount of Rs 5,00,000 as a fee, in addition to the expenses, appears to be reasonable.

Both the orders suffer from an abdication in the exercise of jurisdiction. In the absence of any reasons either in the order of the NCLT or the Appellate Authority, it is impossible for the Court to deduce the basis on which the payment of an amount of Rs 5,00,000 together with expenses has been found to be reasonable. Consequently, an order of remand becomes necessary.

The Supreme Court accordingly allowed the appeal and set aside the impugned judgment and order of the NCLAT dated 30 July 2020. Similarly, the order of NCLT dated 7 February 2020 was set aside.


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