IRP Fees Without CoC Approval Illegal: NCLAT Orders Refund of Unratified Withdrawals
- REEDLAW
- Nov 3
- 4 min read
REEDLAW Legal News Network reports: In a decisive ruling, the National Company Law Appellate Tribunal reaffirmed that an Interim Resolution Professional (IRP) cannot withdraw or claim any fees without ratification by the Committee of Creditors (CoC). The Tribunal emphasised that such unapproved withdrawals are unauthorised and must be refunded, underscoring that IRP remuneration must strictly conform to Regulation 33 of the CIRP Regulations under the Insolvency and Bankruptcy Code, 2016.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a Company Appeal, held that an Interim Resolution Professional cannot withdraw or claim fees without ratification by the Committee of Creditors, as any unapproved withdrawal is unauthorized and recoverable, reaffirming that IRP remuneration must strictly comply with Regulation 33 of the CIRP Regulations under the Insolvency and Bankruptcy Code, 2016.
The Appellant had preferred an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the order of the Adjudicating Authority, which directed the refund of Rs. 12,46,248/- withdrawn as fees from the account of the Corporate Debtor. The Adjudicating Authority had found that the Appellant, acting as Interim Resolution Professional (IRP), had drawn fees without ratification of the Committee of Creditors (CoC), which constituted a violation of the Insolvency and Bankruptcy Code and the CIRP Regulations.
The Corporate Debtor had been admitted into the Corporate Insolvency Resolution Process (CIRP) on the application of the Financial Creditor, and the Appellant was appointed as the IRP. The Adjudicating Authority had initially fixed a provisional amount of Rs. 2,00,000/- towards IRP’s fees and expenses till the CoC decided on the same. The CoC, comprising the sole Financial Creditor, resolved to replace the IRP in its first meeting. The subsequent Resolution Professional (RP) discovered that the IRP had already withdrawn Rs. 9,83,684/- during the CIRP and Rs. 2,62,564/- even after replacement. As the CoC had not ratified these amounts, the RP sought recovery through an interlocutory application before the Adjudicating Authority, which was allowed.
In appeal, it was contended on behalf of the Appellant that the IRP’s fee had been pre-approved by the Financial Creditor, and hence ratification by the CoC was not necessary. It was further argued that the Monitoring Committee (MC), formed post-approval of the resolution plan, had no authority to continue litigation for recovery of such amounts. The Respondent, on the other hand, asserted that Regulation 33 of the CIRP Regulations expressly required CoC ratification for all fees and expenses to qualify as CIRP costs. Since the withdrawals lacked such approval, they were unauthorised. The Respondent also emphasised that the RP and later the MC were duty-bound to recover the unratified amounts to safeguard the estate of the Corporate Debtor.
The Appellate Tribunal, after examining the record and relevant statutory provisions, held that the IRP’s withdrawal of fees without CoC ratification was unauthorised and in breach of Section 5(13) of the IBC and Regulations 33 and 34 of the CIRP Regulations. It was observed that the Adjudicating Authority’s order limiting IRP fees to Rs. 2,00,000/- until CoC approval was explicit, and the Appellant’s action in withdrawing additional fees without such ratification was impermissible. The Tribunal further upheld that the Monitoring Committee, which replaced the CoC post-approval of the resolution plan, had validly authorised the RP, as its Chairman, to pursue the pending interlocutory application since it related to CIRP costs and asset recovery.
Accordingly, the Appellate Tribunal found no infirmity in the Adjudicating Authority’s order directing the IRP to refund Rs. 12,46,248/- to the Corporate Debtor’s account. It reaffirmed that an IRP’s entitlement to fees is strictly subject to ratification by the CoC, and any unratified withdrawal amounts to an unauthorised act, warranting a refund to protect the value of the Corporate Debtor’s assets.
Mr. Arpit Gupta, Mr. Divya Pratap Parmar and Ms. Akansha Agarwal, Advocates, represented the Appellant.
Mr. Karan Valecha, Advocate, appeared for the Respondent.
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