NCLAT (26.11.2021) In Invent Assets Securitisation & Reconstruction Pvt. Ltd. Vs. Rajmal Labhchand Mogra [Company Appeal (AT) (Insolvency) No. 709 of 2019] held that; -
In view of the above, after 10 days of sending the name of Resolution Professional to Board by the Adjudicating Authority, there being no order of the Adjudicating Authority to continue the Interim Resolution Professional as Resolution Professional, the Interim Resolution Professional has no right to continue to function as the Resolution Professional after such date.
Excerpts of the order;
# 4. Learned Counsel for the Appellant in support of the Appeal contends that in very first meeting of the CoC dated 16.07.2018, it was resolved not to approve the appointment of Respondent as Resolution Professional and he was asked not to carry any further process. It is submitted that Application for replacement of Interim Resolution Professional was filed before the Adjudicating Authority on 31.07.2018 hence, there is no entitlement of the Respondent to continue with CIRP or for payment of any emoluments. In the second CoC meeting dated 10.08.2018, specific Resolution was passed for adjourning the CoC meeting ‘sine die’ and Respondent was clearly indicated that he should not carry with the CIRP. It is submitted that the mere fact that Application which was filed on 31.07.2018 remained pending till 09.10.2018, the Respondent is not entitled to claim any emoluments till 09.10.2018. At best, the Respondent could claim emoluments only till first meeting of the CoC i.e. on 16.07.2018 and thereafter there is no entitlement to receive any emoluments by the Respondent.
# 5. Learned Counsel for the Respondent refuting the submissions of the Appellant contends that the CoC in its meeting dated 16.07.2018 has specifically approved the fee of Rupees Five Lakh per month as fee of the Interim Resolution Professional. Hence, the Respondent is entitled to claim the fee with the said rate till 09.10.2018 when Adjudicating Authority decided to replace the Interim Resolution Professional. The Respondent was willing to carry on the work and he has also filed an Application but due to the fact that he was obstructed in his working by the Appellant, it cannot be reason for denying his fee. It was submitted that as per Regulation 17(3) of the CIRP Regulations, 2016, where the appointment of Resolution Professional is delayed, the Interim Resolution Professional is entitled to perform the functions of the Resolution Professional from the fortieth day of the insolvency commencement date till a Resolution Professional is appointed under Section 22. The Resolution Professional having been appointed under Section 22 only on 09.10.2018, the appointment of Interim Resolution Professional was to continue till 09.10.2018 with entitlement of his fees also.
# 7. The Adjudicating Authority by impugned order has directed calculation of fee of the Interim Resolution Professional upto 09.10.2018 when the Interim Resolution Professional was changed. The question for consideration in this Appeal is as to in the facts of the present case Respondent was entitle for his fee upto which date. Whether when CoC decided to replace the Interim Resolution professional he ceased to entitle to any fee?
# 10. The present is not a case where CoC in first meeting resolved to appoint the Interim Resolution Professional as Resolution Professional rather they in the first meeting resolved to replace the Interim Resolution Professional by another Resolution Professional. The present case is covered by Section 22 (3) (b) where CoC decided to replace the Interim Resolution Professional and it had filed an Application before the Adjudicating Authority for appointment of proposed Resolution Professional on 31.07.2018. Sub-section (4) of Section 22 requires that the Adjudicating Authority shall forward the name of the Resolution Professional proposed under clause (b) of sub-section (3) to the Board for its confirmation and shall make such appointment after confirmation by the Board. The most relevant provision is sub-section (5) of Section 22 which empowers the Adjudicating Authority to pass an order for the Interim Resolution Professional to continue to function as the Resolution Professional where the Board does not confirm the name of the proposed Resolution Professional within 10 days. The present case is not a case where Adjudicating Authority has passed any order after 31.07.2018 to continue the Interim Resolution Professional till the confirmation of the Board is received. Sub-section (5) of Section 22 requires an order by the Adjudicating Authority to continue Interim Resolution Professional as the Resolution Professional. When Resolution is passed by the CoC to replace the Interim Resolution Professional, requirement of order to continue Interim Resolution Professional in such cases is a statutory scheme delineated by the provisions. Conversely when no order is passed by the Adjudicating Authority to continue Interim Resolution Professional under Section 22(5), he cannot claim continuance of the Interim Resolution Professional his claim of continuance will be contrary to the statutory scheme.
# 12. Sub-regulation (3) of Regulation 17 provides that when appointment of the Interim Resolution Professional is delayed, the Interim Resolution Professional shall perform the functions of the Resolution Professional from the fortieth day of the insolvency commencement date till a Resolution Professional is appointed under Section 22. Regulation 17(3) cannot be read in a manner which may have effect of defeating the purpose and object of Section 22(5) by allowing the Interim Resolution Professional to continue without there being any order of the Adjudicating Authority in a case where decision has been taken to replace the Interim Resolution Professional. The provision of sub-section (5) of Section 22 requiring an order of the Adjudicating Authority to continue the Interim Resolution Professional to continue to function will become redundant and otiose if it is held that even without an order under Section 22(5), he can continue by virtue of Regulation 17(3). Regulation 17(3) being sub servient to provisions of the Code cannot be interpreted in a manner to defeat the scheme as delineated by sub-section (5) of Section 22. Regulation 17 may cover other situation but not a case covered by Section 22 (3)(b) read with Section 22 (5).
# 13. In view of the above, after 10 days of sending the name of Resolution Professional to Board by the Adjudicating Authority, there being no order of the Adjudicating Authority to continue the Interim Resolution Professional as Resolution Professional, the Interim Resolution Professional has no right to continue to function as the Resolution Professional after such date. Obviously, the claim of the Respondent to continue to function as Resolution Professional till 09.10.2018 cannot be accepted.
# 14. The Adjudicating Authority have erred in allowing the claim of fee of Resolution Professional till 09.10.2018. The effect of Resolution of CoC to replace the Interim Resolution Professional as well as the effect of filing of the Application before the Adjudicating Authority had not been considered by the Adjudicating Authority at all. The Adjudicating Authority proceeded to mechanically direct for payment of professional fee till 09.10.2018 without taking into consideration what was effect of the above scheme of the statutory provision and as to what actual work conducted by the Interim Resolution Professional. From the material on record, it does appear that after first meeting of the CoC dated 16.07.2018 when a decision was taken to replace the Interim Resolution Professional, no substantial work has been done. The second meeting was convened by the Interim Resolution Professional on 10.08.2018 which too was objected and no business was transacted in the said meeting also. Thus, effectively the Interim Resolution Professional could function only till 16.07.2018 and, as noted above, legally he could not have continued after 10 days from sending the proposal of new Resolution Professional by Adjudicating Authority as per Section 22 of the Code.
# 15. This Tribunal passed an interim order on 12.07.2019 subject to condition of payment of Rs. 10 lakh to Respondent No.2 which has been accepted by Respondent. Looking to the sequence of events, as noted above, and actual work conducted by the Respondent, the amount of Rs. 10 lakh is sufficient to cover the fee payable to the Interim Resolution Professional including the cost for Insolvency Resolution Process. We are of the view that the amount paid to Respondent under interim orders sufficiently cover the Insolvency Resolution Process costs and no further payment is required to be made.
# 16. The Appeal is allowed. The order passed by the Adjudicating Authority dated 26.06.2019 is set aside to the above extent.
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