Parag Sheth IRP of Digjam Ltd. Vs. Sunil Kumar Agarwal RP for Digjam Ltd. - Section 20 (2)(b) of the IBC authorizes the IRP to enter into such contracts which were entered into before the commencement of CIRP.

NCLAT (13.08.2021) in Parag Sheth IRP of Digjam Ltd. Vs. Sunil Kumar Agarwal RP for Digjam Ltd. [Company Appeal (AT) (Insolvency) No. 1055 of 2020] held that; 

• With the aforesaid, it is apparent that without approval of the CoC the Appellant has taken decision to go with United India Insurance Company and renewed the insurance by paying higher insurance premium.

• We are of the view that Section 20 (2)(b) of the IBC authorizes the IRP to enter into such contracts which were entered into before the commencement of CIRP. In this case there was a new contract of insurance after the commencement of CIRP. The Appellant was aware with this situation that he cannot take such decision, therefore, he has circulated the quotations amongst the Members of CoC alongwith comparison of their premium amount. Thus, we are of the view that the aforesaid provision does not authorize the IRP to renew the insurance policy without approval of CoC at higher premium rate.

Excerpts of the order; 

# 2. Brief facts of this case are that one Operational Creditor M/s Oman Inc (HUF) filed an Application under Section 9 for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor M/s Digjam Ltd. Ld. Adjudicating Authority admitted the Application vide order dated 26.04.2019 and initiated CIRP and appointed Mr. Parag Sheth as IRP. Subsequently, IRP Mr. Parag Sheth has been replaced by the Resolution Professional (RP) Mr. Sunil Kumar Agarwal vide order dated 01.01.2020. Mr. Parag Sheth has handed over the charge and documents to the RP between 03.01.2020 to 07.01.2020.

 

# 3. On 12.02.2020 the Applicant “Mr. Parag Sheth” received an email from the Company Secretary (CS) of the Corporate Debtor that the Committee of Creditors (COC) in their 11th Meeting held on 03.02.2020 decided to pay the dues total Rs. 12,14,081/- (after deducting the excess amount paid for insurance premium Rs. 4,19,719/-. On 15.02.2020 the CS of the Corporate Debtor has sent a cheque of Rs. 11,06,081 after deducting TDS. Thereafter, on 27.05.2020 the Applicant has filed the Application I.A. No. 234 of 2020 before the Adjudicating Authority with the prayer that the RP and the Financial Creditors who are the Members of the CoC may be directed to pay outstanding professional fees and expenses to the Applicant and professional fees of Rs. 15,000/- to the PCS Mr. Jignesh Shah and Rs. 2,36,000/- to the Chartered Accountant (CA) Mr. Hiten Parikh.

 

# 5. Ld. Adjudicating Authority held that the Applicant is seeking direction to pay professional fees of CS Mr. Jignesh Shah and CA Mr. Hiten Parikh, but they have not authorized the Applicant for the same. Therefore, the Application on behalf of aforesaid professionals is not maintainable. The Applicant has paid excess insurance premium Rs. 4,19,719/- without approval of CoC and the Applicant is agitating the issue at belated stage when the Resolution Plan has already been approved by the Adjudicating Authority and CoC has been dissolved and the RP has also been discharged from his duty. Thus, the claim of the Applicant is not maintainable. Hence, dismissed the Application.

 

# 6. Being aggrieved with this order the Appellant (Mr. Parag Sheth) has filed this Appeal.

 

# 7. Ld. Counsel for the Appellant submitted that upon the instructions of the CoC the Appellant called quotations from insurance companies on receipt of the quotation the same were circulated amongst the Members of CoC alongwith comparison of their premium amount. As the insurance of the assets of the Corporate Debtor was lapsing on 10.12.2019. Therefore, the Appellant as the IRP recognizing the urgent need to get the insurance renewed in order to safeguard the assets of the Corporate Debtor, decided to go with United India Insurance Company Ltd. The decision taken by the Appellant was in due discharge of his duties and was fair and for the benefit of the Corporate Debtor to maintain it as a going concern. The Appellant has a statutory authority under Section 20 (2) (b) of the IBC to take the aforesaid action, assuming without the prior consent of the Creditors.

 

# 8. It is further submitted that Mr. Jignesh Shah was appointed to seek legal opinion on related party by the Appellant in exercise of power under section 20(2) (b) of the IBC. There is no limitation prescribed for filing such an Application and when the Application was filed at that time the Resolution Plan was pending before the Adjudicating Authority for approval. Ld. Adjudicating Authority without appreciating the facts erroneously dismissed the Application, the impugned order is liable to be set aside.

 

# 9. Per Contra, Ld. Counsels appearing for the Respondent No. 2 & 3 support the impugned order and submitted that without approval of CoC the Appellant had paid excess insurance premium amount of Rs. 4,19,719/, therefore, this amount has rightly been deducted from his fees and expenses. The CoC has not approved the appointment of PCS Mr.Jignesh Shah and CA Mr. Hiten Parikh. The CoC filed Application under Section 22 of the IBC seeking replacement of the Appellant (IRP) by appointment of Respondent No. 1 as RP. This application was contested by the CA Mr. Hiten Parikh representing the Appellant before the Adjudicating Authority. Thus, the Appellant cannot claim such professional fees. There is no merit in this Appeal. Hence, the Appeal is liable to be dismissed.

 

# 10. After hearing Ld. Counsels for the parties, we have gone through the record.

 

# 11. It is admitted fact that the Appellant had performed his duty as IRP from 26.04.2019 to 01.01.2020 and the Appellant has got the fees and expenses as shown in Annexure A10 Rs. 11,06,081/- after deducting TDS by Cheque No. 22 dated 10.02.2020, in this amount excess premium paid by the Appellant i.e. Rs. 4,19,719/- has been deducted.

 

# 12. For appreciating the argument, it is useful to reproduced the grounds 9.2 (d, e, f, g) of memo of appeal, which are as under:-

• “(d). The Appellant submits that the Members of the CoC decided to take insurance from IFFCO Tokio General Insurance Company Ltd. with premium amounting to Rs. 19,90,192/ as it was lowest quotation amongst all three quotation received. However, on due diligence of the same, it was found by the Appellant that the quotation which was quoted by the agent of the IFFCO Tokio was without the approval of the IFFCO Tokio General Insurance Company Ltd. and that the said insurance Company would only consider 30% of the sum assured for this insurance premium amount.

• (e). In furtherance to the above, it is submitted that in view of the aforesaid the Appellant renegotiated with the second lowest quotation provider i.e. United India Insurance Company Ltd. and got a quotation for Rs. 24,09,911/- which was duly informed to the Respondent No. 1 & 2 vide email dated 18.12.2019.

• (f). It is submitted by the Appellant that in view that the insurance of the assets of the Digjam Ltd. was lapsing on 10.12.2019, the Appellant as the IRP of the Corporate Debtor recognizing the urgent need to get the insurance renewed in order to safeguard the assets of the Corporate Debtor decided to go with United India Insurance Company Ltd. The Appellant submits that the decision taken by the Applicant was in due discharge of his duties and was fair and for the benefit of the Corporate Debtor to maintain it as a going concern, as well as stakeholders of the Corporate Debtor.

• (g). The Appellant states and submits that the Appellant has the statutory authority under Section 20 of the IBC to take aforesaid action, assuming while denying, without prior consent of the Creditors.”

 

# 13. With the aforesaid, it is apparent that without approval of the CoC the Appellant has taken decision to go with United India Insurance Company and renewed the insurance by paying higher insurance premium.

 

# 14. The Appellant submitted that he has statutory authority under Section 20(2) (b) of the IBC to take such decision. Hence, we have considered whether Section 20(2)(b) of the IBC authorizes the IRP to take such decision. Section 20(2)(b) reproduced as under:

• “To enter into contracts on behalf of the Corporate Debtor or to amend or modify the contracts or transactions which were entered into before the commencement of Corporate Insolvency Resolution Process”

 

# 15. We are of the view that Section 20 (2)(b) of the IBC authorizes the IRP to enter into such contracts which were entered into before the commencement of CIRP. In this case there was a new contract of insurance after the commencement of CIRP. The Appellant was aware with this situation that he cannot take such decision, therefore, he has circulated the quotations amongst the Members of CoC alongwith comparison of their premium amount. Thus, we are of the view that the aforesaid provision does not authorize the IRP to renew the insurance policy without approval of CoC at higher premium rate.

 

# 16. The Appellant (IRP) has engaged CA Mr. Hiten Parikh for representing the Appellant before the Adjudicating Authority against the decision taken by the CoC. As CoC has filed Application I.A. No. 306 of 2019 seeking to replacement of the Appellant as IRP by appointment of Respondent No. 1 as RP. Certainly, the Appellant (IRP) is not entitled for professional fees of CA of Mr. Hiten Parikh.

 

# 17. The Appellant without any approval appointed CS Jignesh Shah for the purpose of seeking legal opinion in the matter of related party. It is also pertinent to note that Mr. Hiten Parikh and Jignesh Shah have not authorized the Appellant to file Application on behalf of them. Thus, the Appellant cannot pursue their claims before the Adjudicating Authority.

 

# 18. It is true that there is no limitation prescribed for filing the Application for IRP’s fees but such Application should have been filed without delay. In this matter, the Appellant came to know on 12.02.2020 that the excess premium amount i.e. Rs. 4,19,719/- has been deducted from his fees and expenses then he should have filed the Application immediately before the CoC/ the Adjudicating Authority, however, he has filed the Application after lapse of three months on 13.05.2020.

 

# 19. Now, the Resolution Plan has been approved by the Adjudicating Authority and therefore, the CoC has already been dissolved and the RP has been discharged. In such circumstances, Ld. Adjudicating Authority has righty dismissed the Application. We find no ground to interfere in the impugned order. Thus, the Appeal is dismissed, however, no order as to costs.

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Alok Kaushik Vs Mrs. Bhuvaneshwari Ramanathan and Others - Fees of a Professional & dispute resolution U/s 60(5)(c) of the IBC.

Supreme Court (15.03.2021) in Alok Kaushik Vs  Mrs. Bhuvaneshwari Ramanathan and Others  [Civil Appeal No 4065 of 2020] held that;

• Adjudicating Authority is sufficiently empowered under Section 60(5)(c) of the IBC to make a determination of the amount which is payable to an expert valuer as an intrinsic part of the CIRP costs. Regulation 34 of the IRP Regulations defines ‘insolvency resolution process cost’ to include the fees of other professionals appointed by the RP. Whether any work has been done as claimed and if so, the nature of the work done by the valuer is something which need not detain this Court, since it is purely a factual matter to be assessed by the Adjudicating Authority.

• The availability of a grievance redressal mechanism under the IBC against an insolvency professional does not divest the NCLT of its jurisdiction under Section 60(5)(c) of the IBC to consider the amount payable to the appellant. In any event, the purpose of such a grievance redressal mechanism is to penalize errant conduct of the RP and not to determine the claims of other professionals which form part of the CIRP costs.

Excerpts of the order;

# 2 The present appeal arises out of proceedings relating to the insolvency of a company by the name of Kavveri Telecom Infrastructure Limited (“Corporate Debtor”). The National Company Law Tribunal, Bengaluru (“NCLT” or “Adjudicating Authority”) initiated the Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor by its order dated 21 March 2019. By an order dated 26 August 2019, the first respondent was appointed as the Resolution Professional (“RP”).

 

# 3 By a letter dated 16 September 2019, the first respondent appointed the appellant as a registered valuer of the Plant and Machinery of the Corporate Debtor, under Regulation 27 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“IRP Regulations”). The appellant was appointed to value the plant and machinery at 115 sites of the Corporate Debtor across India. The appellant’s appointment fee (Rs 7.50 lakhs plus applicable GST) and other expenses were ratified by the Committee of Creditors (“CoC”), led by the second respondent, in its meeting held on 9 December 2019.

 

# 4 The appellant claims to have conducted valuation work of over eighty-four sites and to have visited forty sites. Further, several outstation meetings were also stated to have been conducted between the appellant and the first respondent. The appellant has stated that he paid for expenses in the sum of Rs 52,000.

 

# 5 The National Company Law Appellate Tribunal (“NCLAT” or “Appellate Authority”) set aside the initiation of CIRP against the Corporate Debtor by an order dated 18 December 2019. The NCLAT remanded the matter back to the NCLT to decide on the issue of CIRP costs. By an order dated 20 December 2019, the NCLT decided on the fee of the RP and reduced it by 20% from the fee ratified by the CoC.

 

# 6 In view of the order dated 18 December 2019 of the NCLAT, the first respondent cancelled the appointment of the appellant on 19 December 2019. In relation to the fee payable to the appellant, the first respondent requested him to consider a waiver. In return, the appellant agreed to reduce his fee by 25% from the fee ratified by the CoC, along with the expenses payable. However, on 2 March 2020, the first respondent informed the appellant that the fee as ratified could not be paid, and paid a sum of Rs 50,000.

 

# 7 The appellant then filed an application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) before the NCLT challenging the non-payment of the fees. However, the NCLT dismissed the application by an order dated 29 June 2020 concluding that it had been rendered functus officio. In appeal, the NCLAT by an order dated 13 October 2020 rejected the contention of the appellant, noting that an amount of Rs 50,000 had already been paid over. The appellant moved this Court in an appeal under Section 62 of the IBC, for challenging the order of the NCLAT.

 

# 8 On 11 January 2021, this Court issued notice in the appeal and, while doing so, passed the following order:

• “1 Mr Manish Paliwal, learned counsel appearing on behalf of the appellant submits that:

• (i) The appellant was appointed as a Registered Valuer on 16 September 2019, and that his professional fees and other expenses in the amount of Rs 7.50 lakhs were ratified by the Committee of Creditors on 19 December 2019;

• (ii) The NCLAT by its order dated 18 December 2019 set aside the corporate insolvency resolution process and the proceedings were remitted to the NCLT to decide on the CIRP costs;

• (iii) On 20 December 2019, the NCLT determined the fees which were payable to the Interim Resolution Professional; and

• (iv) However, despite the order of the NCLAT, no determination was made by the NCLT of the amount which was due and payable to the appellant for the work which was done as a Registered Valuer, recording that an amount of Rs 50,000 has been paid.

• 2 Issue notice, returnable in four weeks.

• 3 Dasti, in addition, is permitted.”

 

# 10 The issue in the present appeal relates to the costs, charges, expenses and professional fees payable to a registered valuer appointed after the initiation of the CIRP under the IBC, in a situation where the CIRP is eventually set aside by the Adjudicating Authority or, as the case may be, Appellate Authority.

 

# 11 The submission of the appellant is that neither the NCLT nor the NCLAT have applied their mind to the professional charges payable to him in his capacity as a registered valuer. According to the appellant, he had completed the valuation of eighty-four sites and undertaken expenses of Rs 52,000 in the valuation exercise. During the course of the hearing Mr Manish Paliwal, learned counsel appearing on behalf of the appellant, also submits that an amount of Rs 35,000 was paid towards GST by the appellant. But the real issue which has been sought to be canvassed in the appeal is that in a situation such as present, where the CIRP was set aside by the Appellate Authority, there has to be within the framework of the IBC, a modality for determining the claim of a professional valuer such as the appellant. The NCLT came to the conclusion that it was functus officio. The NCLAT declined to exercise its appellate jurisdiction.

 

# 18 Regulation 30(A) would not apply specifically to the present situation, since it deals with a case where an application is withdrawn under Section 12A of the IBC. The appellant is justified in contending that there must be a forum within the ambit and purview of the IBC which has the jurisdiction to make a determination on a claim of the present nature, which has been instituted by a valuer who was appointed in pursuance of the initiation of the CIRP by the RP. After the NCLAT set aside the CIRP and remitted the proceedings to the NCLT to decide on the CIRP costs, the NCLT held that it was rendered functus officio in relation to the appellant’s claim. This, in our view, would be an incorrect reading of the jurisdiction of the NCLT as an Adjudicating Authority under the IBC. In a recent judgment in Gujarat Urja Vikas Nigam Limited vs Amit Gupta and Others, this Court clarified the jurisdiction of the NCLT/NCLAT under Section 60(5)(c)3 of the IBC in the following terms:

• “71. The institutional framework under the IBC contemplated the establishment of a single forum to deal with matters of insolvency, which were distributed earlier across multiple fora…Therefore, considering the text of Section 60(5)(c) and the interpretation of similar provisions in other insolvency related statutes, NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the Corporate Debtor. However, in doing do, we issue a note of caution to the NCLT and NCLAT to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the Corporate Debtor. The nexus with the insolvency of the Corporate Debtor must exist.” 

(emphasis supplied)

 

# 19 Though the CIRP was set aside later, the claim of the appellant as registered valuer related to the period when he was discharging his functions as a registered valuer appointed as an incident of the CIRP. The NCLT would have been justified in exercising its jurisdiction under Section 60(5)(c) of the IBC and, in exercise of our jurisdiction under Article 142 of the Constitution, we accordingly order and direct that in a situation such as the present case, the Adjudicating Authority is sufficiently empowered under Section 60(5)(c) of the IBC to make a determination of the amount which is payable to an expert valuer as an intrinsic part of the CIRP costs. Regulation 34 of the IRP Regulations defines ‘insolvency resolution process cost’ to include the fees of other professionals appointed by the RP. Whether any work has been done as claimed and if so, the nature of the work done by the valuer is something which need not detain this Court, since it is purely a factual matter to be assessed by the Adjudicating Authority.

 

# 20 The NCLT in its order dated 29 June 2020, while dismissing the application of the appellant for the payment of fees, observed that the Insolvency and Bankruptcy Board of India (“IBBI”) is the competent authority to deal with allegations against the RP relating to their failure to discharge statutory duties (paragraph 7). Section 217 of the IBC empowers a person aggrieved by the functioning of an RP to file a complaint to the IBBI. If the IBBI believes on the receipt of the complaint that any RP has contravened the provisions of IBC, or the rules, regulations or directions issued by the IBBI, it can, under Section 218 of the IBC, direct an inspection or investigation. Under Section 220 of the IBC, IBBI can constitute a disciplinary committee to consider the report submitted by the investigating authority. If the disciplinary committee is satisfied that sufficient cause exists, it can impose a penalty. The availability of a grievance redressal mechanism under the IBC against an insolvency professional does not divest the NCLT of its jurisdiction under Section 60(5)(c) of the IBC to consider the amount payable to the appellant. In any event, the purpose of such a grievance redressal mechanism is to penalize errant conduct of the RP and not to determine the claims of other professionals which form part of the CIRP costs.

 

# 21 We accordingly allow the appeal and set aside the impugned judgment and order of the NCLAT dated 13 October 2020. The proceedings shall accordingly stand remitted back to the NCLT for determining the claim of the appellant for the payment of the professional charges as a registered Valuer appointed by the RP in pursuance of the initiation of the CIRP. In order to facilitate a fresh determination by the NCLT, the order passed by the NCLT on 18 December 2019 is also set aside and CA No 192 of 2020 shall stand restored to the file of the NCLT for determination afresh in the light of the above observations.

 

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Dinesh Sugnomal Kanjani Vs. Sunil Kumar Agarwal RP - Appointment & payment of fees of Professionals (Valuer) by IRP/RP

 NCLT Ahmedabad (01.03.2021) in Dinesh Sugnomal Kanjani Vs. Sunil Kumar Agarwal RP For H M Industrial Pvt Ltd & Anr [IA 390 of 2020 in CP(IB) 81 of 2019 ] held that;

• that, as per the provision of Section 18(c) (d) & (g) r.w. Section 20 (2) (a) the IRP is well within his power to appoint Valuer. It is also not in dispute that there is no requirement under the provisions of the Code' to take approval of such appointment by IRP from CoC so far as the present issue is concerned. Further to that as per Section 17 IRP is obliged to manage the affairs of the Corporate debtor. Thus, there is complete authority with IRP to conduct Corporate Insolvency Resolution Process (CIRP) as per the provisions of law and no legal restrictions exist and the post facto approval is also not required in such situation.

• It is also noted that even RP is not required to take any approval from the COC in this regard as RP is competent to do so in terms of provisions of Section 23(2) r.w. Section 25(2) (d) of Insolvency & Bankruptcy Code, 2016 for such appointment no approval is required under Section 28 of the Insolvency & Bankruptcy Code, 2016.

Excerpts of the order;

# 1. The Application is filed under Section 60(5) of the Insolvency & Bankruptcy Code, 2016 r.w. Rule 11 of the National Company Law Tribunal Rules, 2016 (hereinafter referred to as “NCLT Rules 2016") seeking for professional fee of Rs. 1,12,776/- along with legal expenses incurred for filing of this application. 

# 2. The facts, in brief, are that the corporate debtor was admitted into Corporate Insolvency Resolution Process (CIRP) by this Authority on 07.06.2019 in CP(IB) 81/9/NCLT/AHM/2019. The IRP was appointed who commenced Corporate Insolvency Resolution Process (CIRP). The IRP appointed the Applicant to act as Valuer' vide its letter dated 21.07.2019. The Valuer visited the site and asked IRP to provide necessary details so that the Applicant could ascertain the fair value and liquidation value as per Rules. 

# 3. Subsequently, IRP was changed. The RP vide its E-mail dated 24.09.2019 submitted that the Applicant's appointment had not been approved by the CoC and RP required applicant to furnish fresh quotation. The Valuer vide its E-mail dated 01.10.2019 submitted that the report was ready as per the information available and also requested further details for the purpose of submitting the final report. The RP however submitted that difficulty had arisen because of non-approval of his appointment by the CoC, hence, matter could not be settled. The correspondences continued ultimately the Applicant sent legal notice. However, without any results, the present application.

# 4. Learned Counsel appeared for the Applicant and vehemently argued the matter. 

# 5. Apart from this narrating the facts. Learned Counsel for the RP and CoC mainly submitted that approval of CoC was not there, hence, this payment is not payable. Both of them supported the stand taken by RP. Our attention was also drawn to the CoC minutes and communication exchanged between the RP and the Applicant. 

# 6. We have considered the submissions of all the parties and material available on record. It is not in dispute that the Corporate Insolvency Resolution Process (CIRP) commenced on 07.06.2019 and IRP appointed the Applicant as Valuer on 25.07.2019. It is also not in dispute that, as per the provision of Section 18(c) (d) & (g) r.w. Section 20 (2) (a) the IRP is well within his power to appoint Valuer. It is also not in dispute that there is no requirement under the provisions of the Code' to take approval of such appointment by IRP from CoC so far as the present issue is concerned. Further to that as per Section 17 IRP is obliged to manage the affairs of the Corporate debtor. Thus, there is complete authority with IRP to conduct Corporate Insolvency Resolution Process (CIRP) as per the provisions of law and no legal restrictions exist and the post facto approval is also not required in such situation. It is not in dispute that the Valuer has visited site and also done the ground work. Further, from the perusal of the correspondence, we don't find any limitation being created or caution being given by RP to not to proceed with the work for want of approval of appointment by the CoC. 

# 7. It is also noted that even RP is not required to take any approval from the COC in this regard as RP is competent to do so in terms of provisions of Section 23(2) r.w. Section 25(2) (d) of Insolvency & Bankruptcy Code, 2016 for such appointment no approval is required under Section 28 of the Insolvency & Bankruptcy Code, 2016. RP is to act, in this regard as per the norms of IBBI. 

8. It is most unfortunate that the professional who under service in respect of the Corporate Debtor under CIRP that professional engaged are not paid in this fashion. 

# 9. Accordingly, we direct the RP/COC to make payment to the applicant within seven days from the date of receipt of this order. 

# 10. Accordingly, this application is allowed and stands disposed of. 

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