Devarajan Raman Vs. Vistra ITCL (India) Ltd. and Ors - In terms of Regulation 34B (5) of the CIRP Regulations, the fees of the Resolution Professional can only be paid from funds available with the Corporate Debtor; contributions made by the applicant or members of the CoC and funds raised by way of interim finance.

 NCLAT (2025.09.04) in Devarajan Raman Vs. Vistra ITCL (India) Ltd. and Ors. [(2025) ibclaw.in 353 SC, Civil Appeal No. 3826 of 2020 with Civil Appeal No. 540 of 2021 with Civil  Appeal No. 5495 of 2025 with Civil Appeal No. 3903 of 2022 ] held that

• In terms of Regulation 34B (5) of the CIRP Regulations, the fees of the Resolution Professional can only be paid from funds available with the Corporate Debtor; contributions made by the applicant or members of the CoC and funds raised by way of interim finance.

• We also agree with the pleadings of the Respondent Nos. 1 to 3 that it is CoC who were necessary party and correctly responsible for CIRP Cost and no individual member of the CoC can be held responsible for such payments.

Excerpts of the order;

# 1. The present appeal has been filed by the Appellant i.e. Devarajan Raman, who is the erstwhile Resolution Professional of Satra Properties (India) Ltd., under Section 61 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) against the Impugned Order dated 02.02.2024 passed by the National Company Law Tribunal, Mumbai Bench-IV (‘Adjudicating Authority’) in I.A. No. 3098 of 2022 in C.P.(IB) No. 1632 (MB)/2019. Vistra ITCL (India) Ltd. is the Respondent No. 1 herein.

# 2. Gajendra Investments Ltd., Pratiti Trading Pvt. Ltd., and Vaishali Arun Patrikar are the Respondent No. 2. Respondent No. 3 and Respondent No. 4 respectively, herein.

# 3. The Appellant submitted that the present appeal challenges the order dated 02.02.2024 passed by the Adjudicating Authority in Cont. A. 18 of 2023, which failed to enforce the undertaking given by Respondents No. 1 to 3 to pay the Appellant’s outstanding fees of Rs. 80,91,968.71. The impugned order, instead of directing immediate payment as per the undertaking recorded in the orders dated 16.09.2022 and 22.09.2022, instructed Respondent No. 4 to explore the possibility of raising interim finance, which is contrary to the explicit commitment made by the Respondents and violative of the principles of the Code, 2016.

# 4. The Appellant submitted that he was appointed as the Interim Resolution Professional (IRP) by the Adjudicating Authority, vide order dated 03.08.2020. Subsequently, at the first meeting of the Committee of Creditors (CoC) held on 03.10.2020, the Appellant was confirmed as the Resolution Professional (RP) under Section 22 of the Code. The CoC resolved to pay the Appellant a monthly fee of Rs. 5,00,000/- plus applicable taxes and reasonable out-of-pocket expenses, payable by the 10th of the following month by CoC members in proportion to their voting share, until the approval of the Resolution Plan or issuance of a liquidation order. The Appellant further submitted that he voluntarily reduced his monthly fee to Rs. 2,25,000/- plus applicable taxes to ensure compliance with professional ethics and to facilitate the smooth conduct of the CIRP.

# 5. The Appellant contended that, despite the unprecedented challenges posed by the COVID-19 pandemic, he diligently completed the CIRP within 13 months, submitting the Resolution Plan to the Adjudicating Authority, on 01.10.2021 (IA 2273 of 2021) demonstrated his entitlement to the agreed fees, which form part of the CIRP costs duly approved by the CoC.

# 6. It is the claim of the Appellant that the Respondents requested the Appellant to file a complaint with the Serious Fraud Investigation Office (SFIO), but the Appellant advised that such matters required CoC approval and adequate documentation, and the appropriate course was to seek an investigation order from the Adjudicating Authority under the code. The Appellant submitted that, dissatisfied with his prudent advice, Respondents No. 1 to 3 sought his replacement vide IA 1162 of 2022 filed with malafide intentions. The Appellant submitted that he was replaced as Resolution Professional by the Adjudicating Authority vide order dated 22.09.2022 in IA 1162 of 2022, premised on an undertaking by Respondents No. 1 to 3 to pay his outstanding fees of Rs. 80,91,968.71 upon handover of charge to the new Resolution Professional. The undertaking, recorded in the orders dated 16.09.2022 and 22.09.2022, was given by the Respondents’ counsel further highlighting the procedural irregularity in their actions.

# 7. The Appellant submitted that, despite the non-payment of his fees, he handed over charge to the new Resolution Professional on 28th and 29th September 2022 to ensure the smooth functioning of the Corporate Debtor. The Appellant contended that the Respondents’ failure to honour their undertaking, even after repeated reminders via emails that went unanswered, constitutes wilful disobedience of the Adjudicating Authority’s orders, attracting liability under the Contempt of Courts Act, 1971.

# 8. The Appellant submitted that the new Resolution Professional (Respondent No. 4) filed frivolous applications, namely IA 3271 of 2022 and IA 1009 of 2023, falsely alleging that the Appellant had siphoned off funds from the Corporate Debtor’s account. These allegations pertained to a cheque issued on 31.07.2020 (prior to CIRP commencement on 03.08.2020) and payments of Rs. 91,00,000/- post-CIRP, which were addressed in avoidance transaction applications. The Appellant submitted that the Adjudicating Authority dismissed both applications on 10.01.2024 and 08.01.2024 respectively, finding no merit. The Appellant contended that Respondent No. 4’s applications were filed without CoC approval and in disregard of the Respondents’ undertaking, further evidencing a concerted effort to malign the Appellant and withhold his rightful fees. The filing of IA 1009 of 2023, seeking a refund of Rs. 91,00,000/-, duplicated relief sought in IA 3921 of 2022 against Darshan Developers Pvt. Ltd., highlighting Respondent No. 4’s reckless conduct.

# 9. The Appellant submitted that the non-payment of Rs. 80,91,968.71 has caused severe financial hardship, including default on GST payments, which attracts interest and penalties. The Appellant contended that this default is a direct consequence of the Respondents’ failure to honour their undertaking and the CoC-approved CIRP costs, exacerbating the Appellant’s financial distress.

# 10. The Appellant submitted that the Adjudicating Authority erred in the impugned order dated 02.02.2024 by failing to direct Respondents No. 1 to 3 to immediately pay the outstanding fees, despite their explicit undertaking, instead, the Impugned Order directed Respondent No. 4 to explore interim finance, which is contrary to the orders dated 16.09.2022 and 22.09.2022. The Appellant contended that this direction undermines the sanctity of judicial undertakings and the framework of the Code.

# 11. The Appellant submitted that the Adjudicating Authority also failed to consider that the fees were approved by the CoC on 03.10.2020 as part of the CIRP costs and non-payment of these fees not only violates the CoC’s resolution but also jeopardizes the CIRP process.

# 12. The Appellant requested this Appellate Tribunal to direct Respondents No. 1 to 3 to pay the outstanding fees and expenses of Rs. 80,91,968.71 to the Appellant forthwith, along with applicable interest for the delay and hold Respondents No. 1 to 3 liable for contempt of court for wilful disobedience of their undertaking recorded in the orders of the Adjudicating Authority dated 16.09.2022 and 22.09.2022. The Appellant further requested this Appellate Tribunal to direct Respondent No. 4 to comply with Regulation 34B (5) of the IBBI Regulations by placing the undertaking before the CoC for immediate action.

# 13. Concluding his arguments, the Appellant requested this Appellate Tribunal to set aside the Impugned Order and to allow the appeal.

# 14. Per contra, the Respondents No. 1 to 3 (herein referred to as ‘Respondents’) denied all averments made by the Appellants as misleading and baseless. The Respondents submitted that the appeal is not maintainable due to the Appellant’s failure to implead the CoC as a necessary party. The impugned order dated 02.02.2024, passed by the Adjudicating Authority directed the CoC to explore raising interim finance to pay the Appellant’s fees of Rs. 80,91,968.71. The Respondents contended that the CoC, as the decision-making authority under the Code, was required to be arrayed as a party, as also directed in the order dated 10.01.2024 in IA 3098/2022. We take into consideration the relevant order of the Adjudicating Authority which is represented below:-

15. The Respondents submitted that the Appellant’s prayer to set aside the impugned order and seek payment of Rs. 80,91,968.71 with 9% interest per annum from the date of handover is misconceived and contrary to the Code. The Respondents submitted that, under Section 5(13)(a) and (b) of the Code, the fees of a Resolution Professional constitute part of the CIRP costs. Regulation 34 and Regulation 34B of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations), stipulate that such fees are to be determined by the CoC and paid from specific sources: funds available with the Corporate Debtor, contributions by the applicant or CoC members, or funds raised through interim finance. The Respondents contended that these provisions clearly vest the responsibility for payment of the Appellant’s fees with the CoC, not individual members like the Respondents.

16. The Respondents submitted that they collectively hold only 30.89% of the voting share in the CoC, as per the composition established by this Appellate Tribunal’s order dated 15.04.2024 in Company Appeal (AT) (Insolvency) No. 1590/2023. The Respondents contended that they do not constitute the majority of the CoC, nor do they represent the CoC as a whole. therefore, they cannot be held individually liable for the Appellant’s fees, as the liability lies with the CoC in proportion to the voting shares of its members.

17. The Respondents submitted that the Appellant’s reliance on the alleged undertaking recorded in the orders dated 16.09.2022 and 22.09.2022 is misplaced. The order dated 16.09.2022 does not record any undertaking by the Respondents. The order dated 22.09.2022 explicitly states that the undertaking was given by the Learned Senior Counsel on behalf of the CoC, stating that “the Fee of the erstwhile Resolution Professional shall be paid as decided by the CoC.” The Respondents contended that no personal undertaking was given by them, and the obligation to pay the Appellant’s fees rests solely with the CoC.

18. The Respondents further submitted that the Appellant himself acknowledged the CoC’s role in an email dated 30.09.2022, wherein he informed all CoC members, including the Respondents, that the handover was complete and payment was outstanding. The lack of response from CoC members, as noted by the Appellant, underscores that the matter pertains to the CoC collectively, not the Respondents individually.

19. The Respondents submitted that the Appellant’s claim for fees has been adequately addressed under the Resolution Plan approved by the Adjudicating Authority vide order dated 26.07.2024 in IA No. 2273/2021 in CP(IB) No. 1632/MB/2019. The Resolution Plan provides for CIRP costs (which also includes the fees of the Resolution Professional), estimated at Rs. 1,50,00,000/-, to be paid in full within 30 days from the approval date. The Respondents contended that the Successful Resolution Applicant (SRA) has deposited Rs. 4,50,65,981/- with the Registrar, NCLAT, as directed by this Appellate Tribunal on 22.08.2024 in CA(AT)(I) No. 1627/2024 & 1628/2024, ensuring the availability of funds for CIRP costs.

20. At this stage, we reproduce our earlier order dated 22.08.2024 as under:-

Thus, indeed the SRA was directed to deposit CIRP cost as FD with the Registrar, NCLAT.

# 21. The Respondents submitted that the Appellant has not raised any grievance regarding the provision for his fees in the approved Resolution Plan, rendering his claim in the present appeal redundant. The Respondents contended that the appeal is an attempt to bypass the Code’s framework by seeking relief against individual CoC members, which is not permissible under the law.

# 22. The Respondents submitted that the Appellant’s allegations regarding his removal as Resolution Professional are baseless. The replacement of the Appellant was approved by the Adjudicating Authority vide order dated 22.09.2022 in IA 1162/2022, which was not challenged by the Appellant and has attained finality. The Respondents contended that the decision to replace the Appellant was taken by the CoC, and the Respondents, as members, acted within their rights under the Code.

# 23. The Respondents submitted that the Appellant’s claim of financial hardship due to non-payment of GST is a matter of his own compliance and does not impose liability on the Respondents. The Respondents contended that the CIRP costs, including the Appellant’s fees, are adequately provided for in the Resolution Plan, and the Appellant’s recourse lies within the framework of the approved plan, not through selective targeting of the Respondents.

# 24. The Respondents requested this Appellate Tribunal to reject the Appellant’s appeal.

# 25. The Respondent No. 4 submitted that the grievance regarding the non-payment of Rs. 80,91,968.71 has been addressed through the approval of the Resolution Plan vide order dated 26.07.2024 in IA No. 2273/2021. The SRA has deposited Rs. 4,50,65,981/- in a fixed deposit in favour of the Registrar, NCLAT, New Delhi, on 06.09.2024, as per the order dated 22.08.2024 in CA(AT)(I) No. 1627/24 & 1628/24, which includes the Appellant’s claimed amount.

# 26. The Respondent No. 4 contended that the approval of the Resolution Plan and the deposit of CIRP costs render the appeal infructuous, as the Appellant’s fees, forming part of the CIRP costs payable under the approved Resolution Plan. The Respondent No. 4 submitted that the Appellant has not raised any grievance regarding the provision for his fees in the Resolution Plan, and seeking relief against Respondent No. 4 is misplaced and contrary to the Code.

# 27. The Respondent No. 4 submitted that he diligently complied with the Adjudicating Authority’s directions in the impugned order dated 02.02.2024 by taking steps to explore interim finance. The Respondent No. 4 sent emails to CoC members and third parties inviting proposals, and on 16.06.2024, Resolve-IPE Pvt. Ltd. shared a term sheet. A CoC meeting was proposed to discuss this, but before it could be held, the Adjudicating Authority reserved orders on the Resolution Plan vide order dated 01.07.2024. Respondent No. 4 contended that his actions demonstrate full compliance with the impugned order.

# 28. The Respondent No. 4 submitted that the undertaking referenced by the Appellant, recorded in the orders dated 16.09.2022 and 22.09.2022, was given on behalf of the CoC, not by Respondent No. 4. The order dated 22.09.2022 explicitly states that the fees of the erstwhile Resolution Professional shall be paid as decided by the CoC, and no obligation was imposed on Respondent No. 4. The Respondent No. 4 contended that the Appellant’s attempt to hold him liable is baseless and unsupported by the record.

# 29. The Respondent No. 4 submitted that the applications filed by him, namely IA No. 3271/2022 and IA No. 1009/2023, were not frivolous but were moved in good faith to protect the interests of the Corporate Debtor. These applications addressed transactions, including a cheque issued on 31.07.2020 and payments of Rs. 91,00,000/- post-CIRP, which were under scrutiny in avoidance transaction applications. The Respondent No. 4 contended that the Adjudicating Authority’s orders dated 10.01.2024 and 08.01.2024 disposing of these applications were based on the order dated 02.01.2024 in IA No. 3921/2022, which directed Darshan Developers to refund Rs. 91,00,000/- to the Corporate Debtor, and not due to lack of merit. The Respondent No. 4 submitted that his actions as Resolution Professional were within the scope of his duties under the Code, particularly to safeguard the Corporate Debtor’s assets. The filing of IA No. 3271/2022 and IA No. 1009/2023 was aimed at addressing potential wrongdoings, and Respondent No. 4 denied the Appellant’s allegation that these applications contained false claims. The Respondent No. 4 contended that these applications were necessary to ensure transparency and accountability in the CIRP.

# 30. The Respondent No. 4 submitted that the contempt application (Cont. A. No. 18/2023) filed by the Appellant was dismissed by the Adjudicating Authority vide order dated 07.03.2024, which held that there was no wilful disobedience of the order dated 22.09.2022. The Respondent No. 4 contended that this finding reinforces that she acted in accordance with his duties and did not violate any court orders.

# 31. The Respondent No. 4 submitted that the Appellant’s claim of financial hardship due to non-payment of GST is not attributable to Respondent No. 4, as his role is limited to managing the CIRP in accordance with the Code and CoC directions. The Respondent No. 4 contended that the Appellant’s fees are secured under the Resolution Plan, and any tax-related issues are a matter of the Appellant’s own compliance.

# 32. The Respondent No. 4 submitted that the impugned order dated 02.02.2024 is lawful and aligns with Section 5(15) and Section 28(1)(a) of the Code, which govern the raising of interim finance with CoC approval. The Respondent No. 4 contended that the Adjudicating Authority did not err in directing her to explore interim finance, and the subsequent approval of the Resolution Plan has addressed the payment issue, rendering the appeal redundant.

# 33. The Respondent No. 4 submitted that the appeal does not raise any substantial question of law against her, as her actions were consistent with her duties as Resolution Professional. The Appellant’s fees, forming part of the CIRP costs, are adequately provided for in the Resolution Plan, and the SRA’s deposit of Rs. 4,50,65,981/- ensures that the Appellant’s legitimate claims are covered.

# 34. The Respondent No. 4 prayed this Appellate Tribunal to dismiss the present appeal as infructuous, given the approval of the Resolution Plan and the deposit of CIRP costs by the SRA and to reject the Appellant’s prayers against Respondent No. 4, as no obligation was imposed on her under the orders dated 16.09.2022 and 22.09.2022, and her actions were lawful and within his duties

Findings

# 35. The limited issue in the present appeal is regarding non-payment of the fee and charges of the Erstwhile RP of the CD i.e.., Devarajan Raman, Appellant herein. We have already noted facts and rival contentions of the parties. Several issues have been raised by the Appellant regarding the conduct of the Respondent No. 4 and the alleged contempt by the other Respondents for not making payments to the Appellant.

# 36. We have gone through the Impugned Order passed by the Adjudicating Authority in I.A. No. 3098 of 2022, which reads as under: –

• “IA.11o.30981,2022 & 175312023 – 

• 6. Incoming RP is directed to explore the possibility of raising interim finance so as to make payment of outgoing RP and CoC must consider it positively.

• 7. In view of above, IA Nos. 309812022 & 175312023 are disposed of” 

• (Emphasis Supplied)

# 37. The relevant portion of the Impugned Order to this appeal is “Incoming RP is directed to explore the possibility of raising interim finance so as to make payment of outgoing RP and CoC must consider it positively”. Thus, the directions were given to the incoming Resolution Professional to explore the possibility of interim finance and the CoC to consider the same.

# 38. It is noted that as per Section 5(13) (a) and (b) of the Code, the fees payable to the Resolution Professional, along with any interim finance, squarely falls within the ambit of CIRP Costs. The manner of payment of such fees, being an integral component of CIRP Costs, is expressly provided under Regulations 34 and 34B of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”). In terms of Regulation 34B (5) of the CIRP Regulations, the fees of the Resolution Professional can only be paid from funds available with the Corporate Debtor; contributions made by the applicant or members of the CoC and funds raised by way of interim finance. In view of above, we find that the Adjudicating Authority has correctly passed the Impugned Order.

# 39. We also agree with the pleadings of the Respondent Nos. 1 to 3 that it is CoC who were necessary party and correctly responsible for CIRP Cost and no individual member of the CoC can be held responsible for such payments.

# 40. As regard, the contention of the Appellant is that the Respondent Nos. 1 to 3 gave undertaking before the Adjudicating Authority we take into consideration the relevant portion of such contention which has been recorded by the Adjudicating Authority in order dated 22.09.2022 which reads as under :-

• “Ld. Senior Counsel appearing on behalf of the CoC on instructions make statement across the bar that the Fee of the erstwhile Resolution Professional shall be paid as decided by the CoC.”      (Emphasis Supplied)

# 41. From above, it is clear that it is the CoC, on whose instructions, the Sr. Counsel gave the statement that the Erstwhile Resolution Professional shall be paid his dues as decided by the CoC thus, the arguments raised by the Appellant on this ground are not valid.

# 42. Be that as it may, this issue had cropped up, before us during the pleadings in hearing in Comp. App. (AT) (Ins.) No. 1628 of 24 and Comp. App. (AT) (Ins.) No. 1627 of 24 and this Appellate Tribunal gave the following order on 22.08.2024: –

• “the payment owed to the Appellant remains outstanding despite almost 3 years having lapsed from the undertaking of the concerned members of the CoC rendered and recorded in the order dated 22.09.2022 passed by the Adjudicating Authority” 

• (Emphasis Supplied)

# 43. It has been brought to our notice that since then SRA has deposited Rs. 4,50,65,981/- in Form of FD in favour of Registrar NCLAT. All the Respondents submitted that in view of these developments and deposit of CIRP Cost by SRA, the present application of Appellant has become infructuous.

# 44. We further note that during pleading the Appellant conceded to these facts that SRA indeed has deposited the amount, however, the Appellant was apprehensive of the fact that the appeals filed by the Praful Satra the Ex-Suspended Director of the Corporate Debtor in Comp. App. (AT) (Ins.) No. 1628 of 2024 and Comp. App. (AT) (Ins.) No. 1627 of 2024 are pending before this Appellate Tribunal and in case the Suspended Director succeeded, then the fund deposited by the SRA will revert to SRA and the Appellant will be paid nothing. The Appellant argued that in view of this, the undertaking of SRA which contained in this Appellate Tribunal’s order dated 22.09.2022, shall be frustrated.

# 45. We appreciate the apprehensions of the Appellant. However, we have passed detailed orders in Comp. App. (AT) (Ins.) No. 1628 of 2024 and Comp. App. (AT) (Ins.) No. 1627 of 2024, which are also being pronounced along with this appeal. We have dismissed both the appeals of Praful Satra, the Suspended Director of the Corporate Debtor, as such the apprehensions of the Appellant, as discussed above, no more remain relevant.

# 46. We note that CIRP Cost has already been deposited by SRA. We further note that although the CoC has not been made a party here, however all the four Respondents including the members of the CoC as Respondent No. 1 to Respondent No. 3, as well as the Resolution Professional as Respondent No. 4, have committed to make the payments to the Appellant. In fact, the Adjudicating Authority has already recorded similar facts and observations in the Impugned Order.

# 47. Thus, we find that the present appeal has become infructuous, in view of the recent development, as discussed above.

# 48. Based on above, we dispose the appeal with liberty to the Appellant to approach the Adjudicating Authority in terms of the Impugned Order, in case he finds any grievances later. No cost. I.A., if any, are closed

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DBS Bank India Pvt. Ltd. Vs. Rakesh Kumar Jain RPl, Jiya Agro Pvt. Ltd. - Appellate Authority upheld the orders of the Adjudicating Authority that a CoC member is required to contribute towards the CIRP cost.

NCLAT (15.09.2022) in DBS Bank India Pvt. Ltd. Vs. Rakesh Kumar Jain RPl, Jiya Agro Pvt. Ltd.  [Comp. App. (AT) (Ins.) No. 540 of 2021] upheld the orders of the Adjudicating Authority that a CoC member is required to contribute towards the CIRP cost.

Excerpts of the Order;.

# 1. Aggrieved by the Impugned Order dated 24.03.2021, passed by the Learned Adjudicating Authority (National Company Law Tribunal, New Delhi, Court IV) in IA 1588/ND/2020 in IB/777/(ND)/2019 directing the Appellant Bank to pay Rs.10,20,858/- to Mr. Rakesh Kumar Jain/the Resolution Professional, on an Application IA 1588/ND/2020 preferred by the Resolution Professional seeking the payment of his fees.

 

# 2. Learned Counsel for the Appellant submitted that the Appellant is the sole ‘Financial Creditor’ of the reconstituted CoC and cannot be saddled with the liability of payment of the costs and fees of the RP. It is submitted that the remuneration and the expenses of the RP was fixed and approved by the ‘Operational Creditor’ who was the sole Member of the earlier CoC and immediately thereafter the entire constitution of the CoC was changed and the said ‘Operational Creditor’ was no longer a part of the CoC. The Appellant Bank today is the sole Member of the reconstituted CoC and has never ratified the remunerations and expenses. It is submitted that the RP has not discharged his responsibilities for which he is now claiming fees and also that the fees of the RP is not commensurate to the work put in by him. The CIRP cost which includes the fees of the RP has been accorded priority of payment in Liquidation and that the Adjudicating Authority did not appreciate the import of Section 53 of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as ‘The Code’) which gives priority payment of CIRP costs out of the proceeds of Liquidation of the ‘Corporate Debtor’ over and above any payment to a ‘Financial Creditor’.

 

# 3. Learned Counsel appearing for the first Respondent submitted that the first CoC Meeting held on 27.09.2019 approved the fees and expenses of the RP; despite knowing that the documents mortgaged by the ‘Corporate Debtor’ were fake, the Appellant Bank filed its claim of Rs.2.69Crores/- on 30.09.2019 with an intent to participate in the CIRP and recover his dues; the CoC was reconstituted on 12.10.2019 with the Appellant Bank as the sole ‘Financial Creditor’; that the Appellant participated in all the CoC Meetings and even passed a Resolution to liquidate the ‘Corporate Debtor’ in the fourth CoC Meeting dated 10.02.2020. The CIRP costs were approved by the CoC prior to the inclusion of the Appellant in the CoC and hence, as per proviso to Regulation 12(3) of CIRP Regulations, 2016, the Appellant cannot state that since it had not ratified the CIRP costs and expenses, it cannot be saddled with the liability.

 

Assessment:

# 4. The brief point which falls for consideration in this Appeal is whether the Appellant Bank, which is the sole ‘Financial Creditor’ of the reconstituted CoC be made liable to pay the fees of the CIRP Cost and RP, which the earlier CoC had ratified. The ‘Operational Creditor’ who had initiated the CIRP was initially the sole CoC Member which had ratified the fees and expenses at Rs.1Lakh per month. The total liability to be paid by the ‘Operational Creditor’ towards CIRP Cost was Rs.2,07,000/- till 12.10.2019. Subsequently, the Appellant Bank filed its claim and the CoC was reconstituted and the Bank became the sole CoC Member. It is not in dispute that the Appellant participated in all the CoC Meetings and even passed a Resolution seeking Liquidation of the ‘Corporate Debtor’ in the fourth CoC Meeting dated 10.02.2020. It is also not disputed that the fees and the cost incurred, claimed by the RP is only till the date, the Resolution for the Liquidation was passed. The contention of the Learned Counsel for the Appellant that the Promoters and Directors of ‘Corporate Debtor’ are absconding and no hypothecated goods were available and the mortgaged properties for which the debts were deposited were fraudulent, and hence the Bank is not liable to pay any CIRP Cost, is completely unsustainable as the liability to bear the CIRP expenses by any ‘Financial Creditor’ cannot have a nexus to the mortgaged documents being fake or otherwise, in fact if that is the case of the Bank, the question also arises with respect to the due diligence duty regarding the mortgaged documents etc., which ought to have been conducted by the Bank. Be that as it may, being the sole ‘Financial Creditor’ of the reconstituted CoC and having participated in all the Meetings and also admittedly having passed the Resolution seeking Liquidation of the ‘Corporate Debtor’, the Appellant Bank cannot now turnaround and say that they are not liable to pay the CIRP Costs and Fees. 

 

Regulation 12(3) of CIRP Regulations, 2016, reads as follows:

• “12. Submission of proof of claims.

• (3) Where the creditor in sub-regulation (2) is (a financial creditor under Regulation 8), it shall be included in the committee from the date of admission of such claim:

• Provided that such inclusion shall not affect validity of any decision taken by the committee prior to such inclusion.”

 

# 5. The proviso in this Regulation clearly stipulates that if any decision is taken by the committee, prior to the reconstitution, which in this case is the ratification of the fees and the expenses, its validity will not be affected. Admittedly the CIRP Costs were approved by the COC prior to the inclusion of the Appellant Bank and hence as per the proviso to Regulation 12(3) of CIRP Regulations, 2016, it is the liability of the Appellant Bank to pay the expenses. The quantum of costs and fees was ratified by the earlier CoC and the Appellant has not objected to any such issues having participated in the Meetings and specifically being the sole CoC. The Adjudicating Authority has only very fairly bifurcated the expenses to be paid by the ‘Operational Creditor’ and Rs.10,20,858/- to be paid by the Appellant Bank for the subsequent period till the Liquidation Resolution was passed.

 

# 6. Hence, we do not see any substantial reasons to interfere with the well-considered Order of the Adjudicating Authority and hence this Appeal fails and is accordingly dismissed. No order as to costs.

 

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Interim Finance – A Saviour

Interim Finance – A Saviour

Ravi Mital, 

From Chairman’s Desk, IBBI Newsletter, April - June 2022 (Vol-23)

“The design of rules on interim financing requires a balancing act. The possible benefits of a successful reorganisation need to be weighed against the potential risks. The possible benefits are to be found in a potential successful reorganisation in which the going concern value is captured and liquidation is warded off. This potential upside needs to be balanced against the risks associated with interim financing”.

Role de Weijis and Meren Baltjes

When a firm enters insolvency, the Insolvency and Bankruptcy Code, 2016 (IBC / Code) and Rules and Regulations made thereunder enable the best effort to revive the firm in a time bound manner and protect its enterprise capital, thus maximising the value for the benefit of all the stakeholders. The going concern status of a firm improves prospects of its resolution and preserves the enterprise value of the firm. This principle was also recognised by the Bankruptcy Law Reforms Committee (BLRC), which stated that the objective of the Code with respect to value maximisation and resolution can be met by ensuring a business as a going concern under the insolvency process.

The Code aims to provide a fresh life to the failed businesses and the moratorium provisions accord a breathing space to the corporate debtor (CD) to focus on its operations and assess prospects of its reorganisation. To reiterate the going concern facilitations provided under the Code, an amendment was brought in December 2019 to clarify that a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law, shall not be suspended or terminated on the grounds of insolvency, subject to the payment of related dues during the moratorium period. A firm needs supply of inputs and capital to function. The Code reckons the supply inputs as the essential or critical goods/services and accordingly provides that these cannot be terminated or interrupted during the moratorium period. These provisions reemphasize that the CD needs to have a reasonable level of liquidity in hand to preserve its licences and to ensure supply of critical inputs. The Code empowers the Insolvency Professional (IP) to raise interim finance as an endeavour to ensure the regular availability of funds during the resolution process. 

The interim report of the BLRC suggested that if a financially distressed company is to successfully pull itself out of insolvency proceedings, continued operations during such proceedings is to be facilitated, for which the company would need access to external finance. However, once a company enters the insolvency proceedings, it would find it difficult to obtain credit as only a few lenders would be willing to lend to a troubled company. Therefore, the insolvency framework needs to encourage lenders to come forward to lend through various incentives such as giving superpriority to such interim finance, increased governance rights, safeguards for protection of creditor interests etc.1  

In line with the recommendations of the Committee, the Code provides for raising of interim finance during the insolvency resolution process with the approval of committee of creditors (CoC). Interim finance has been included in the ‘insolvency resolution process costs’ which is given priority in payment, over other debts of the CD, both in resolution plan and during settlement of debts in liquidation. The Code safeguards the interests of the creditors by providing that while raising interim finance, no security interest shall be created over any encumbered property of the CD, without the prior consent of the creditors, whose debt is secured over such encumbered property.

Additionally, to encourage interim finance, on the recommendations of the Insolvency Law Committee (ILC)2, the IBBI (Liquidation Process) Regulations, 2016 (Liquidation Regulations) were amended to include ‘interest on interim finance for a period of twelve months or for the period from the liquidation commencement date till repayment of interim finance, whichever is lower’ in the liquidation costs. The Insolvency and Bankruptcy Board of India (IBBI/Board) released a discussion paper (June 14, 2022) that reviewed the provisions of interim finance and suggested that the liquidation cost may include the interest on interim finance till the same is actually repaid. This move is aimed at facilitating and encouraging the CoC members to make adequate funding arrangements for running the CD as a going concern. The Reserve Bank of India (RBI) also acknowledged the need of interim finance facilitated under the Code and provided for relaxation of provisioning norms for treatment of interim finance provided by the banking institutions. The Prudential Framework for Resolution of Stressed Assets issued in June 2019 provides that any interim finance extended by the lenders to debtors undergoing insolvency proceedings under the Code, may be treated as ‘standard asset’ during the corporate insolvency resolution process (CIRP). For a distressed company, interim finance is not only a requisite to meet the insolvency resolution process costs, but to provide for regular payments made for availing critical input supplies. This assumes greater importance where the company hardly has any cash flows or deposits available but has operational capacity to generate revenue and stand on its feet. While in some cases, the CoC is opposed to lend finance to the distressed entity, in other cases, interim finance is given only to meet the process costs, which may not be adequate to sail the company through its reorganisation. Considering the level of uncertainty and risk, the lenders remain apprehensive of lending amounts to a company already under stress. A recent research study3 indicates that in around 85% of the cases, amounts less than ` 5 crore were raised as interim finance, which may suggest that the said funds were likely utilised to cover the process costs only.

However, as the Code matures, it is expected that there will be an increased awareness among the lenders about the benefits of raising interim finance during CIRP as a measure to attempt the resolution of the CD and saving it from going into liquidation. It is natural to expect that the existing lenders would be leading to provide the interim finance, as- 

• (a) they are the beneficiaries to the higher chances of resolution and higher resolution amount being high in waterfall priority, so their interest in the outcome runs much deeper than an independent financier; and 

• (b) they have much better access to the information about the business of the CD. Time and again, the judiciary has upheld the commercial wisdom of the CoC in deciding the fate of the insolvent CD. 

The Code looks upon CoC to set the highest level of standards in its conduct and performance to best assess the viability and feasibility of CD’s business and facilitate revival of the CD.

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1 Interim Report of the Bankruptcy Law Reforms Committee, February, 2015.

2 Report of the Insolvency Law Committee, March, 2018.

3 Iyer V. V. et al. (2022), “An analysis of interim finance ecosystem as a supporting tool for the IBC regime”, Anusandhan: Exploring New Perspectives on Insolvency, p. 276.