Can Resolution Professionals Claim Full Fees Under IBC? Supreme Court Clarifies

Introduction

The Supreme Court of India recently addressed a significant issue concerning the fees payable to Resolution Professionals (RPs) under the Insolvency and Bankruptcy Code (IBC). In the case of Devarajan Raman vs Bank of India Limited, the Court clarified the circumstances under which RPs can claim their full fees, emphasizing the importance of ratification by the Committee of Creditors (CoC) and the necessity for the adjudicating authority to provide reasoned decisions.

Case Background

The appeal arose from a judgment of the National Company Law Appellate Tribunal (NCLAT) dated 30 July 2020. The dispute centered on the payments of costs and expenses incurred by the Resolution Professional, Devarajan Raman, during the insolvency resolution process of Poonam Drums and Containers Private Limited, the Corporate Debtor. The appellant submitted his technical and financial bid for appointment as an Interim Resolution Professional, which was accepted by the financial creditor, Bank of India.

Following the initiation of insolvency proceedings under Section 7 of the IBC, the NCLT appointed the appellant as the Interim Resolution Professional. However, after the NCLAT set aside the NCLT's order, the proceedings were remitted back to the NCLT to determine the fees and costs incurred by the appellant, which were to be borne by the respondent, Bank of India.

The appellant claimed a total of Rs 14,75,660 as fees and costs incurred until 19 December 2019, of which Rs 5,66,667 had been reimbursed, leaving a balance of Rs 9,08,993. The NCLT, however, awarded only Rs 5,00,000 plus GST as the fee for the entire period, which the appellant contested as being insufficient and arbitrary.

What The Lower Authorities Held

The NCLT, in its order dated 7 February 2020, directed the respondent to pay the expenses incurred by the RP and awarded Rs 5,00,000 plus GST as the fee. The appellant appealed this decision to the NCLAT, arguing that the NCLT had failed to consider the ratification of expenses by the CoC and had not provided adequate reasoning for the fee reduction.

The NCLAT dismissed the appeal, stating that the fee awarded was not unreasonable given the appellant's three-month tenure as RP. The NCLAT concluded that the fixation of fees was not a business decision and upheld the NCLT's order.

The Court's Reasoning

The Supreme Court, while examining the case, highlighted the importance of the adjudicating authority's role in determining the fees payable to RPs. It referred to Section 60(5)(c) of the IBC, which grants the adjudicating authority the jurisdiction to assess claims related to the insolvency resolution process costs. The Court noted that the NCLT had failed to provide a reasoned decision regarding the fee awarded to the appellant, which constituted an abdication of its jurisdiction.

The Court emphasized that the NCLT must consider the submissions made by the RP regarding the fees and expenses claimed. It pointed out that the NCLT's order did not reflect any application of mind to the basis of the claim, nor did it provide any justification for the amount awarded. The Supreme Court underscored that the absence of reasoning in the orders of both the NCLT and NCLAT rendered the decisions unsustainable.

Statutory Interpretation

The Supreme Court's interpretation of Section 60(5)(c) of the IBC was pivotal in this case. The Court clarified that the adjudicating authority has the power to determine the fees payable to RPs as part of the insolvency resolution process costs. This interpretation reinforces the authority of the adjudicating body to ensure that RPs are compensated fairly for their services, provided that the claims are substantiated and ratified by the CoC.

Constitutional or Policy Context

The judgment also reflects a broader policy consideration regarding the transparency and accountability of the insolvency resolution process. By mandating that the adjudicating authority provide reasoned decisions, the Court aims to enhance the integrity of the process and protect the interests of all stakeholders involved, including creditors and resolution professionals.

Why This Judgment Matters

This ruling is significant for legal practice as it clarifies the procedural requirements for determining the fees of Resolution Professionals under the IBC. It establishes that RPs must have their fees ratified by the CoC and that the adjudicating authority must provide a reasoned basis for its decisions. This enhances the predictability and fairness of the insolvency resolution process, ensuring that professionals are adequately compensated for their work.

Final Outcome

The Supreme Court allowed the appeal, set aside the NCLAT's judgment, and remitted the matter back to the NCLT for a fresh decision on the fees and costs incurred by the appellant. The NCLT was directed to expedite the disposal of the matter within one month of receiving the certified copy of the order.

Case Details

• Case Title: Devarajan Raman vs Bank of India Limited
• Citation: 2022 INSC 14
• Court: IN THE SUPREME COURT OF INDIA
• Bench: Justice Dhananjaya Y Chandrachud, Justice A.S. Bopanna
• Date of Judgment: 2022-01-05