Resolution Professional's Fees Must Be Paid by CoC Members in Proportion to Their Voting Shares, Rules Tribunal
In a significant ruling, the National Company Law Tribunal (NCLT) Kochi bench has directed the Committee of Creditors (CoC) to fulfill their obligations regarding the payment of Corporate Insolvency Resolution Process (CIRP) costs, including the fees for the Resolution Professional (RP), even if the liquidation of the corporate debtor has been decided. The tribunal underscored that CIRP costs must be covered from the funds of the corporate debtor, contributions by CoC members, or interim finance, as per Regulation 34B of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
The case involved the insolvency proceedings of Davani Silks Private Limited, where the applicant, Narender Reddy Banala, acted as the Resolution Professional. Despite the commencement of liquidation proceedings, the CoC members, notably Mr. T.S. Jayaprakash and Mr. James Thomas, holding a majority voting share, sought to defer payments for CIRP costs until the realization of assets during liquidation. The tribunal noted that such a stance was contrary to the provisions of the Insolvency and Bankruptcy Code, 2016, which necessitates immediate funding for CIRP costs.
The bench, comprising Mr. Vinay Goel, Member (Judicial), and Mr. Ravichandran Ramasamy, Member (Technical), held that the CIRP costs, including the RP’s fees, should not be postponed until liquidation proceeds are realized. They emphasized the duty of CoC members to contribute to CIRP costs in proportion to their voting shares. The tribunal also addressed the conduct of CoC members who attempted to evade statutory obligations by withdrawing claims post the commencement of CIRP, stating that such actions undermine the insolvency process and violate the objectives of the IBC.
The judgment highlighted the essential role of CoC in ensuring the continuity of the insolvency process by funding necessary expenses, thereby preventing any hindrance to the RP in performing statutory duties. The tribunal directed the CoC to pay the RP’s fees as initially approved, albeit allowing a reduction in the fee as agreed by the RP considering the financial condition of the corporate debtor.
This ruling serves as a reminder of the binding obligations of CoC members under the Insolvency and Bankruptcy Code, 2016, reinforcing the creditor-driven nature of the insolvency resolution process and the necessity for genuine participation of creditors throughout the proceedings.
Bottom line:-
Committee of Creditors (CoC) cannot evade its obligation to ensure payment of Corporate Insolvency Resolution Process (CIRP) costs, including the fees of the Resolution Professional (RP), even if liquidation of the Corporate Debtor is resolved. CoC members are bound to contribute to CIRP costs in proportion to their voting shares.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 60(5), 53, 65; Regulation 34B of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016
Narender Reddy Banala v. T.S. Jayaprakash, (NCLT)(Kochi) : Law Finder Doc id # 2938093
