ADJUDICATING AUTHORITY IS HAVING POWER TO DETERMINE THE AMOUNT PAYABLE TO REGISTERED VALUER

[Mr. M. GOVINDARAJAN]

The Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides for the initiation of corporate insolvency resolution process (‘CIRP’ for short) against a corporate debtor either by the financial creditor or operational creditor or even by the corporate applicant itself.  The Adjudicating Authority appoints interim resolution professional at the time of admission of the application and later appoints Resolution Professional (‘RP’ for short) who is responsible for the conduct of the entire CIRP.  On conclusion of the CIRP the CIRP cost is to be paid in accordance with the provisions of the Code and the regulations made there under.

In the course of CIRP, the RP is having power to appoint various professionals such as Registered valuer, Advoate, Chartered Accountant etc.  The professionals have to render their professional services as per the terms of the appointment order.  The explanation of Regulation 34 provides that the term ‘expenses’ include the fee to be paid to the resolution professional, fee to be paid to insolvency professional entity, if any, and any fees to be paid to professionals, if any and other expenses to be incurred by the resolution professional.  Therefore such fees form part of insolvency resolution process cost.

If the admission of CIRP is set aside by NCLAT on appeal filed by the aggrieved party or withdrawn under section 12A of the Code, the CIRP costs is to be decided by the Adjudicating Authority and payable accordingly.  The Adjudicating Authority is having power to determine the amount payable to the experts under section 60 (5) (c).   The same has been confirmed by NCLAT in the case of professional fee payable to the Registered valuer in  ALOK KAUSHIK VERSUS BHUVANESHWARI RAMANATHAN AND ORS. [2021 (3) TMI 1242 - SUPREME COURT].

    In the above case  CIRP  was initiated against the Kavveri Infrastructure Limited.  The Adjudicating Authority admitted the application on 21.03.2019.  The Adjudicating Authority appointed Bhuvaneswari Ramanathan as RP on 26.08.2021.

The RP 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 on 16.09.2019.  The appellant, as per the terms of appointment, has to value to the plant and machinery at 115 sites.  The fees of the appellant to the tune of ₹ 7.50 lakhs and other expenses were ratified by the Committee of Creditors in the meeting held on 09.12.2019.

On an appeal the National Company Law Appellate Tribunal (‘NCLAT’ for short) set aside the admission of the application against the corporate debtor by the Adjudicating Authority vide their order dated 18.12.2019.  The NCLAT remanded the matter to the Adjudicating Authority to decide the CIRP costs.  The Adjudicating Authority reduced the fee payable to the RP by 20% from the fee ratified by the Committee of Creditors on 20.12.2019.

In the meantime the appellant completed the valuation over 84 sites and to have visited the remaining sites.  He incurred a sum of ₹ 52,000/- towards expenses.  He has several meetings with the RP.

The RP cancelled the appointment of the appellant as Registered Valuer on 19.12.2019 on the basis of the order passed by NCLAT on 18.12.2019.  The RP requested the appellant for the waiver of fees payable to him.  The appellant agreed to reduce his fees by 25% from the fee ratified by the Committee of Creditors.  The RP informed the appellant that fee as ratified by the Committee of Creditors could not be paid  and paid ₹ 50,000/- only.

The appellant filed an application before the Adjudicating Authority under section 60(5) of the Insolvency and Bankruptcy Code, 2016 against the decision of RP.  The Adjudicating Authority dismissed the application holding that it had been rendered functus officio vide their order dated 29.06.2020.  The Adjudicating Authority observed that the Insolvency and Bankruptcy Board of India (‘Board’ for short) is the competent authority to deal with the allegations against the RP relating to their failure to discharge statutory duties.  Section 217 of the Code empowers a person aggrieved by the functioning of the RP to file a complaint to the Board.  If the Board believes on the receipt of the complaint that any RP has contravened the provisions of the Code, rules, regulations or directions issued by the Board, it can direct an inspection or investigation.  The Board 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 imposed penalty on RP.

The NCLAT dismissed the appeal filed by the appellant against the order of Adjudicating Authority noting that an amount of ₹ 50,000/- has already been paid to the appellant.

The appellant, being aggrieved against the order of NCLAT filed the present appeal before the Supreme Court.  The appellant submitted the following before the Supreme Court-

• The appellant was appointed as a registered valuer on 16.09.2019 and that his professional fees and other expenses in the amount of ₹ 7.50 lakh were ratified by the Committee of Creditors on 19.12.2019.
• The NCLAT by its order dated 18.12.2019 set aside the CIRP and the proceedings were remitted to the Adjudicating Authority to decide the CIRP costs.
• On 20.12.2019 the Adjudicating Authority decided only the fees which were payable to the Interim Resolution Professional.
• Despite the order of NCLAT, the Adjudicating Authority did not determine the fees payable to the appellant for the work which was done as a Registered valuer.
• The NCLAT dismissed the appeal recording that an amount of ₹ 50000/- has been paid.
• The Adjudicating Authority and NCLAT have not applied their mind to the professional charges payable to him in his capacity as a Registered Valuer.
• The appellant has completed the valuation of 84 sites and incurred ₹ 52000/- on the valuation exercise.
• An amount of ₹ 35000/- has been paid by the appellant towards GST.
• The Adjudicating Authority came to the conclusion that it was functus officio.
• The NCLAT, on appeal by the appellant, declined to exercise its appellant jurisdiction.

According to the Supreme Court the main issue in the present appeal relates to the costs, charges, expenses and professional fees payable to a registered valuer in such a situation where the CIRP is eventually set aside by the Appellate Authority.

The Supreme Court analyzed the provisions of Section 5(13), Regulation 30(A), Regulation 31, Regulation 34, Section 34, Section 12A and Regulation 30A(7).

Regulation 30A provide for the withdrawal of application.  The Supreme Court observed that Regulation 30A would not applicable specifically to the present situation, since it deals with a case where an application is withdrawn under Section 12A of the Insolvency and Bankruptcy Code. 

The Supreme Court further observed that the appellant was appointed as a Registered valuer by the RP to inspect the plant and machineries at 115 sites.  The fees of the registered valuer and the expenses were ratified by the Committee of Creditors.  Though the CIRP was set aside later, the claim of the appellant as registered valuer related to the period when he was discharging the functions as a registered valuer appointed as an incident of the CIRP. 

The Supreme Court ordered that the Adjudicating Authority is sufficiently empowered under section 60(5) (c) of the Insolvency and Bankruptcy Code to make a determination of the amount which is payable to an expert valuer as an intrinsic part of CIRP costs.  Regulation 34 defines ‘insolvency resolution process cost’ as including the fees of other professionals appointed by the RP.

The Supreme Court further observed that the availability of a grievance redressal mechanism under the Cost against an insolvency professional does not divest the Adjudicating Authority of its jurisdiction under section 60(5) (c) of the Code to consider the amount payable to the appellant.  The purpose of  grievance redressal mechanism is to penalize errant conduct of the RP and not to determine the claims of other professionals which form part of CIRP costs.

The Supreme Court allowed the appeal and set aside the impugned orders of NCLAT.  The proceedings shall stand remitted back to the Adjudicating Authority 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 CIRP. For the purpose of fresh determination the Supreme Court also set aside the order of Adjudicating Authority. 

ABOUT THE AUTHOR

CS Dr. M. Govindarajan, Practising Company Secretary and Insolvency Professional aged about 63 years having 3.5 years as practicing Company Secretary and 39 years of experience in the Department of Telecom and BSNL.  Also pursuing Registered Valuer examination.  Membership number of ICMA is FCMA 18667.

Email id = govind.ayyan@gmail.com.

Mobile No. 9486103193;

Phone No. 04549-282899

Postal Address:

55 Rajaram Street,

Jawahar Nagar,

Tirumangalam – 625 706,

Madurai District,

Tamil Nadu.