IBC | Case Law Alert | NCLT on fixation of exaggerated insolvency resolution cost including resolution professional’s cost | Suggests that IBBI may frame regulations / guidelines

The National Company Law Tribunal, Kolkata Bench (“NCLT”) in the case of Punjab National Bank vs Divya Jyoti Sponge Iron Private Limited, in its order dated 13 March 2018 (available here), while approving a resolution plan, has taken judicial notice of fixation of exaggerated insolvency resolution cost of a dying corporate debtor, and it has remarked that it is time to have legitimate guidelines or regulation so as to safeguard and to ensure the prospects of revival of a dying corporate debtor not be at a highest cost which cannot be affordable by the corporate debtor.

The aforementioned remarks came in light of the facts being dealt at hand by the NCLT where a lump sum amount was approved by the committee of creditors (“CoC”). Following are the few relevant observations of the NCLT:

1. The NCLT took judicial notice of fixation of exaggerated insolvency resolution cost inclusive of fixation of fees of resolution professional in a lump sum manner by the CoC without applying its mind in regards the fate of corporate debtor, the volume, nature and complexity of the corporate insolvency resolution process (“CIRP”);

2. Even though the Insolvency and Bankruptcy Board of India (“IBBI”) issued guidelines for ‘Insolvency Professionals to act as Interim Resolution Professionals Recommendation) Guidelines, 2017’ prescribing the professional and ethical standards of an insolvency professional what would be the fee to be charged by the resolution professional is nowhere mentioned in the Insolvency and Bankruptcy Code, 2016 (“Code”), regulations or guidelines;

3. Normally, the fee of a professional is fixed considering the volume, nature and complexity of the CIRP or the resources available at the disposal of a resolution professional. In the instant case, no such data was placed before the NCLT or by the resolution professional before the CoC;

4. In view of the aforementioned, the NCLT was of the view that that it is time to have legitimate guidelines or regulation so as to safeguard and to ensure the prospects of revival of a dying corporate debtor not be at a highest cost which cannot be affordable by the corporate debtor, and that the IBBI may consider the above factors to frame the necessary regulations or guidelines in regard of fixation of fees and resolution cost by a resolution professional.

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