Supreme Court clarifies jurisdiction of NCLT in determining fees of registered valuers post CIRP set aside: Alok Kaushik vs. Mrs Bhuvaneshwari Ramanathan and Others (2021) INSC 143 (15 March 2021)

Date of the Judgment: 15 March 2021
Citation: (2021) INSC 143
Judges: Dr. Dhananjaya Y Chandrachud, J and M.R. Shah, J.
Can a registered valuer, appointed during a Corporate Insolvency Resolution Process (CIRP), claim their fees if the CIRP is later set aside? The Supreme Court of India addressed this question, clarifying the jurisdiction of the National Company Law Tribunal (NCLT) in such situations. The Court held that the NCLT has the power to determine the fees payable to a registered valuer, even if the CIRP is eventually overturned. This judgment ensures that professionals engaged in the CIRP are fairly compensated for their work. The majority opinion was authored by Dr. Dhananjaya Y Chandrachud, J.

Case Background

The case revolves around the insolvency proceedings of Kavveri Telecom Infrastructure Limited. The NCLT initiated the CIRP against the company on 21 March 2019. Mrs. Bhuvaneshwari Ramanathan was appointed as the Resolution Professional (RP) on 26 August 2019. The RP then appointed Alok Kaushik, the appellant, as a registered valuer for the plant and machinery of the company on 16 September 2019. The appellant’s fee of Rs 7.50 lakhs, plus GST, was approved by the Committee of Creditors (CoC) on 9 December 2019. The appellant claims to have visited forty sites and completed valuation work for over eighty-four sites. He also stated that he incurred expenses of Rs 52,000.

Timeline

Course of Proceedings

The NCLAT set aside the CIRP on 18 December 2019, and remanded the matter to the NCLT to decide on the CIRP costs. The NCLT, on 20 December 2019, reduced the fee of the RP by 20%. The RP cancelled the appointment of the appellant on 19 December 2019. The RP requested the appellant to waive his fees, and the appellant agreed to reduce his fee by 25%. However, the RP later informed the appellant that the ratified fee could not be paid and paid only Rs 50,000. The appellant then filed an application before the NCLT under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC), challenging the non-payment of fees. The NCLT dismissed the application on 29 June 2020, stating that it was *functus officio*. The NCLAT rejected the appellant’s appeal on 13 October 2020. The appellant then appealed to the Supreme Court.

Legal Framework

The Supreme Court referred to several key provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (IRP Regulations).

• Section 5(13) of the IBC defines “insolvency resolution process costs” which includes:
  • (a) the amount of any interim finance and the costs incurred in raising such finance;
  • (b) the fees payable to any person acting as a resolution professional;
  • (c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern;
  • (d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and
  • (e) any other costs as may be specified by the Board;
• Regulation 31 of the IRP Regulations further defines “insolvency resolution process costs” under Section 5(13)(e) of the IBC. It includes:
  • (a) amounts due to suppliers of essential goods and services under Regulation 32;
  • (aa) fee payable to authorized representative under sub-regulation (7) of regulation 16A;
  • (ab) out of pocket expenses of authorized representative for discharge of his functions under section 25A;
  • (b) amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d);
  • (c) expenses incurred on or by the resolution professional to the extent ratified under regulation 33;
  • (d) expenses incurred on or by the resolution professional fixed under regulation 34; and
  • (e) other costs directly relating to the corporate insolvency resolution process and approved by the committee.
• Regulation 33 of the IRP Regulations specifies the costs of the interim resolution professional. It states that the applicant shall fix the expenses to be incurred on or by the interim resolution professional. The Adjudicating Authority shall fix expenses where the applicant has not fixed expenses. The applicant shall bear the expenses which shall be reimbursed by the committee to the extent it ratifies. The amount of expenses ratified by the committee shall be treated as insolvency resolution process costs. It also explains that “expenses” include the fee to be paid to the interim resolution professional, fee to be paid to insolvency professional entity, if any and fee to be paid to professionals, if any, and other expenses to be incurred by the interim resolution professional.
• Regulation 34 of the IRP Regulations defines “resolution professional costs” which states that the committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs. It also explains that “expenses” include the fee to be paid to the resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the resolution professional.
• Regulation 30A(7) of the IRP Regulations deals with the deposit of expenses when an application for withdrawal is filed under Section 12A of the IBC. It requires the applicant to deposit the actual expenses incurred till the date of approval by the Adjudicating Authority.
• Section 60(5)(c) of the IBC grants the NCLT jurisdiction to entertain or dispose of any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor.
• Section 217 of the IBC empowers a person aggrieved by the functioning of an RP to file a complaint to the IBBI.
• Section 218 of the IBC states that if the IBBI believes on the receipt of the complaint that any RP has contravened the provisions of IBC, or the rules, regulations or directions issued by the IBBI, it can direct an inspection or investigation.
• Section 220 of the IBC states that IBBI 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 impose a penalty.

Arguments

The appellant argued that neither the NCLT nor the NCLAT considered the professional charges payable to him as a registered valuer. He contended that he had completed the valuation of eighty-four sites and incurred expenses of Rs 52,000. He also submitted that he paid Rs 35,000 towards GST. The main argument was that there should be a mechanism within the IBC to determine the claim of a professional valuer when the CIRP is set aside. The appellant submitted that the NCLT was wrong in concluding that it was *functus officio* and the NCLAT erred in not exercising its appellate jurisdiction.

The respondents did not make any specific arguments before the Supreme Court. However, the NCLT had stated that the Insolvency and Bankruptcy Board of India (IBBI) is the competent authority to deal with allegations against the RP.

Issues Framed by the Supreme Court

The issue before the Supreme Court was:

• Whether the NCLT has the jurisdiction to determine the costs, charges, expenses, and professional fees payable to a registered valuer appointed after the initiation of the CIRP under the IBC, in a situation where the CIRP is eventually set aside by the Adjudicating Authority or the Appellate Authority?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

The Supreme Court also considered the following provisions of law:

Judgment

The Supreme Court allowed the appeal and set aside the judgment of the NCLAT. The Court held that the NCLT has the jurisdiction under Section 60(5)(c) of the IBC to determine the amount payable to a registered valuer as part of the CIRP costs, even if the CIRP is set aside. The Court remitted the matter back to the NCLT for a fresh determination of the appellant’s claim.

The Court considered the following authorities:

• Gujarat Urja Vikas Nigam Limited vs Amit Gupta and Others [2021 SCC OnLine SC 194]*: The Supreme Court relied on this case to clarify the jurisdiction of the NCLT under Section 60(5)(c) of the IBC, stating that the NCLT has jurisdiction to adjudicate disputes arising solely from or related to the insolvency of the Corporate Debtor.

What weighed in the mind of the Court?

The Supreme Court emphasized the need for a mechanism within the IBC to ensure that professionals engaged in the CIRP are fairly compensated for their work, even if the CIRP is set aside. The Court noted that the NCLT’s conclusion that it was *functus officio* was an incorrect reading of its jurisdiction. The Court also highlighted that the grievance redressal mechanism against an insolvency professional does not preclude the NCLT from determining the claims of other professionals who are part of the CIRP costs.

The Court reasoned that the claim of the appellant as a registered valuer related to the period when he was discharging his functions as an incident of the CIRP. Therefore, the NCLT was justified in exercising its jurisdiction under Section 60(5)(c) of the IBC. The Court also clarified that the grievance redressal mechanism under the IBC against an insolvency professional does not divest the NCLT of its jurisdiction to consider the amount payable to the appellant.

The Supreme Court stated:

“Though the CIRP was set aside later, the claim of the appellant as registered valuer related to the period when he was discharging his functions as a registered valuer appointed as an incident of the CIRP.”

“The NCLT would have been justified in exercising its jurisdiction under Section 60(5)(c) of the IBC.”

“The availability of a grievance redressal mechanism under the IBC against an insolvency professional does not divest the NCLT of its jurisdiction under Section 60(5)(c) of the IBC to consider the amount payable to the appellant.”

There was no minority opinion in this case.

Key Takeaways

• The NCLT has the jurisdiction to determine the fees payable to a registered valuer, even if the CIRP is later set aside.
• Section 60(5)(c) of the IBC empowers the NCLT to adjudicate disputes arising from or related to the insolvency of the corporate debtor.
• Professionals engaged in the CIRP are entitled to be fairly compensated for their work.
• The grievance redressal mechanism against an insolvency professional does not preclude the NCLT from determining claims of other professionals forming part of CIRP costs.

Directions

The Supreme Court set aside the impugned judgment and order of the NCLAT and remitted the proceedings back to the NCLT for determining the claim of the appellant for the payment of professional charges as a registered valuer. The Court also set aside the order passed by the NCLT on 18 December 2019, and restored CA No 192 of 2020 to the file of the NCLT for a fresh determination.

Development of Law

The ratio decidendi of this case is that the NCLT has the jurisdiction under Section 60(5)(c) of the IBC to determine the amount payable to a registered valuer as part of the CIRP costs, even if the CIRP is set aside. This clarifies the position of law and ensures that professionals engaged in the CIRP are fairly compensated for their work.

Conclusion

The Supreme Court’s judgment in *Alok Kaushik vs. Mrs Bhuvaneshwari Ramanathan and Others* clarifies that the NCLT has the jurisdiction to determine the fees of registered valuers appointed during a CIRP, even if the CIRP is subsequently set aside. This ruling ensures that professionals involved in the insolvency process are fairly compensated for their services. The Court emphasized that the NCLT’s powers under Section 60(5)(c) of the IBC are broad enough to cover such claims, and that the availability of a grievance redressal mechanism against an insolvency professional does not preclude the NCLT from determining the claims of other professionals.