Whether Committee of Creditors can pass a resolution to reimburse the fees of a law firm which helped the creditor to admit the petition under IBC?
SHUBHAM BUDHIRAJA[1]
(Advocate, Delhi High Court)
(shubhambudhiraja02@gmail.com)
Mr. A was appointed as
IRP of PQR limited and in the 1st COC meeting, COC approved the
agenda of reimbursement of fees of law firm which represented financial
creditor before NCLT in admission of CIRP of PQR Limited. Further, SBI, one of COC member, appointed
PWC, EY, etc. firms to assist the CIRP process and same was approved by COC.
Mr. A appointed Mr. B to conduct due diligence for purpose of section 29A eligibility
of resolution applicants. It was held that Mr. A is
guilty of professional misconduct because (i) Appointment of Mr. B was not
required as scope of his work was already covered within scope of work of PWS,
EY, etc., (ii) It was impressible for a member of COC (SBI) to appoint the PWC,
EY to assist the CIRP. It is for IRP to decide whether he needs assistance of
professionals and not for the COC to decide. These appointments burden the cost
on the corporate debtor that adversely impacts the valuation of the corporate
debtor. (iii) It is impressible to reimburse the pre-admission expenses to the
law firm[2].
(I)
The provisions of the CIRP Regulations apply
only when the CIRP has commenced and not for those matters prior to
commencement of CIRP. In view of this, the scope of regulation 31(e) of the
CIRP is limited to the cost incurred after the commencement of CIRP and
approved by the COC.
(II)
It is clear from the conjoint reading of section
5(13) and regulation 31 of the CIRP Regulations that amounts due or expenses
incurred are during the CIRP period and not prior to CIRP.
(III)
The intent is very clear that expenses incurred
by the IRP during the CIRP will be part of IRPC. Thus, regulation 33(3) of the
CIRP Regulations does not include any of the expenses that might have been
incurred by the applicant before commencement of CIRP. Further, IBBI clarified
vide June 2018 circular in Para 8(c) that any fee or other expense incurred
before the commencement of CIRP shall not be included in the IRPC.
(IV)
Section 208 of the Code provides for the
functions and obligations of the IP which provides inter alia that the IP shall
abide by the Code of Conduct to take reasonable care and diligence when
performing his duties and to perform his functions in such manner and subject
to such conditions as may be specified.
(V)
As per sections 20(2)(a) and 25(2)(d), it is the
authority of the IRP and RP to appoint any professional for the CIRP. it is the
duty of the IP to comply with the rules and regulations as established by the
Board to achieve the objective of the Code underlined in its various
provisions. The rules and regulations are made to bring a clarity, transparency
and professionalism in the profession of IPs and the IPs are expected to follow
them in that spirit. Thus, he violated section 20(2) (a) and section 25(2) (d)
of the Code.
(VI)
With regard to the issue of fee payable to PwC,
the section 20(1) of the Code provides that the IRP shall make every endeavor
to protect and preserve the value of the property of the CD and manage the
operations of the CD as a going concern. Section 23(2) reasserts this
responsibility.. Therefore, it becomes crucial to monitor the expenses by the
RP to ensure that a CD, who is already entangled in a web of unsustainable liabilities,
is not further overburdened with exorbitantly high IRPC.
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