Issue Of CIRP Cost To Be Decided In COC MEETING, Not By Adjudicating Authority : NCLAT Delhi

Background Facts

RDG Interior Decoration Exterior Architecture Pvt. Ltd. ("Corporate Debtor") was admitted into Corporate Insolvency Resolution Process ("CIRP") on 19.12.2019 and Mr. Tapan Chakraborty was appointed as the Resolution Professional. Subsequently, the Committee of Creditors (CoC) in its 7th meeting held on 28.06.2022 had passed resolution for liquidation of Corporate Debtor. The approval was with majority of 66.93% vote share. Bharat Hotels Ltd. ("Appellant") being a Financial Creditor holding 33.07% voting share in the CoC, filed an application under Section 18 of Insolvency and Bankruptcy Code, 2016 (IBC) read with Regulation 34 of IBBI CIRP Regulations before the Adjudicating Authority praying for following reliefs:

1. Direct the Resolution Professional to disclose item wise insolvency resolution process costs; and/or;
2. Call for the entire records of the Resolution Professional maintained with respect to the present petition;
3. Direct the Resolution Professional to follow the steps needed under Section 18 and Section 20(2)(a) of the IBC including Forensic Audit Report before proposing liquidation of Corporate Debtor; and/or;
4. Change the Resolution Professional, if needed.

On 26.08.2022, the Adjudicating Authority rejected the application of the Appellant while observing that under Regulation 34 requires IRP or Resolution Professional to disclose item wise cost to the IBBI and not Adjudicating Authority. Consequently, the Appellant filed an appeal before the NCLAT challenging the order dated 26.08.2022.

Contention Of Appellant

Appellant argued that it had wanted to know steps taken by the Resolution Professional in the CIRP, as no steps were taken for audit and for obtaining a valuation report. Hence, there was no occasion for taking any decision for liquidation.

Decision Of NCLAT

The Bench observed that the resolution for liquidation was passed after more than two years from the CIRP date. The Application filed by the Appellant on the very next day of passing of the resolution was indirectly for challenging the liquidation as the Appellant being a minority shareholder in the Committee of Creditors cannot resist the passing of the resolution.

The Bench held that the Adjudicating Authority had rightly rejected the application filed under Section 18 of IBC and Regulation 34A, which was not to be entertained.

"The Appellant asked Resolution Professional to disclose item wise insolvency resolution process costs in such manner as required by the Board (IBBI). Question of cost and its approval lays in the domain of the CoC. The CoC may ratify, modify or set aside the cost claimed. These issued may be decided in the meeting of the CoC and are not to be examined by the Adjudicating Authority even before the CoC takes a decision."

The Bench observed that the issue regarding the cost should be raised by the Appellant in the CoC meeting and the Liquidator can be requested to obtain a valuation report, if not already obtained. The Appeal was dismissed.

Case Title: Bharat Hotels Ltd. v Tapan Chakraborty

Case No.: Company Appeal (AT) (Insolvency) No. 1074 of 2022

Counsel For Appellant: Ms. Purnima Maheshwari and Mr. Alok Gupta, Advocates.

Counsel For Respondent: Mr. A. Tripathi and Ms. Sreenita Ghosh Tahkker, Advocates.

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