NCLAT New Delhi: Liquidator Is Not Entitled To Charge Fee From Scheme Proponent Submitting Scheme Under S.230 Of The Companies Act

Background Facts

On 24.01.2022, CA Jai Narayan Gupta ('Liquidator'), the Appellant was appointed as the Liquidator of Barcle Enterprises Limited ('Corporate Debtor') in the Liquidation Process.

Radhasiriya Properties Pvt. Ltd. ('Respondent') proposed an expression of interest in submitting a scheme of compromise and arrangement and submitted its scheme to the Liquidator. Various reminders were sent by the Liquidator to the Respondent requesting the payment towards the cost and fee of the Liquidator as well as for depositing the estimated amount under the Scheme. On various requests, the Respondent paid a total amount of Rs.23.88 Lakhs from 20.04.2022 to 28.02.2023 to the Liquidator.

The scheme submitted by the Respondent was rejected by the Creditors. The Respondent filed an application before NCLT Kolkata for a refund of Rs. 23.88 Lakhs by the Liquidator

The Liquidator has claimed Liquidator's fee for 13 months as Rs.23.01 Lakhs and rest of the amount included in the total of Rs.24.12 Lakhs is the amount spent on various expenses incurred by the Liquidator.

NCLT Indore in its order dated 03.10.2023 held that the Liquidator is not entitled to receive any fee as the Creditors rejected the scheme of the Respondent. The liquidation cost including the liquidation fee was wrongly claimed by the Liquidator from the Scheme Proponent, i.e., Respondent. It directed the Liquidator to refund the entire amount of Rs.23.88 Lakhs.

The Liquidator has filed an appeal challenging the NCLT Indore Order by relying upon the provisions of Regulation 4(2)(a) read with Proviso to Regulation 2B(3) of the Liquidation Regulations, 2016.

NCLAT Verdict:

The NCLAT New Delhi dismissed the appeal and held that the Liquidator is not entitled to charge any fee from the Scheme Proponent, who has submitted the Scheme under Section 230 of the Companies Act, 2013 read with Regulation 2B of Liquidation Regulations, 2016.

The Appellate Tribunal observed different provisions of the Insolvency and Bankruptcy Code, 2016, ('IBC') and Liquidation Regulations. It noted that the statutory provision under Sections 34(8) and 34(9) of IBC provides that the Liquidator fee for the conduct of the liquidation proceedings has to be paid from the value of the liquidation estate assets. The same are provided as follows:

“Section 34(8) of IBC: An insolvency professional proposed to be appointed as a liquidator shall charge such fee for the conduct of the liquidation proceedings and in such proportion to the value of the liquidation estate assets, as may be specified by the Board.

(9) The fees for the conduct of the liquidation proceedings under sub-section (8) shall be paid to the liquidator from the proceeds of the liquidation estate under section 53.”

Further, the proviso to Liquidation Regulation 2(1)(ea) which defines the 'liquidation cost' makes it clear that cost, if any, incurred by the Liquidator in a compromise or arrangement under Section 230 of the Companies Act shall not form part of liquidation cost.

“Regulation 2(1)(ea) of Liquidation Regulations: “liquidation cost” under clause (16) of section 5 means-

(i) fee payable to the liquidator under regulation 4;

(ii) remuneration payable by the liquidator under sub-regulation (1) of regulation 7;

(iii) costs incurred by the liquidator under sub-regulation (2) of regulation 24;

(iv) costs incurred by the liquidator for preserving and protecting the assets, properties, effects and actionable claims, including secured assets, of the corporate debtor;

(v) costs incurred by the liquidator in carrying on the business of the corporate debtor as a going concern;

(vi) interest on interim finance for a period of twelve months or for the period from the liquidation commencement date till repayment of interim finance, whichever is lower;

(vii) the amount repayable to contributories under sub-regulation (3) of regulation 2A;

(viii) any other cost incurred by the liquidator which is essential for completing the liquidation process:

Provided that the cost, if any, incurred by the liquidator in relation to compromise or arrangement under section 230 of the Companies Act, 2013 (18 of 2013), if any, shall not form part of liquidation cost.”

The Liquidation Regulation 2B(3) also specifies that any cost incurred by the Liquidator about compromise or arrangement shall be borne by the Corporate Debtor, where such compromise or arrangement is sanctioned by the Tribunal under Section 230(6) whereas such cost shall be borne by the parties who proposed compromise or arrangement, where such compromise or arrangement is not sanctioned by the Tribunal under Section 230(6). The following provisions are extracted below:

“Regulation 2B of Liquidation Regulations: Compromise or arrangement. (1) Where a compromise or arrangement is proposed under section 230 of the Companies Act, 2013 (18 of 2013), it shall be completed within ninety days of the order of liquidation under sub-sections (1) and (4) of section 33.

Provided that a person, who is not eligible under the Code to submit a resolution plan for insolvency resolution of the corporate debtor, shall not be a party in any manner to such compromise or arrangement.

(2) The time taken on compromise or arrangement, not exceeding ninety days, shall not be included in the liquidation period.

(3) Any cost incurred by the liquidator in relation to compromise or arrangement shall be borne by the corporate debtor, where such compromise or arrangement is sanctioned by the Tribunal under sub-section (6) of section 230:

Provided that such cost shall be borne by the parties who proposed compromise or arrangement, where such compromise or arrangement is not sanctioned by the Tribunal under sub-section (6) of section 230.”

“Section 230(6) of the Companies Act, 2013: Where, at a meeting held in pursuance of sub-section (1), majority of persons representing three-fourths in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator and the contributories of the company.”

Thus, the Liquidator can claim only the cost incurred from the parties who proposed the compromise or arrangement, thus when such compromise is not sanctioned.

The NCLAT also observed that Regulation 2B of the Liquidation Regulations only refers to the cost incurred by the Liquidator and Regulation 4 of the Liquidation Regulations deals with the Liquidator's fee. It held that being aware of the difference between the cost and fee, Regulation 2B does not indicate that any fee by the Liquidator can be charged from the Scheme Proponent. The Liquidator is entitled to his fee as per the statutory provision of Section 34, sub-sections (8) and (9) read with Regulation 4 of Liquidation Regulations, 2016. Thus, no fee can be charged from the Scheme Proponent, who has submitted the Scheme under Section 230 of the Companies Act, 2013 read with Regulation 2B of Liquidation Regulations.

In conclusion, the NCLAT observed that the Liquidator's claim of Rs. 23.01 Lakhs as fees is incorrect and NCLT Indore rightfully directed the Liquidator to refund the fee which was wrongly realized by the Respondent i.e. the Scheme Proponent.

Case Title: CA Jai Narayan Gupta (Liquidator of Barcle Enterprises Limited) vs. Radhasiriya Properties Pvt. Ltd.

Case No.: Company Appeal (AT) (Insolvency) No.1473 of 2023

Counsel for the Appellant: Mr. Anoop Prakash Awasthi, Advocate.

Counsel for the Respondent: Ms. Swati Dalmia, Mr. Palzer Moktan, Ms. Safura Ahmed, Advocates.

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