Shifting Entire Blame On IRP Not Justified; Creditors Must Also Play Catalytic Role In CIRP: NCLAT Delhi

Background Facts

Shri Guru Containers (“Operational Creditor”) filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Tarang Exports Private Limited (“Corporate Debtor”).

On 24.02.2020 the Corporate Debtor was admitted into CIRP and Mr. Jitendra Palande was appointed as the Interim Resolution Professional (“IRP”). In March 2020 the IRP sought details from the Operational Creditor and suspended management to proceed with CIRP and also issued a public announcement. No claims were received by the Operational Creditor or any other creditor.

On 21.03.2022, the IRP filed an application under Section 60 of IBC, seeking termination of the CIRP; discharge from duties as IRP; and reimbursement of Rs. 5,62,000/- for duties performed as an IRP. The IRP had not received any fees/expenses at the time of filing of the said application.

On 07.12.2022 the Adjudicating Authority directed the Operational Creditor to reimburse the IRP for total costs of Rs. 5,62,000/-, which was incurred by the IRP in the discharge of his duties.

The Operational Creditor filed an appeal before the NCLAT against the Order dated 07.12.2022. It was argued that the IRP failed to carry out his duties under IBC; had filed Section 60 application to cover up his non-performance; and had undertaken limited work confined to issuing of the public announcement alone. Hence, the direction to reimburse the IRP for his duties was not justified.

NCLAT Verdict

The Bench observed that the IRP had sought requisite information from both Operational Creditor and the Suspended Management of the Corporate Debtor. All efforts were made to effectively conduct the CIRP and manage the affairs of the Corporate Debtor. However, the Operational Creditor and the Suspended Management failed to provide any assistance to the IRP. The scope of CIRP work was limited, owing to lack of information and claims but the IRP diligently dispensed its duties.

“Shifting the entire blame on the IRP on grounds of non-performance of duty and making him the scapegoat does not appear to be justified. It is equally important for the creditors to play a catalytic role in the insolvency resolution process given the present regime of creditor-driven IBC. The rigours of similar standards of discipline should also apply on the creditors.”

The Bench opined that the CIRP faced hinderance due to lack of cooperation and participation from the creditors. The conduct of the Operational Creditor has been deprecatory in the CIRP, since it did not seem interested in resolution of the Corporate Debtor as no claims were filed by it.

There is nothing on record to substantiate any lapses or deficiency in the performance of duties by the IRP. Therefore, the IRP is entitled to claim his fees/expenses incurred on CIRP and needs to be compensated for his professional services. As regards the liability to pay the IRP for the expenses incurred, it was held that the Operational Creditor would have to bear the expense/fees of IRP.

The Bench upheld the Order dated 07.12.2022. However, the amount payable to IRP has been modified to a consolidated amount of Rs. 2,87,000/- plus GST instead of Rs.5,62,000/-.

Case Title: Shri Guru Containers v Jitendra Palande

Case No.: Company Appeal (AT) (Insolvency) No.106 of 2023

Counsel for Appellant: Ms. Shreya Munoth and Ms. Aswathi Menon, Advocates.

Counsel for Respondent: Mr. Shikhil Suri, Ms. Madhu Suri, Ms. Komal Gupta and Ms. Mahima Aggarwal, Advocates.

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