The National Company Law Appellate Tribunal ("NCLAT") while upholding the decision of National Company Law Tribunal, Mumbai ("NCLT"), held that there is no express provision for grant of 'Success fee' to the Resolution Professional ("RP") under the provisions of Insolvency and Bankruptcy Cody, 2016 ("Code") and IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("CIRP Regulations") and the same cannot be charged by the RP, being contingent and speculative in nature. It was observed that "Success fee – term is contrary to what Insolvency and Bankruptcy Board of India ("IBBI") provided in its circular dated 16.01.2018 that Insolvency Resolution Professional shall render services for a fee which is a reasonable reflection of his work".

This has been held by the NCLAT vide its order dated 20th September 2021 in the matter of Mr. Jayesh N. Sanghrajka, Erstwhile R.P. of Ariisto Developers Pvt. Ltd. Vs. The Monitoring Agency nominated by the Committee of Creditors of Ariisto Developers Pvt. Ltd.

The NCLT while approving the Resolution Plan had disagreed with the Committee of Creditors ("CoC") having approved the 'Success Fee' to the RP of an amount of INR 3 Crores and asked for proportionate distribution of the same to the creditors. It was appealed by the RP before the NCLAT that 'Success Fee' was a commercial decision of the CoC and the NCLT could not have interfered with the same.

Considering the issue involved the NCLAT appointed an Amicus Curiae to assist in the matter and observed that the IBBI has directed that the fees payable to the RP should be reasonable; 'directly related to and necessary for the Corporate Insolvency Resolution Process ("CIRP"); determined on an arms' length basis, in consonance with the requirements of integrity and independence and should not include fee or other expenses not directly related to the CIRP.

It was observed that Regulation 34 of the CIRP Regulations permits the CoC to fix the "expenses", which include the 'fee' to be paid to the RP and therefore the claim of 'Success Fee' is more in the nature of taking a reward or gift than expenditure incurred. The role of the RP has to be like a dispassionate person concerned with performance of his duties under the Code for reasonable fees and it cannot be result oriented.

Originally published 23 September, 2021

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