The National Company Law Appellate Tribunal ("NCLAT"), while upholding the decision of the National Company Law Tribunal, Mumbai ("NCLT"), held that the provisions of the Insolvency and Bankruptcy Cody, 2016 ("Code") and IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("CIRP Regulations") do not expressly provide for the grant of a "Success fee" to the Resolution Professional ("RP") and the same cannot be charged by the RP Insolvency and Bankruptcy Board of India ("IBBI") stated in its circular dated 16.01.2018 that an insolvency resolution professional must give services for a price that is a realistic reflection of his effort, and it was noted that the term "success fee" is opposed to this.
In the instant case titled 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 issue raised for clarification before the NCLAT was:
Does the Resolution Professional have the right to impose CIRP success fees?
With regard to this issue, The NCLT, Mumbai Bench denied the success fee of Indian Rupees 30,000,000 to the Resolution Professional and directed redistribution of this cash while approving the resolution plan of the successful resolution applicant. The Resolution Professional filed an appeal of this NCLT order with the NCLAT, arguing that the CoC's approval of the success fee was a commercial decision and that the NCLT was not authorised to interfere with that choice when approving the resolution plan. In order to help the tribunal determine whether "success fees" might be assessed, the NCLAT appointed an Amicus Curiae. The Amicus Curiae argued that there is no explicit provision in the Code and accompanying rules for the grant of success fees, and that the Resolution Professional may only collect compensation in a transparent manner that is fair and compatible with the regulations. Additionally, at the beginning of the CIRP, there had to be a prior discussion to determine what a fair cost would be for the Resolution Professional.
According to NCLAT, "success fees" that are more contingent and speculative cannot be considered a part of the Code's provisions and are therefore not payable. Furthermore, the NCLAT upheld the NCLT's decision to reject the payment of "success fees" to the Resolution Professional by finding that the manner in which the "success fees" were pushed for approval in the current case at the last minute, when the CoC was approving the resolution plan, was improper.
The NCLAT categorically stated that,
"By way of the Circular, IBBI directed the insolvency professionals to take reasonable care and diligence while performing their duties, including incurring expenses. It further directs that the insolvency professional, "must, therefore, ensure that not only fee payable to him is reasonable, but also other expenses incurred by him are reasonable." The Circular further states, What is reasonable is context specific and it is not amenable to precise definition. Clearly, therefore, the context and objective of the Circular are to emphasise that fees to be charged by insolvency must be 'reasonable'. Various related directions were also issued.”