In its decision dated September 20, 2021 ("Judgement") in the case of Mr. Jayesh N. Sanghrajka v. The Monitoring Agency chosen by the Committee of Creditors of Ariisto Developers Private Limited [Company Appeal (AT) (Insolvency) No. 392 of 2021], the National Company Law Appellate Tribunal, Principal Bench, New Delhi ("NCLAT") held that "Success Fees," which are more of a contingent and The Insolvency and Bankruptcy Board of India ("IBBI") (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("Regulations") and the Insolvency and Bankruptcy Code, 2016 ("IBC") do not include any rules pertaining to speculation, and they do not impose any fees on it.
In the instant case titled Jayesh N. Sanghrajka v. The Monitoring Agency nominated by the Committee of Creditors of Ariisto Developers Private Limited the issue raised for clarification before the NCLAT was:
Whether the appellant had the right to demand "Success Fees"?
With regard to this issue, The Amicus Curiae argued that neither the IBC nor the Regulations expressly provide for the granting of a "Success Fee." The Amicus Curiae cited Section 208(2) of the IBC to argue that the Appellant was required to exercise reasonable care and diligence in the discharge of his duties since the Resolution Professional was required to adhere to the code of conduct outlined in that section. The Amicus Curiae further made reference to the rules set forth in the circular dated June 12, 2018 ("Circular") and in paragraphs 25 through 27 of the first schedule of the IBBI (Insolvency Professionals) Regulations, 2016 ("Code of Conduct"). The Amicus Curiae further argued that the resolution professional was chosen in accordance with Section 22 of the IBC during the first CoC meeting, at which moment the price was always and openly determined. The NCLAT stated that there is no express provision in the IBC and the Regulations that prescribes/quantifies or forbids the remuneration or as to the form in which fees can be collected or paid with respect to fees payable. The NCLAT further emphasised that it goes against the principle of transparency if additional sums as fees are crammed into the Resolution Plan at the last minute, while it is being authorised.
The NCLAT noted that the IBBI had effectively instructed the insolvency professional through the Discussion Paper and the Circular that the fee they were to receive should be reasonable, "directly related to and necessary for the CIRP," and determined on an arms-length basis in accordance with the standards of independence and integrity. The NCLAT stated that the insolvency professional must exercise reasonable care and diligence in carrying out his duties, including spending expenses, in accordance with Section 208(2)(a) of the IBC.
In order to protect the interests of resolution professionals, the NCLAT observed that fees were now included in CIRP expenses. Additionally, under Section 30(2) of the IBC, only legitimately incurred CIRP charges are protected from payment prioritisation in favour of the Corporate Debtor's other debts. The Amicus Curiae claimed that the SC found that NCLAT has the authority to assess the fees and costs, etc. due to a professional as an integral component of the CIRP in Alok Kaushik v. Bhuvaneshwari Ramanathan & Others [(2015) 5 SCC 787].
The NCLAT categorically stated that,
"For the above reasons, we hold that 'success fees' which is more in the nature of contingency and speculative is not part of the provisions of the IBC and the Regulations and the same is not chargeable. Apart from this, even if it is to be said that it is chargeable, we find that in the present matter, the manner in which, it was last minute pushed at the time of approval of the Resolution Plan and the quantum are both improper and incorrect.”