Whether an Insolvency Professional can be paid fees higher than what is due from a Corporate Debtor?

There is a need to fix a ceiling of the Fees to be paid to an Insolvency professional on case to case basis on the basis of volume of work involved.

Whether an Insolvency Professional can be paid fees higher than what is due from a Corporate Debtor?

Shrikrishna Rail Engineers Private Ltd

vs

Madhucon Projects Ltd

In the matter of Shrikrishna Rail Engineers Private Ltd vs Madhucon Projects Ltd , Hyderabad NCLT made a reference to Insolvency and Bankruptcy Board to investigate the up-normal amount of fees payable to Insolvency Professional.

This is the first case where IBBI has been asked to look into the collusion of related parties in an insolvency proceeding.

In their petition  , the Shrikrishna Rail Engineers Private Ltd filed an insolvency petition under section 9 of the IBC code 2016 and prayed for the following reliefs.

1.    To pass winding up order against vs Madhucon Projects Ltd

2.    To Appoint Mrs. Bhavana Sanjay Ruia as Insolvency Professional at a hefty pay of Rs 5 Crore as professional fee up to the meeting of Committee of Creditors. In subsequent months , the proposed IRP is to be paid Rs 1.75 Crores as monthly payment.

It is to be noted that Mrs. Bhavana Sanjay Ruia is the wife of Shri Sanjay Kumar Ruia , a Chartered Accountant who appeared in this case as counsel for the corporate debtor.

However , NCLT Hyderabad found that amount due from Corporate Debtor is just only Rs 4.16 Crores.

In other words , fees for insolvency professional is 200% higher than the debt due from the corporate debtor.

In view of the above , NCLT Hyderabad is of view that the remuneration quoted by IRP is extremely high and referred the matter to IBBI to take action against the Resolution Professional.

On this background, the IBBI has recently issued a circular that IRP has to disclose whether he is a related party to the corporate debtor or counsel appearing for the Corporate debtor.

Whether IBBI is going to take any action against this collusion of related party and claiming unjustified fees for the insolvency professional , we have to wait and see. 

Further , it is necessary on the part of IBBI to  fix a ceiling of the Fees to be paid to an Insolvency professional on case to case basis on the basis of volume of work involved.