Insolvency professional seeks fees more than the dues to be recovered! IBBI frowns

Insolvency and Bankruptcy Board of India (IBBI) has launched a probe after the National Company Law Tribunal (NCLT) found that the fees charged by an interim resolution professional (IRP) was found to be far in excess of the amount due to the company.

Mumbai-based Shri Shrikrishna Rail Engineers has filed a petition in NCLT Hyderabad to recover dues of Rs 4.6 crore from Hyderabad-based Madhucon Projects and also asked the court to approve the appointment of insolvency professional with fees almost three times of the outstanding dues. Shri Shrikrishna Rail Engineers Ltd approached NCLT liquidate Madhucon for non-payment of dues of Rs 4.6 crore and it requested the court to approve the IRP, Bhavna Sanjay Ruia, for a fee of Rs 14 crore. Bhavna is the wife of Sanjay Ruia, the chartered accountant of Shri Shrikrishna Rail Engineers.

The next hearing for the case is posted for January 29, 2018.

In another case between Raj Steels and Hyderabad-based Sanjay Strips, Sanjay Ruia was appointed as the IRP for the operational creditor where he originally quoted a fee of Rs 85 lakh for the initial six months and when the court raised concern, he reduced the fee to Rs 9 lakh.

In the Shri Shrikrishna Rail's case, the NCLT court said the adjudicating authority was alarmed to see that the professional fee quoted by the proposed IRP till the first committee of creditors meet is Rs 5 crore. Further, it was noticed that the fee for subsequent months as IRP or IP, it was Rs 1.75 crore. The NCLT court also noted that the total outstanding debt amount from the corporate debtor is only Rs 4.16 crore including interest and retention money. It also observed that the fee proposed by the IRP works out to Rs 14 crore, apart from other incidental expenses.

The court noted that Bhavna is the wife of Sanjay Ruia, the chartered accountant of Shri Shrikrishna Rail Engineers. To prevent such incidents, IBBI was forced to issue a detailed circular last week curtailing the fees paid to insolvency professional and insisting on detailed disclosures to be made by IRP when he is appointed by the company or the lender.

A counsel for Madhucon said, "The court has taken serious note of the fact that Shri Shrikrishna Rail Engineers wants to pay the IRP an amount higher than the dues it is fighting to get back from Madhucon."

From the annual report of 2015-16, the court noted that the managing director and chief executive officer (MD & CEO) of Shri Shrikrishna Rail Engineers was only drawing Rs 5 lakh as monthly salary. And the remuneration for the whole year for the MD was Rs 60 lakh. Even for the two whole-time directors on the Board of the company the annual remuneration was Rs 60 lakh. The remuneration for MD & CEO and two whole-time directors works out to Rs 1.10 crore whereas the company is proposing to pay the IRP is Rs 14 crore.

Sanjay Ruia told DNA Money, "The IRP has now recused (legal term for excused) herself as the proposed IRP from the case as she was not given enough time to explain the case. We will file our detailed explanation to the IBBI. In the Raj Steels case, I brought down my fees after examining the various aspects of the case."