ROLE AND DUTIES OF AN INTERIM RESOLUTION PROFESSIONAL AND A

RESOLUTION PROFESSIONAL

Under Section 17 of the IB Code, the erstwhile management of the corporate debtor is vested
in an IRP who is a trained person registered under Chapter IV of the Code.
Decisions of a previous RP (Resolution Professional) cannot be subjected to reconsideration
by the subsequent RP. In Canara Bank v. R.P. of Allied Strips Ltd., the appellant had moved
an application before the NCLT impugning a decision taken by the previous RP and seeking
a direction that the subsequent RP may decide the same.
The NCLT rejected the same on the ground that there is no provision in the IB Code wherein
a subsequent RP could be directed to reconsider the claim already decided by a previous RP.
The appellant had not challenged the decision of the then RP under Section 60(5) and now
had sought direction to the subsequent RP to review that decision. The NCLAT upheld the
order of the NCLT.

Section 17- Management of affairs of corporate debtor by interim resolution

professional: To keep it as a going concern-> Section 17, 20, 23, 25 (1) of IB Code

General Scope
Sections 5(26), 14(2), 20(1), 20(2)(d) and (e) of the Code read with Regulations 37 and 38
show that a corporate debtor must be kept as a going concern during the resolution process
and as a consequence expenses pertaining to workmen, electricity dues, purchase of raw
materials, amongst other regular expenses, need to be made.

Sections 20 and 25 mandate that the IRP and RP respectively are duty-bound to keep the
corporate debtor as a going concern. In Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, the
NCLT had restrained the appellant from terminating the agreement with the corporate debtor.
The corporate debtor was the supplier of electricity to the appellant and the appellant was its
sole purchaser. It was, therefore, submitted by the RP that if the appellant terminates the
agreement, then the corporate debtor could not be kept as a going concern during the
resolution process. The NCLT restrained any such attempt to terminate the agreement, and
the same was upheld by the NCLAT on the ground that the corporate debtor must remain a
going concern during the Corporate Insolvency Resolution Process (CIRP).
While trying to keep the corporate debtor as a going concern, issues of non-payment of wages
or salaries to workers may arise, and the same have to be brought before the RP who may
assess those claims. Similarly, if any employee has an issue that it has been wrongly ousted
by the RP, even though they are employees on roll and are co-operating in keeping the
corporate debtor as a going concern, the NCLAT has maintained that such issues have to be
raised before the RP itself who only can decide after verifying the relevant records if such a
worker is an existing employee or not. 

In Bohar Singh Dhillon v. Rohit Sehgal, the appellant challenged the admission of
insolvency proceedings against the corporate debtor on the ground:
1) of maintainability, and 
2) that the respondent does not come within the ambit of the term "financial creditor".

On maintainability of the application filed by the respondent-financial creditor, it was

submitted that the corporate debtor is alleged to have illegally collected money to the tune of
Rs 1136 crores under an unauthorised "collective investment schemes". It was further
submitted that SEBI has initiated action against the corporate debtor and a recovery
certificate directing recovery of the amount was passed and the same was confirmed by the
Securities Appellate Tribunal as well. In fact, immovable properties held by the corporate
debtor were attached as well. 
The NCLAT, referring to its ruling in Anju Agarwal v. Bombay Stock Exchange,  held that
the application under Section 7 is maintainable and till the period of moratorium remains in
force, SEBI cannot recover any amount or interfere with the assets of the corporate debtor.

It further clarified that while the IRP-RP is required to comply with Section 17, IB Code that
stipulates duties of an RP to manage the affairs of the corporate debtor, as well as also
mandates that the RP should comply with the requirements under any other law in force,
which in the present circumstance meant complying with the SEBI Act and Regulations and
the guidelines issued by it. The NCLAT also clarified that SEBI can undertake any legal
action against individuals including the former directors and shareholders of the corporate
debtor.
The matter was subsequently taken in appeal before the Supreme Court, wherein it was
directed that the status quo be maintained. On the subsequent date, the Supreme Court, while
holding that the RP will keep performing the duties mandated under Section 17, stayed the
direction of the NCLT insofar it directed SEBI to hand over the title deeds to the RP while
clarifying that SEBI would not create any encumbrance on the properties held by them by
virtue of the title deeds. 
The proviso to Section 20(2)(c) was added on the recommendations of the Joint
Parliamentary Committee Report, which stated that consent of the creditor could be
unreasonably withheld by him or her when the interest of such creditor is over secured and
therefore, it was felt that the consent of such creditors shall not be necessary when the value
of the encumbered property is more than twice the interest of such a creditor.

CIRP COSTS- Section 5 (13) of IB Code

In order to fulfil the obligations of keeping a corporate debtor as a going concern, it is natural
that costs would be incurred. But then why would someone take the risk of providing goods
and/or services to a corporate entity that is undergoing a CIRP and running into losses with
the inability to pay off its debts. In such a scenario, the IB Code has envisaged the provision
of "Insolvency Resolution Process Costs".
These are those costs that are necessarily to be incurred and are fundamental to keep the
corporate debtor as a going concern.
The IB Code under Section 5(13) defines "insolvency resolution process costs" as:

"(a) the amount of any interim finance and the costs incurred in raising such finance
(b) the fees payable to any person acting as a resolution professional
(c) any costs incurred by the resolution professional in running the business of the corporate
debtor as a going concern
(d) any costs incurred at the expense of the Government to facilitate the insolvency resolution
process
(e) any other costs as may be specified by the Board"

The Insolvency and Bankruptcy Board of India (IBBI) brought the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 exercising its powers under Section 5(13)(e), IB Code and further defined
such costs to mean:

"(a) amounts due to suppliers of essential goods and services under Regulation 32
[(aa) fee payable to authorised representative under (sub- regulation (8)] of Regulation 16-A
(ab) out of pocket expenses of authorised representative for discharge of his functions under
[Section 25-A];]
(b) amounts due to a person whose rights are prejudicially affected on account of the
moratorium imposed under Section 14(1)(d)
(c) expenses incurred on or by the interim resolution professional to the extent ratified under
Regulation 33
(d) expenses incurred on or by the resolution professional fixed under Regulation 34
(e) other costs directly relating to the Corporate Insolvency resolution process and approved
by the committee.”

The fees of the IRP and RP form part of the CIRP costs as well. In the event of the failure of
the resolution process, if a corporate debtor goes into liquidation under Chapter III of the IB
Code, then such CIRP costs have the topmost priority before any other claims of any
creditors. The highest priority to such claims means that the claims of the IRP and RP are
accorded a lot more security than any other claims of any other claimants. Furthermore, such
insolvency resolution process costs constitute a crucial component of a resolution plan, and
the failure of the resolution plan to provide for such costs may be fatal for violating the
statutory provision of Section 30 read with Regulation 31 of the IBBI Regulations, 2016.

If a resolution plan approved by the Adjudicating Authority does not provide for the
"insolvency resolution process costs" to be in priority to all other debts for repayment, an
appeal can be preferred to the NCLAT.

In the event the resolution process fails, and there is no approved plan, the IB Code still
provides the insolvency resolution process costs to be paid first upon the conclusion of the
liquidation process.

Essential supplies
The term "essential supplies" has been at the heart of a couple of matters. In Asset
Reconstruction Co. (India) Ltd. v. R. Venkatakrishnan, the NCLAT observed that the
Electricity Board could not disconnect the electricity connection as the same constitutes a
violation of Section 14(2), IB Code. The NCLAT further, while setting aside the impugned
order, held that the RP should not have paid any dues of the earlier period (prior to the
initiation of resolution process) for restoration of electricity and the factum of any
disconnection should have been brought to the notice of the NCLT.
Similarly, an issue of dues pending towards another power company arose in Uttarakhand
Power Corpn. Ltd. v. ANG Industries Ltd., Herein, the issue was regarding the non-payment
of dues towards the power-supplier company. The NCLAT firstly held that the Electricity
Board cannot recover any amount that was due for the earlier period prior to the date of
initiation of corporate insolvency resolution process. Then, the NCLAT directed the
respondent M/s. ANG Industries Ltd/IRP to pay the current electricity charges incurred
during the ongoing resolution process. The same seeks to balance the objective of keeping a
corporate debtor company as a going concern, all the while ensuring that the suppliers of the
corporate debtor do not suffer financially on account of non-receipt of payment for the goods
and services supplied during the period the debtor is undergoing the resolution process.

In Dakshin Gujarat VIJ Co. Ltd. v. ABG Shipyard Ltd., the issue arose when the payment
for essential supplies provided during the period of the resolution process had to be paid. The
parties differentiated on whether or not the moratorium prevents payment for services
provided during the resolution process to keep the debtor as a
going concern. The appellant submitted that the order of moratorium was applicable only in
respect of the amount payable by the debtor towards the supply of electricity for the period
prior to passing of the order of moratorium. On the other hand, the RP submitted that the
appellant is duty-bound to supply the essential goods and services.

In this case, the RP had submitted that the debtor has no funds to pay any amount towards the
charges that are now incurred for essential supplies during the resolution process. The
NCLAT on perusing Regulations 31 and 32 and the parent provision of Section 14 firstly
observed that there is no prohibition imposed towards payment of current charges of essential
services till the completion of the period of moratorium. Taking note of the fact that while
any cost incurred towards supply of the essential services during the period of moratorium
may be accounted towards insolvency resolution process costs, the NCLAT opined that the
same does not mean that the supply of essential goods such as electricity has to be supplied
free of cost and the debtor is not liable to pay the amount till the completion of the period of
moratorium. Resultantly, it was directed that the current charges be paid.
On the issue that if a debtor is so sick that it could not even keep up the payment of essential
supplies, the NCLAT observed that in such a case the RP should not keep the company on-
going since such paucity of funds is a conclusive evidence of nothing remaining to be revived
or rescued.

Amount due to a person whose rights are prejudicially affected under Section 14 (1) (d)

The imposition of moratorium certainly seeks to prevent any adverse effect on the ongoing
operations of the corporate debtor. However, the same ends up circumventing the rights and
interests of other stakeholders. During the pendency of a resolution process and the operation
of Section 14, no suit for eviction could be preferred. In such circumstances, the issue of rent
as "resolution cost" could be assessed by the NCLT. In Navneet Chaurasia v. Lanco Infratech
Ltd., however, since liquidation was ordered, it was held that such an issue could not be
decided till the liquidation proceedings were over. However, in JAS Telecom (P) Ltd. v.
Eolane Electronics Bangalore (P) Ltd., the NCLAT observed that the appellant landlord-
operational creditor sought to recover the rent. The issue was whether the amount of rent due
to the appellant had been prejudicially affected on account of the moratorium imposed under
Section 14(1)(d). The NCLAT took note of the fact that the rent has not been paid by the
corporate debtor since 2017 which is much prior to the date of the imposition of moratorium.
Resultantly, it held that since the amount of

rent is due even carlier, it cannot be said that the moratorium has "prejudicially affected" the
rights of the landlord. The reasoning in effect means that since the non-payment of rent has
been even prior to the order of admission, therefore, the imposition of moratorium does not
make the matters worse by continuing the trend of non-payment of rent even during the
resolution process.

It is submitted that this view is erroneous since the phrase "amounts due to a person whose
rights are prejudicially affected on account of the moratorium imposed under Section 14(1)
(d)" is interpreted extremely narrowly. The factum of rights being affected means the rights
that an owner have, which include not only the contractual right to receive rent but also the
statutory rights to enforce the contractual terms and the same encompasses the right to seek
eviction or the right to recover dues.
Keeping the debtor as a going concern
One of the major duties incumbent upon an IRP-RP is to keep the corporate debtor as a going
concern till the resolution process culminates. In order to assist the IRP-RP, the IB Code
acknowledges the efforts made by creditors who may supply such goods (be it raw materials
or electricity) in the form of elevating the status of their claims at a higher pedestal.
Therefore, such materials supplied during the resolution process are part of the "insolvency
resolution process costs".
In Sunil Jain v. Punjab National Bank, the appellant had supplied coal to the corporate
debtor even after the initiation of the insolvency resolution process to keep the company as a
going concern. The claim was not denied by the RP; however, the claim was still not included
as an insolvency resolution cost that was to be payable in priority to other costs both in the
event of success of the resolution process or in the event of liquidation without any haircuts.
The NCLT did not address the issue on the ground that the resolution plan is already
approved.

The NCLAT firstly held that since the appellant has supplied the goods during the period of
the resolution process to keep the company as a going concern, it was the duty of the RP to
include such cost towards resolution process costs and non-inclusion of the same renders the
resolution plan in violation of Section 30(2)(a), IB Code.

However, the NCLAT, instead of setting aside the resolution plan, modified it to include the
cost of the supply of coal during the period of the resolution process and account for the
same.
Salaries of the workers who are working to keep the company ongoing as well as rent of the
premises out of which the corporate debtor is based are all expenses under Section 5(13)(c) in
terms of costs incurred by the RP in keeping the corporate debtor as a going concern.

Access books and access accounts of the debtor

For the purposes of keeping the debtor as a going concern, the IRP-RP is performing the
function of the management that is suspended upon the initiation of the resolution process
against the corporate debtor. Naturally so, the IRP-RP would require access to all the data
and documents relating to the corporate debtor and for the same, Section 17(2)(c) and (d)
provide for access to the records and books of accounts amongst other documents of the
debtor.
The IBBI in its Insolvency and Bankruptcy Board of India (Insolvency Resolution Process
for Corporate Persons) Regulations, 2016 further expand on such authority of the IRP-RP by
stipulating: 
Regn. 4. Access to books.:
“(1) Without prejudice to Section 17(2)(d), the interim resolution professional may access the
books of account, records and other relevant documents and information, to the extent
relevant for discharging his duties under the Code, of the corporate debtor held with
(a) depositories of securities
(b) professional advisors of the corporate debtor
(c) information utilities
(d) other registries that record the ownership of assets
(e) members, promotors, partners, board of directors and joint venture partners of the
corporate debtor, and
(f) contractual counterparties of the corporate debtor”

DUTIES OF IRP: SECTION 18 AND 25 (2) OF IB CODE

General scope
Sections 18 and 25 detail out a range of duties that an IRP-RP are to perform over and above
the broader duty of keeping the corporate debtor as a going concern. The IRP-RP is tasked
with the duty of collecting all the information on the finances and operations of the corporate
debtor, collate all the claims against the debtor, manage the operations of the debtor, recover
and take account of all the assets of the debtor, amongst other duties.
The duty to recover the possession of the assets of the debtor is enforceable even against the
actions pending under the SARFAESI Act. In Encore Asset Reconstruction Co.(P) Ltd. v.
Charu Sandeep Desai, the CIRP was pending against a corporate debtor and one creditor-
bank sought an order to restrain the IRP from demanding the possession of a mortgaged
property. The creditor-bank submitted that it took the physical possession of the mortgaged
asset on 13 September 2017 invoking the provisions of the SARFAESI Act. The moratorium
had
become operative on 6 February 2018. The appellant herein was an assignee of the creditor-
bank.

Referring to Section 18, IB Code which provides for the duties of an IRP, the NCLAT took
note of the fact that the appellant did not claim that the title of the assets has been transferred
or the assets have been sold in terms of Section 13(4), SARFAESI Act, 2002; it was held that
since the asset is still under the ownership of the corporate debtor even if not in its
possession, it is the duty of the IRP to take control and custody of the asset in dispute in the
present case. The NCLAT further held that in light of the non-obstante clause under Section
238, IB Code, Section 18, IB Code would override Section 13(4), SARFAESI Act.
A claimant aggrieved against the decision of the IRP-RP taken under Section 18 can move to
the Adjudicating Authority under Section 60(5) and even if then the grievance subsists,
he/she may prefer an appeal under Section 61 before the NCLAT.

While Section 25(1) provides that it is the duty of the RP to keep the business operations of a
corporate debtor ongoing, an issue may arise as to how the profits are to be claimed that may
get generated during such operations of the corporate debtor during the resolution process. In
other words, how to distribute the profits generated during the resolution process. In
Standard Chartered Bank v. Satish Kumar Gupta, the NCLAT had held that if any amount
of profit is generated during the resolution process, then the same could not be given to the
successful resolution applicant on account of the latter having not invested any money at the
stage when the resolution process was ongoing. The NCLAT directed that where the
successful resolution applicant does not pay the total dues to all the creditors, in such
circumstance, the profit should be distributed amongst all the creditors on a pro-rata basis.

However, in Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta , the
Supreme Court taking into account the request for proposal given under Section 25, which
had stipulated that the profits made during the resolution process would not go towards the
payment of any debt, held the above direction of the NCLAT to be not sustainable.
It is the prerogative of the RP to decide which accountant, legal or other professional is to be
appointed in terms of Section 25(d), IB Code. Therefore, when the appellant-director of a
corporate debtor submitted that the appointment of the valuer-accountant is not legal, the
submission was rejected on the ground that the power to engage an accountant, legal or other
professional is vested with the RP under Section 25(d), IB Code.

The provisions of Sections 18 and 25, especially Section 25(2)(d) also allow the IRP-RP to
even initiate an audit of the corporate debtor. Even when the National Consumer Disputes
Redressal Commission rejected the application of the appellant seeking appointment of an
independent auditor to monitor where the builder has used the funds of the allottees since that
money definitely was not used in the construction of the proposed real estate because no
construction has taken place on the proposed site, the Supreme Court took note of the
resolution process ongoing against the builder. The Supreme Court referred to the submission
of the IRP who had informed that he had taken over the charge of the assets of the company
and made the appointment of two chartered accountants to look into the financial affairs of
the company, and also stated that forensic audit may also be undertaken, if necessary.
Resultantly, the Supreme Court held that there is no need to decide the impugned order of the
National Consumer Disputes Redressal Commission which had earlier declined the prayer of
the appellant for forensic audit. The court reasoned that under the provisions of the Consumer
Protection Act, 1986, there is no such authorisation to the Commission to direct so, which in
any event the IRP-RP may do so itself. Therefore, an IRP-RP is authorised to take steps to
conduct a forensic audit.

Duty to recover the debt due towards the corporate debtor

Recovering dues against a company

If a corporate debtor (undergoing a resolution process) seeks to recover its dues against a
company, then the issue of Section 11 and its bar comes to operate.
The current position of law stipulates that a corporate debtor undergoing either liquidation or
resolution process can initiate a resolution process against its own corporate debtors.

Recovering dues against an individual or firm

On the issue of RP seeking to recover dues during the resolution process time period, while
Section 25(2) allows an RP to take control and custody of all the assets and records of the
corporate debtor, what is the position of law when there are no other assets of the corporate
debtor, except receivables from the group companies, remains unclear. 
However, the RP has in certain cases tried to recover the receivables or dues of the corporate
debtor from its own debtors. In Devmata Exim (P) Ltd. v. Kavitha Surana, the RP made the
following prayer:
i. To pass order to receive the amount Rs. 10,36,91,319/- which is pending from the
Respondent to the Corporate Debtor - Shrei Veerganapathi Steels Pvt. Ltd.
ii. Pass such other necessary orders to enable the Resolution Professional
to carry on the Corporate Insolvency Resolution Process in a smooth
manner.

The Adjudicating Authority took note of the fact that the goods which were supplied by the
corporate debtor were earlier accepted by the appellant-debtor but later only a plea was taken
that the goods were of sub-standard quality. Resultantly, it rejected the same and directed the
appellant to pay the amount.
The NCLAT framed the question of law on the terms of "whether the resolution professional
can pray for recovery of any amount of corporate debtor". The NCLAT dismissed the appeal
holding that once the appellant had sold the goods supplied by the corporate debtor, the plea
of the appellant that the goods that it had received from the corporate debtor at the first
instance were of sub-standard is unsustainable.

It seems that a corporate debtor could even pursue its counterclaims. In Swiss Ribbons (P)
Ltd. v. Union of India, one of the challenges to the IB Code was when a default occurs, then
in the adjudication of an application under Section 7, even if the claim is disputed and even if
there is a set-off and counterclaim, still the IB Code gets triggered without the debtor being
allowed to raise a genuine dispute. The Court on the issue of counterclaims stated that such
claims are independent rights and the IB Code does not circumvent any such right since the
same are preserved for the stage of admission of claims during the resolution plan. The
observations indicate that even during the resolution process, the debtor can still continue its
counterclaims in other judicial forums.

Protecting and recovering assets of the corporate debtor: Adjudging ownership [S. 18(1)(f)]
The provision of Section 18 carries wide importance. Section 18(1)(f) mandates the IRP to
take control and custody of any asset over which the corporate debtor has ownership rights,
and Explanation (a) therein clarifies that assets owned by a third party in possession of the
corporate debtor held under trust or under contractual arrangements including bailment are
excluded.
In CA Kannan Tiruvengadam v. Special Disposal Cell (Port), Custom, the RP sought to
recover the goods purportedly owned by the debtor but in the custody of the Customs and for
the same approached the Adjudicating Authority and even sought an interim direction
restraining the Customs from alienating or disposing of the goods in dispute. Issues regarding
ownership have arisen and what is more crucial is to ascertain how to balance the claims of
ownership by third parties when the IRP-RP seeks to take control of the assets purportedly
owned by the debtor but disputed by third parties. The IRP-RP in such instances is required
to adjudicate on ownership issues, which further aggravates complications. The prevailing
jurisprudence seems to favour minimal litigation during the resolution process.