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CIRP Cost ‘not incurred’ by the Resolution Professional- An analysis

Whether the Electricity distribution company can claim the ‘electricity charges’ from the Resolution Professional/Successful Resolution Applicant without providing services during the CIRP Period? Similarly, whether the employees/workmen who had not worked during the CIRP period can claim their wages/salaries by covering it within the scope of IRP Cost? Based on the given queries, this article analyses the scope of ‘Insolvency Resolution Process Cost(IRP Cost) and the extent upto which the same can be claimed by the stakeholders.


Section 5(13)

(13) "insolvency resolution process costs" means—

(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; and

(e) any other costs as may be specified by the Board;


As per Clause (c) of Sub-section 13 of Section 5 of the Code, ‘any cost incurred by the Resolution Professional in running the business of the Corporate Debtor as a going concern’ only shall form part of the IRP Cost. The said definition of IRP Cost is exhaustive and complete and not an inclusive one. As per Sub Regulation (c) of Regulation 31 of the Corporate Insolvency Resolution Process Regulations, ‘expenses incurred on or by the Interim Resolution Professional to the extent ratified under Regulation 33 forms Insolvency Resolution Process Cost within the meaning of 5(13)(e) of the Code. As per Sub Regulation (d) of Regulation 31 of the Corporate Insolvency Resolution Process Regulations, ‘expenses incurred on or by the Resolution Professional fixed under Regulation 34 forms Insolvency Resolution Process Cost. The said definitions of IRP Cost are also exhaustive and complete and not inclusive in nature. In the “Explanation to Regulation 33 and 34 that. - For the purposes of this regulation, “expenses” include the fee to be paid to the resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the resolution professional”. It is to be noted that the IRP or RP has not incurred any expenses towards electricity charges and has not received any bills/invoices towards electricity; therefore, it does not come under the purview of Interim Resolution Cost and Resolution Process Cost.


Treatment of salary/wages of employees who had not actually worked during the CIRP period

In Sunil Kumar Jain and others Vs. Sundaresh Bhatt and others, (2022) ibclaw.in 23 SC, the Hon’ble Supreme Court of India had analysed the situation in a detailed manner as to whether the salary/wages of the employees/workmen who had not actually worked during the CIRP Period is to be considered as CIRP Cost.


In the said judgement, Hon’ble Supreme Court had observed that, as per Section 5(13) of the IB Code, “insolvency resolution process costs” shall include any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern. The Court had observed that though Section 20 of the IB Code mandates that the interim resolution professional/resolution professional to manage the operations of the corporate debtor as a going concern, and in case during the CIRP the corporate debtor was a going concern, the wages/salaries of such workmen/employees who actually worked, shall be included in the CIRP costs and in case of liquidation of the corporate debtor, dues towards the wages and salaries of such workmen/employees who actually worked when the corporate debtor was a going concern during the CIRP, being a part of the CIRP costs are entitled to have the first priority, and they have to be paid in full first as per Section 53(1)(a) of the IB Code. Therefore, while considering the claims of the concerned workmen/employees towards the wages/salaries payable during CIRP, first of all, it has to be established and proved that during CIRP, the corporate debtor was a going concern and that the concerned workmen/employees actually worked while the corporate debtor was a going concern during the CIRP. The wages and salaries of all other workmen/employees of the Corporate Debtor during the CIRP who actually had not worked and/or performed their duties when the Corporate Debtor was a going concern shall not be included automatically in the CIRP costs. Only with respect to those workmen/employees who actually worked during CIRP when the Corporate Debtor was a going concern, their wages/salaries are to be included in the CIRP costs, and they shall have the first priority over all other dues as per Section 53(1)(a) of the IB Code. Any other dues towards wages and salaries of the employees/workmen of the corporate debtor shall have to be governed by Section 53(1)(b) and Section 53(1) (c) of the IB Code. Any other interpretation would lead to absurd consequences and violate the scheme of Section 53 r/w Section 5(13) of the IB Code. If any other interpretation, more particularly, the interpretation canvassed on behalf of the appellants, is accepted, in that case, the wages/salaries of those workmen/employees who had not worked at all during CIRP shall have to be treated and/or included in the CIRP costs, which cannot be the intention of the legislature


On a fair reading of Section 5(13) of the IB code, which defines “insolvency resolution process costs”, it is observed and held that the dues towards the wages/salaries of only those workmen/employees who actually worked during the CIRP are to be included in the CIRP costs. The rest of the claims towards the wages/salaries of the workmen/employees, as observed hereinabove, shall be governed by Sections 53(1)(b) & (c) of the IB Code. It is true that under Section 20 of the IB Code, it is the duty of the RP to manage and run the operations of the Corporate Debtor as a going concern. However, the words used in Section 20 are “the interim resolution professional shall make every endeavour to .... manage the operations of the corporate debtor as a going concern”. Therefore, even if it is found that the Corporate Debtor was not a going concern during the CIRP despite best efforts by the resolution professional, it cannot be presumed that still, the Corporate Debtor was a going concern during the CIRP period. It depends on the facts of each case.


Claim for electricity charges during the CIRP period without providing an electricity connection

MA(IBC)/14/KOB/2022 Bijoy Prabhakaran Pulipra Versus- Special Officer (Revenue), Kerala State Electricity Board Limited, the Hon’ble NCLT held that since no service was rendered by the 1st respondent and no claim is submitted for the CIRP period, no provision is made in the resolution plan to make payments to the KSEB. The resolution plan was approved by this Authority on 22.02.2021. After the approval of the resolution plan the KSEB sent the impugned notice of demand; hence the claim of the KSEB is unsustainable. This position is made clear by the Apex court in Ghanashyam Mishra And Sons..vs.. Edelweiss Asset Reconstruction (2021)( SCC 657 :-


“102.3 Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued.


In the circumstances, the claim of the KSEB against the successful Resolution Applicant is not valid and not binding as against the successful resolution applicant.


In view of the above, it is clear that only the cost which is actually incurred by the Resolution Professional/Liquidator to operate the Corporate Debtor as a going concern will qualify as ‘CIRP Cost’, and any other interpretation is not in accordance with the intent of the legislature.


Bijoy P Pulipra LL.M, FCS, IP, RV Advocate

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