Introduction

The Insolvency and Bankruptcy Code, 2016 (IBC) represents a watershed moment in India’s insolvency resolution framework, establishing a time-bound and comprehensive mechanism for corporate insolvency resolution and liquidation [1]. Central to the liquidation process is the role of the liquidator, who bears the critical responsibility of maximizing asset value and ensuring equitable distribution among stakeholders. The determination of liquidator’s remuneration has emerged as a contentious issue, particularly regarding the computation methodology and exclusion of certain periods from the liquidation timeline.

The IBC was enacted to replace the fragmented legislative framework that previously governed insolvency proceedings through various statutes including the Companies Act, 2013, the Sick Industrial Companies Act, 1985, and the SARFAESI Act, 2002 [2]. This comprehensive legislation aims to provide a unified approach to insolvency resolution while ensuring speedy and efficient proceedings.

Legal Framework Governing Liquidator’s Fee

Statutory Basis Under the IBC

Section 34 of the IBC provides the foundational framework for liquidator remuneration. Subsection (8) specifically mandates that an Insolvency Professional proposed for appointment as liquidator shall charge fees as specified by the Insolvency and Bankruptcy Board of India (IBBI) [3]. The fee structure is intrinsically linked to the value of liquidation estate assets, ensuring proportionate compensation based on the complexity and scale of assets under liquidation.

Section 34(9) establishes that liquidator fees constitute a priority payment from liquidation proceeds under the waterfall mechanism prescribed in Section 53 of the IBC [4]. This statutory recognition underscores the critical importance of liquidator services in the insolvency ecosystem.

The definition of “liquidation cost” under Section 5(16) of the IBC encompasses any cost incurred by the liquidator during the liquidation period, subject to IBBI regulations [5]. This expansive definition was further clarified by the Bombay High Court in Amit Gupta v. IBBI, which held that Parliament intended a wide interpretation of liquidation costs, rejecting attempts to curtail its meaning through regulatory provisions [6].

IBBI Liquidation Process Regulations, 2016

The IBBI (Liquidation Process) Regulations, 2016 (Liquidation Regulations) operationalize the statutory framework through detailed provisions. Regulation 4 establishes a three-tier fee structure based on different decision-making authorities and circumstances.

Under Regulation 4(1), the Committee of Creditors (CoC) holds primary authority to determine liquidator fees pursuant to CIRP Regulation 39D [7]. This provision was inserted to maintain continuity between the resolution and liquidation phases, allowing the CoC to make informed decisions based on their understanding of the corporate debtor’s circumstances.

Regulation 4(1A), introduced through the Second Amendment Regulations, 2022, empowers the Stakeholders’ Consultation Committee (SCC) to fix liquidator fees when the CoC has not made such determination [8]. This amendment recognized the practical reality that many liquidation cases proceed without CoC involvement, necessitating alternative mechanisms for fee determination.

Regulation 4(2) provides a default fee structure when neither the CoC nor SCC determines the liquidator’s remuneration. This regulation establishes a detailed percentage-based fee schedule linked to asset realization and distribution timelines [9]. The regulation incorporates time-based fee reduction, reflecting the legislative intent to incentivize expeditious liquidation proceedings.

Regulation 4(3) and Period Exclusion Provisions

Regulation 4(3) addresses scenarios where asset realization or distribution occurs beyond the initial two-year period from liquidation commencement. The regulation provides that liquidators shall receive half the standard rate for assets realized or distributed after two years, or such extended period as may be allowed by the Adjudicating Authority under Section 33(7) or Section 33(8) [10].

This provision embodies the IBC’s time-bound philosophy while recognizing that genuine delays may occur due to circumstances beyond the liquidator’s control. The reference to Section 33(7) and Section 33(8) creates a direct link between judicial extensions and fee calculation methodology.

Case Analysis: Mr. Sanjay Kumar Aggarwal v. Canara Bank

Background and Factual Matrix

The case of Mr. Sanjay Kumar Aggarwal (Liquidator of Punjab Basmati Rice Ltd.) v. Canara Bank, decided by the NCLT Chandigarh Bench on March 15, 2023, presents a comprehensive examination of liquidator fee computation and period exclusion principles [11]. The corporate debtor, Punjab Basmati Rice Ltd., entered CIRP on August 23, 2019, following default on various credit facilities.

The CIRP failed to yield a viable resolution plan, leading to liquidation order on February 24, 2020. Mr. Sanjay Kumar Aggarwal, who served as Resolution Professional during CIRP, was appointed as liquidator. The total asset realization amounted to Rs. 1,03,00,00,000, while Canara Bank held secured claims worth Rs. 1,02,62,00,000.

Procedural History and Period Exclusion Applications

The liquidator filed multiple applications seeking exclusion of various periods from the liquidation timeline due to extraordinary circumstances including the COVID-19 pandemic, lockdowns, and legal disputes. The NCLT Chandigarh Bench allowed these applications, excluding a total of 365 days from the liquidation period calculation.

This exclusion was granted under established judicial precedents recognizing that force majeure events and unforeseen circumstances should not prejudice liquidators who demonstrate due diligence in asset realization. The court’s approach aligns with the Supreme Court’s guidance in various IBC matters emphasizing substance over form.

Core Legal Issues

The primary dispute centered on whether the liquidator was entitled to full-rate fees under Regulation 4(2) or reduced fees under Regulation 4(3), considering the excluded period. The liquidator contended that when the excluded period was deducted, asset realization and distribution occurred within the initial two-year timeframe, entitling him to standard rates.

Canara Bank opposed this interpretation, arguing that the excluded period was merely a calculation adjustment rather than an extension under Section 33(7) or Section 33(8). This distinction was crucial as Regulation 4(3) specifically references extensions “allowed by Adjudicating Authority under section 33(7) or section 33(8).”

NCLT Chandigarh Bench Decision

The NCLT Chandigarh Bench delivered a comprehensive judgment addressing both the legal and factual aspects of the dispute. The court made several key findings that have broader implications for liquidation proceedings under the IBC.

The tribunal held that Mr. Aggarwal had performed his duties with due diligence and without prejudice to any stakeholder. This finding was critical as it established the liquidator’s bona fides, distinguishing the case from scenarios involving liquidator negligence or misconduct.

The court referenced the NCLAT decision in SIDBI v. Shri Vijender Sharma, which established the principle of excluding certain periods from liquidation timelines for fee calculation purposes [12]. This precedent was instrumental in supporting the liquidator’s position and demonstrates the evolving jurisprudence on this issue.

Legal Precedents and Jurisprudential Development

SIDBI v. Shri Vijender Sharma – NCLAT Precedent

The NCLAT decision in SIDBI v. Shri Vijender Sharma (2022) represents a landmark judgment establishing the principle of period exclusion for liquidator fee calculation [13]. The appellate tribunal held that Regulation 44 read with Regulation 4(3) permits exclusion of periods where delays occur due to circumstances beyond the liquidator’s control.

This decision recognized that rigid application of time limits without considering genuine impediments would create inequitable outcomes and potentially discourage qualified professionals from accepting liquidator appointments. The judgment emphasized that fee calculation should reflect actual performance rather than calendar-based timelines when extraordinary circumstances intervene.

Bombay High Court Decision in Amit Gupta v. IBBI

The Bombay High Court’s decision in Amit Gupta v. IBBI (2024) addressed the constitutional validity of IBBI’s clarificatory circular on liquidator fee computation [14]. The court struck down certain provisions of the circular as ultra vires, particularly those requiring court approval for period exclusions.

The judgment held that IBBI cannot introduce new requirements through circulars that materially alter regulatory provisions. This decision reinforces the principle that substantial changes to liquidation regulations must follow proper legislative procedures rather than administrative clarifications.

National Company Law Appellate Tribunal Jurisprudence

The NCLAT has consistently emphasized the importance of protecting liquidator interests while ensuring accountability. In various decisions, the appellate tribunal has recognized that liquidator fees should reflect the complexity and challenges faced during the liquidation process.

The tribunal’s approach balances stakeholder interests while acknowledging that experienced insolvency professionals require appropriate compensation to maintain the quality and effectiveness of the insolvency ecosystem.

Regulatory Framework Evolution

IBBI (Liquidation Process) Regulations Amendments

The Liquidation Regulations have undergone several amendments since their initial notification in 2016. The Second Amendment Regulations, 2022, introduced significant changes including the empowerment of SCC to determine liquidator fees and enhanced transparency requirements [15].

These amendments reflect IBBI’s continuous efforts to refine the regulatory framework based on practical experience and stakeholder feedback. The evolution of liquidation regulations demonstrates the adaptive nature of India’s insolvency framework.

Stakeholders’ Consultation Committee Role

The introduction of Regulation 31A establishing Stakeholders’ Consultation Committees marked a significant development in liquidation governance [16]. The SCC serves as an advisory body representing diverse stakeholder interests while providing oversight of liquidator activities.

Recent amendments have expanded the SCC’s role to include fee determination, asset sale decisions, and ongoing consultation requirements. These changes reflect the regulator’s intent to balance liquidator independence with stakeholder accountability.

Computation Methodology and Practical Implications

Fee Calculation Under Regulation 4(2)(b)

Regulation 4(2)(b) establishes a complex fee structure based on asset realization and distribution amounts, with varying rates for different time periods [17]. The regulation creates incentives for rapid asset realization while ensuring adequate compensation for liquidator services.

The fee table distinguishes between realization fees and distribution fees, recognizing that these activities may occur at different times and involve distinct challenges. Higher rates in initial months encourage prompt action while reduced rates for extended periods reflect the diminishing complexity of remaining assets.

Period Exclusion Criteria and Application

Courts have developed criteria for determining when period exclusions are appropriate. Key factors include the nature of the impediment, liquidator’s due diligence, impact on asset realization, and whether delays were beyond the liquidator’s control.

The COVID-19 pandemic provided a clear example of circumstances warranting period exclusion, with various courts recognizing that lockdowns and health restrictions created genuine obstacles to liquidation activities.

Comparative Analysis with International Practices

Cross-Border Insolvency Fee Structures

International insolvency frameworks typically provide more flexible fee determination mechanisms compared to India’s structured approach. Countries like the United States and United Kingdom rely heavily on court supervision and stakeholder negotiation rather than predetermined fee schedules.

The Indian approach seeks to balance predictability with fairness, though it may lack the flexibility seen in more mature insolvency systems. The IBC’s relatively young age suggests that further refinements may occur as the system matures.

Best Practices and Recommendations

International experience suggests that effective insolvency systems require appropriate incentive structures for insolvency professionals while maintaining accountability to stakeholders. The Indian framework’s emphasis on time-bound proceedings and percentage-based fees represents a reasonable approach to these competing objectives.

Future Implications and Recommendations

Legislative and Regulatory Considerations

The evolving jurisprudence on liquidator fees suggests potential areas for legislative or regulatory clarification. Clear guidelines on period exclusion criteria, enhanced transparency in fee determination, and standardized procedures for addressing disputes could improve system efficiency.

Future amendments might consider creating more granular fee structures that better reflect the complexity and value addition of liquidator services across different sectors and case types.

Impact on Insolvency Ecosystem

Appropriate liquidator compensation is crucial for maintaining a robust pool of qualified insolvency professionals. Under-compensation could lead to talent exodus, while excessive fees might burden already distressed enterprises.

The current framework’s evolution through judicial interpretation and regulatory amendments suggests a maturation process that should ultimately enhance the effectiveness of India’s insolvency system.

Conclusion

The NCLT Chandigarh Bench’s decision in Mr. Sanjay Kumar Aggarwal v. Canara Bank represents a significant contribution to the jurisprudence on liquidator fee computation and period exclusion under the IBC. The judgment affirms the principle that liquidators who demonstrate due diligence should not be penalized for delays caused by circumstances beyond their control.

The decision aligns with the IBC’s broader objectives of encouraging efficient asset realization while ensuring fair compensation for insolvency professionals. The court’s reliance on established NCLAT precedents demonstrates the developing consistency in judicial interpretation of liquidation regulations.

The case highlights the importance of balancing liquidator interests with stakeholder protection, a theme that runs throughout the IBC framework. As India’s insolvency system continues to mature, decisions like this contribute to the predictability and fairness that are essential for an effective insolvency regime.

The evolution of liquidator fee regulations through judicial interpretation and regulatory amendments reflects the adaptive nature of India’s insolvency framework. Future developments should continue to prioritize both efficiency and equity while maintaining the time-bound nature that distinguishes the IBC from previous insolvency legislation.

References

[1] The Insolvency and Bankruptcy Code, 2016 (31 of 2016), available at: https://www.indiacode.nic.in/handle/123456789/2046 

[2] Ministry of Corporate Affairs, Report of the Bankruptcy Law Reforms Committee (2015) 

[3] Insolvency and Bankruptcy Code, 2016, Section 34(8)

[4] Insolvency and Bankruptcy Code, 2016, Section 34(9) read with Section 53

[5] Insolvency and Bankruptcy Code, 2016, Section 5(16)

[6] Amit Gupta v. Insolvency and Bankruptcy Board of India, (2024) ibclaw.in 250 HC (Bombay), available at: https://ibclaw.in/amit-gupta-vs-insolvency-and-bankruptcy-board-of-india-and-anr-bombay-high-court/ 

[7] IBBI (Liquidation Process) Regulations, 2016, Regulation 4(1) read with CIRP Regulation 39D

[8] IBBI (Liquidation Process) (Second Amendment) Regulations, 2022, available at: https://ibbi.gov.in/en/legal-framework/regulations 

[9] IBBI (Liquidation Process) Regulations, 2016, Regulation 4(2)(b)

[10] IBBI (Liquidation Process) Regulations, 2016, Regulation 4(3)

[11] Mr. Sanjay Kumar Aggarwal v. Canara Bank, NCLT Chandigarh Bench (March 15, 2023)

[12] Small Industries Development Bank of India v. Shri Vijender Sharma, (2022) ibclaw.in 879 NCLAT, available at: https://ibclaw.in/small-industries-development-bank-of-india-sidbi-vs-shri-vijender-sharma-nclat-new-delhi/ 

[13] Ibid.

[14] Amit Gupta v. IBBI, supra note 6

[15] IBBI (Liquidation Process) (Second Amendment) Regulations, 2022, supra note 8

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