Liquidator Remuneration Under IBC — What the NCLT Kochi Ruling Means for CA Students
Imagine you are a liquidator handling a complex corporate insolvency case. The process drags on for years — not because of anything you did wrong, but because of ongoing litigation, court stays, and legal battles beyond your control. You naturally feel you deserve extra compensation for that extended period. Reasonable thought, right?
Well, NCLT Kochi recently said: No, you don't get extra remuneration just because litigation caused delays.
This ruling carries important lessons for CA students studying insolvency at the Intermediate and Final levels — not just for exams, but for your future career as a professional.
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What Exactly Happened?
In a liquidation proceeding before NCLT Kochi, the liquidator sought additional remuneration over and above what the applicable regulations prescribed. The argument was straightforward — the liquidation stretched longer than expected because of litigation hurdles, and therefore the professional deserved more pay.
The tribunal disagreed. NCLT Kochi held that litigation-related delays do not by themselves entitle a liquidator to claim additional fees beyond what the Insolvency and Bankruptcy Board of India (IBBI) regulations prescribe.
This is not just a procedural technicality. It reflects a deeper principle about how insolvency professional compensation is structured under the IBC framework.
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How Is Liquidator Remuneration Determined Under IBC?
Under the Insolvency and Bankruptcy Code, 2016, the IBBI has issued specific regulations governing the fees payable to insolvency professionals — both resolution professionals and liquidators. The key idea is this:
- Remuneration is broadly linked to outcomes and assets realised, not purely to time spent.
- The regulations prescribe a fee structure that is typically a percentage of amounts realised from asset liquidation — verify exact slabs and percentages in the latest IBBI Liquidation Process Regulations and ICAI study material, as these figures are updated periodically.
- The Committee of Creditors (in resolution) or the stakeholders (in liquidation) play a role in approving professional fees within the regulatory framework.
- A liquidator cannot unilaterally demand enhanced compensation simply because the timeline extended.
This outcome-linked approach is intentional. It creates accountability — the professional is incentivised to realise maximum value rather than simply bill for time.
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Why Does Litigation Delay NOT Justify Extra Pay?
This is the conceptual heart of the ruling. Think about it from a policy angle:
1. Litigation is a foreseeable risk in insolvency. When someone accepts an insolvency assignment, they are accepting a legally contested environment. Creditors fight, promoters resist, third parties raise claims. This is not an exceptional event — it is the norm.
2. The fee structure already accounts for complexity. IBBI regulations do provide for fee adjustments in certain situations — but through a defined mechanism, not through ad hoc claims raised mid-process.
3. Allowing open-ended extra fees creates perverse incentives. If every delay — regardless of cause — justified additional pay, it would reduce the professional's urgency to resolve matters quickly. The IBC's core philosophy is time-bound resolution — CIRP must ordinarily be completed within 330 days (verify current timelines in latest ICAI material). Extending fees for delay conflicts with this spirit.
4. Creditors' money must be protected. Every rupee paid to the liquidator as additional remuneration comes from the liquidation estate — money that could otherwise go to financial creditors, operational creditors, or workmen. NCLT acts as a guardian of that estate.
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What CA Students Must Understand for Exams and Practice
The Waterfall Mechanism and Why Fees Matter
Under Section 53 of the IBC, liquidation proceeds are distributed in a strict priority order. Insolvency resolution process costs and liquidation costs (which include the liquidator's remuneration) rank at the very top — even above secured creditors. So when a liquidator's fees go up unnecessarily, secured and unsecured creditors directly suffer.
As a CA student, understand this: fees paid to the IP are not neutral — they reduce the pie for everyone else.
The Professional's Duty vs. Entitlement
An Insolvency Professional is a regulated professional under the IBBI framework. The NCLT Kochi ruling reinforces that an IP's rights to compensation are bounded by regulations, not by individual judgment about what seems fair.
This mirrors broader professional ethics — as a CA, you will frequently encounter situations where you feel your effort justifies more than the agreed fee. The professional answer is to negotiate scope and fees upfront, not to seek extra payment after the fact.
Exam-Ready Thinking Points
When you face an insolvency question in your CA exams, keep these principles handy:
- Liquidator remuneration = regulated, outcome-linked, realisation-based (verify current slab details in study material)
- NCLT has supervisory power over the liquidation process and can reject fee claims it finds unjustified
- Litigation delay ≠ automatic fee enhancement
- The liquidation estate belongs to creditors — every cost must be justified and proportionate
- Section 53 waterfall: liquidation costs come first, but must be reasonable
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A Simple Logic Exercise
Let us test your understanding with a scenario:
A liquidator handles a case where litigation by the erstwhile promoter delays asset sale by 18 months. The liquidator claims ₹X as extra fees for this period. No resolution was achieved during these 18 months; assets were held idle. Should NCLT approve this claim?
Think through: Was value created? Was the delay within the liquidator's control? Does the regulation permit this extra claim? What happens to creditors if approved?
Based on the NCLT Kochi reasoning — the answer would likely be no, unless a specific regulatory provision or prior court order expressly permitted it.
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FAQs
Q1. Can a liquidator earn any additional fees beyond the base structure? Yes, but only through mechanisms specifically provided under IBBI regulations or with proper NCLT approval backed by regulatory grounds — not simply because the case took longer due to litigation. Always verify current regulations as IBBI updates these periodically.
Q2. Does this ruling affect Resolution Professionals as well, or only liquidators? The ruling directly addresses liquidation remuneration. However, the underlying principle — that delay alone does not justify extra fees — is consistent with how IP compensation is philosophically structured across both CIRP and liquidation under the IBC framework.
Q3. Why is this topic important for CA Final students specifically? Insolvency and IBC concepts are tested in Strategic Financial Management and law-related papers at the Final level. More importantly, many CA professionals work as insolvency professionals or advise clients in IBC proceedings — understanding fee regulation, professional accountability, and NCLT oversight is directly career-relevant.
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