CIRP Costs explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
An insolvent company has no money, and the process that is supposed to save it costs money from day one. Four decisions establish who pays, when, and what happens to a creditor that refuses.
The costs can be paid as they arise — IDBI Bank v. Manor Floatel
IDBI Bank initiated proceedings against Manor Floatel Limited over failure to repay a loan exceeding Rs. 32 crore, taken to set up a floating hotel on the Ganges, and the CIRP was admitted.
Among the questions answered was that insolvency resolution process cost may be paid during the CIRP period also, and does not necessarily have to be included in the resolution plan.
This matters because the alternative reading — that CIRP costs are settled only when a plan is approved — would leave the professional, the valuers and the debtor's suppliers unpaid for the whole of a 330-day process, on the chance that a plan eventually materialises.
The committee must fund the going concern — Dakshin Gujarat Vij
The NCLT held that:
- the committee of creditors is primarily responsible for funding the corporate debtor to maintain it as a going concern;
- CIRP expenses initially paid by the applicant must be reimbursed by the CoC if ratified;
- CoC members are directed to induct funds based on their voting shares to cover essential operational costs categorised as Insolvency Resolution Process Costs; and
- if bank authorities do not cooperate in releasing funds for operations, the resolution professional must report this to the regulatory authorities.
Reliance Commercial Finance Ltd. v. Noble Resourcing Business and Solution Pvt. Ltd. is the strongest statement of the principle. The committee resolved that CIRP costs would be shared proportionately by the financial creditors; one creditor refused.
The Adjudicating Authority observed that for effective continuation of the process the financial creditors constituting the committee have to contribute to the expenses, fees and other costs, otherwise the whole process would come to a halt. It went further: if a creditor is not inclined to contribute to the cost of the process, "then we are doubtful as to how their claim could be considered in the whole process."
It directed the non-contributing creditor to contribute 42.78% of the running CIRP cost as approved by the committee, and held that if it failed to contribute, its claim in the CIR process would not be considered.
Liquidation costs where there is nothing to draw on — Hind Motors
Hind Motors India Limited was ordered into liquidation by the NCLT on 12 September 2017. The Adjudicating Authority noted that the corporate debtor had no liquid assets, making it difficult to meet the expenses of liquidation.
It therefore directed that the expenses of the public announcement and service of process incurred by the liquidator be borne by Union Bank of India at first instance, and that those sums would form part of liquidation costs. It clarified that the liquidator shall be paid a fee in accordance with the Regulations.
The pattern across the four decisions
| Question | Position |
|---|---|
| When are CIRP costs paid? | During the process, not only through the plan |
| Who funds the going concern? | The committee of creditors, primarily |
| On what basis? | Proportionate to voting share |
| What if one creditor refuses? | Directed to contribute; claim may not be considered if it does not |
| What if there are no liquid assets in liquidation? | A creditor may be directed to bear costs at first instance, recoverable as liquidation cost |
Running through all of them is the same idea: CIRP costs rank ahead of everyone in the distribution, so a creditor advancing them is not making a gift. It is funding, in priority, the process from which its own recovery comes.
Practical points for a resolution professional
- Put a budget and a funding resolution to the committee early, allocated by voting share.
- Obtain ratification of expenses advanced by the applicant — reimbursement follows ratification.
- Where a bank will not release operating funds, report it to the regulator rather than absorbing the delay.
- In a liquidation with no liquid assets, apply for a direction that a creditor bear the initial costs as liquidation cost.
Common mistakes
- Deferring all CIRP costs to the resolution plan.
- Accepting a creditor's refusal to contribute as a commercial choice with no consequence.
- Advancing expenses personally without committee ratification.
- Letting operations stop because the debtor's bank will not release funds, without reporting it.