Insolvency and Bankruptcy Code, 2016

Section 144: Fees of Bankruptcy Trustee under the Insolvency and Bankruptcy Code, 2016

Section 144 sets out how a bankruptcy trustee is remunerated for conducting a bankruptcy process and links payment of those fees to the statutory distribution priority in Section 178.

What does Section 144 provide?

Section 144(1) - Fee determination: A bankruptcy trustee appointed to conduct the bankruptcy process must charge fees as specified, in proportion to the value of the bankrupt's estate. The provision does not itself prescribe a universal rupee amount or percentage for every case.

Section 144(2) - Payment from the estate: Fees for conducting the bankruptcy process are paid to the bankruptcy trustee from the distribution of the bankrupt's estate, in the manner provided under Section 178.

Core principle: Trustee fees are a bankruptcy-process expense. Their amount and payment must be considered under the Code and the applicable regulations, not as an unrestricted personal claim against creditors.

Who is a bankruptcy trustee?

A bankruptcy trustee is an insolvency professional appointed to administer the bankruptcy process under Part III of the Code. The trustee performs statutory functions relating to the bankrupt's estate, including administration, realisation and distribution, subject to the Code, applicable regulations and professional conduct requirements. Section 143 requires compliance with the code of conduct referred to in Section 208.

How are bankruptcy trustee fees determined?

Section 144 requires fees to be charged in the manner specified and in proportion to the estate's value. For bankruptcy proceedings involving personal guarantors to corporate debtors, the IBBI (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019, as amended, provide additional rules concerning trustee fees and bankruptcy-process costs. The applicable regulatory provisions and schedules should be checked for the particular proceeding.

The fee arrangement should be documented and applied consistently with the relevant regulations, including any decision-making role assigned to the committee of creditors. Do not assume that the same fee schedule governs every type of debtor or every insolvency proceeding.

Section 178: Priority of payment

Section 178(1)(a) places the costs and expenses incurred by the bankruptcy trustee for the bankruptcy process first in the statutory order of priority for distribution of the final dividend. Section 144(2) expressly connects payment of trustee fees with this distribution framework.

After this first category, Section 178 specifies further classes of claims, including certain workmen's dues and secured creditors' debts, employee dues, government dues and other debts in the statutory order. The precise ranking and any applicable qualifications must be assessed under the complete provision.

Practical implications for the bankrupt and creditors

For the bankrupt: Remuneration and process costs affect the amount of the estate available for distribution.
For creditors: Priority payment of properly incurred bankruptcy-process costs can reduce funds available for subsequent creditor categories.
For the trustee: Fees and expenses must be supported by the applicable statutory and regulatory framework, with appropriate records and disclosures.

Related legal provisions

Section 143: Standard of conduct applicable to the bankruptcy trustee, linked to Section 208.
Section 144: Fees payable to the bankruptcy trustee and their source of payment.
Section 145: Replacement of the bankruptcy trustee.
Section 178: Priority of payment of debts during final distribution.
Section 208: Functions and obligations of insolvency professionals.

Official legal sources and further reading

Legal information note: This article explains the statutory framework for general information. Check the latest notified provisions, regulations and orders applicable to the particular debtor and proceeding before relying on a fee calculation.