Tribunal rules in favor of applicant on allocation of litigation costs in Resolution Plan The Tribunal allowed the Application challenging the Resolution Plan's allocation for litigation costs. It found that the CoC's decision to allocate ...
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Tribunal rules in favor of applicant on allocation of litigation costs in Resolution Plan
The Tribunal allowed the Application challenging the Resolution Plan's allocation for litigation costs. It found that the CoC's decision to allocate additional litigation costs from related party amounts post-approval, without explicit provision in the Plan, was unjustified. The Applicant was entitled to the allocated amount within 90 days from the total resolution plan amount. The Tribunal emphasized the binding nature of the Resolution Plan on all stakeholders and upheld the Applicant's claim for the specified amount.
Issues: Challenge to Resolution Plan Allocation for Litigation Costs
Analysis: 1. The Application was based on the challenge to the Resolution Plan allocation for litigation costs out of amounts payable to related parties, including the Applicant. The Resolution Plan was approved by the CoC and the Tribunal, leading to the cessation of the CIRP for the Corporate Debtor.
2. The Applicant sought disbursement of a specific amount along with interest, citing the circular issued by the IBBI regarding expenses for Corporate Insolvency Resolution Process. The challenge was centered around the CoC's decision to meet additional litigation costs from the related party amounts without explicit provision in the Resolution Plan.
3. The 1st Respondent contended that the CoC, in its commercial wisdom, approved the Resolution Plan with directions related to litigation costs. The CoC allocated a portion of the related party financial creditors' amounts to cover contingent litigation costs, which was within its powers.
4. The CoC did not modify the Resolution Plan post-approval by the Tribunal, and the allocation for additional litigation costs was considered as contingency costs to be paid from related party unsecured creditors' allocation, not as part of CIRP costs.
5. The 1st Respondent highlighted pending Execution Proceedings and emphasized the binding nature of the approved Resolution Plan on all stakeholders, including the Applicant, under Section 31 of the Code. The commercial wisdom of the CoC was deemed unchallengeable.
6. The Tribunal referred to the approved Resolution Plan's details, emphasizing the earmarked amount for related party financial creditors and the binding nature of the Resolution Plan on all stakeholders from the date of approval.
7. The Tribunal found that the CoC's decision to allocate additional litigation costs post-approval, without explicit provision in the Resolution Plan, was not justified. The Applicant was entitled to the allocated amount from the total resolution plan amount within a specified timeframe.
8. Consequently, the Application was allowed with directions for the 1st Respondent to pay the Applicant the specified amount from the total resolution plan amount within 90 days of the Order.
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