2023 (7) TMI 771 - AT - Insolvency and Bankruptcy

Court upholds decision denying incentive fee to Resolution Professional in Yashasvi Yarns Limited case

The appeal by the Resolution Professional (RP) of Yashasvi Yarns Limited challenging the rejection of his application for an incentive fee was dismissed. ... Grant of Incentive Fee to Resolution Professional - It is submitted that when the Resolution Professional was able to maximize the value of Corporate Debtor he was entitled to performance linked incentive fee - HELD THAT:- The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provided for payment of Resolution Professional cost which included fee to be paid to the Resolution Professional. From the facts which have been brought on record and the Order of the Adjudicating Authority it is clear that the claim of incentive fee of the Appellant came to be considered by the CoC in its meeting dated 01.12.2022 and was not approved with 91.55% voting. The decision of the CoC dated 01.12.2022 as noted above is a business decision of the CoC while approving the Resolution Plan including the payments which have to be made to the various creditors, stakeholders as well as to the Insolvency Professional Cost, which have to be deliberated and voted upon by the Committee of Creditors. The payment of Performance Linked Incentive Fee in event it is paid to the Resolution Professional shall be part of the Insolvency Resolution Cost which affects the entitlement of stakeholders when the Insolvency Resolution Cost is increased by adding performance linked incentive fee it is bound to reduce the payment which is to be received by the various stakeholders under the Resolution Plan, since the amount which is proposed in the Resolution Plan is a fixed amount - The law is well settled that the commercial decision of the CoC has to be given due credence and the Adjudicating Authority or the Appellate Authority is not to interfere in the commercial decision of the CoC unless it does not fulfill the requirement of Section 30 of the Code. Hon’ble Supreme Court again in KALPRAJ DHARAMSHI & ANR. VERSUS KOTAK INVESTMENT ADVISORS LTD. & ANR. [2021 (3) TMI 496 - SUPREME COURT] reiterated that limited judicial review which is available to the Adjudicating Authority and Appellate Authority can in no circumstances entitle to review the business decision arrived at by the majority of the CoC. The decision taken by the CoC in not approving the payment of performance linked incentive fee to the Appellant thus cannot be faulted and is in accord with the discretionary power vested with the CoC under Regulation 34B. Appellant at best was entitled for consideration of his claim under statutory scheme. When claim is considered and not approved, Appellant has no right to claim that he was mandatorily entitled for payment of performance linked incentive fee. Thus, Appellant had no right to claim performance linked incentive fee and his claim having been considered and rejected by the Committee of Creditors with 91.55% vote share cannot be faulted nor it can be interfered with by the Adjudicating Authority or Appellate Authority in exercise of its jurisdiction - appeal dismissed. Issues Involved:1. Entitlement to Incentive Fee for Resolution Professional2. Discretionary Power of Committee of Creditors (CoC)3. Judicial Review of CoC's Commercial DecisionsSummary:1. Entitlement to Incentive Fee for Resolution Professional:The appeal was filed by the Resolution Professional (RP) of Yashasvi Yarns Limited challenging the order rejecting his application for an incentive fee. The RP was appointed following the admission of a Section 7 application under the Insolvency and Bankruptcy Code, 2016. The RP sought an incentive fee for value maximization as per Clause 4 of Schedule II under Regulation 34B of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The application for the incentive fee was not approved by the CoC with 91.55% voting against it.2. Discretionary Power of Committee of Creditors (CoC):Regulation 34B and Schedule II provide for the payment of performance-linked incentive fees at the discretion of the CoC. The CoC's decision is discretionary, as indicated by the terms 'may' and 'in its discretion.' The Supreme Court has clarified that discretionary power implies freedom of choice, and a competent authority may decide whether or not to act. The CoC's decision on 01.12.2022, which included the consideration of the incentive fee, was a commercial decision. The CoC's decision impacts the Insolvency Resolution Cost, affecting payments to various stakeholders.3. Judicial Review of CoC's Commercial Decisions:The Supreme Court has established that the commercial decisions of the CoC should be given due credence and are not to be interfered with by the Adjudicating Authority or the Appellate Authority unless they do not fulfill the requirements of Section 30 of the Code. The limited judicial review available cannot trespass upon a business decision arrived at by the majority of the CoC. The decision of the CoC in not approving the payment of the performance-linked incentive fee was within its discretionary power and cannot be faulted.Conclusion:The Appellant had no right to claim the performance-linked incentive fee. The CoC's decision, with 91.55% voting against the incentive fee, was in accordance with the discretionary power vested in the CoC under Regulation 34B. The appeal was dismissed, affirming that the Appellant's claim was rightfully considered and rejected by the CoC.