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. The Supreme Court affirmed that the Committee of Creditors (CoC) has discretionary power regarding incentive fees, and its decision not to approve the fee was upheld. The CoC's commercial decisions are generally not subject to judicial review unless they contravene specific legal requirements. In this case, the CoC's decision was deemed valid, and the RP's claim for the incentive fee was denied.

---

---

Issues Involved:
1. Entitlement to Incentive Fee for Resolution Professional
2. Discretionary Power of Committee of Creditors (CoC)
3. Judicial Review of CoC's Commercial Decisions

Summary:

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.

---