2021 (5) TMI 270 - Tri - Insolvency and Bankruptcy

Alteration of distribution matrix with respect to the resolution plan of the successful applicant - inclusion of success fee approved by the Committee of Creditors payable to Respondent - HELD THAT - It is clear that the CoC has unanimously approved the Resolution Plan submitted by Prestige Estates Projects Ltd. The RP had also filed an application bearing No. 3714 of 2020 for approval of the said Resolution Plan. It is pertinent to note here that this application has been approved today by this Bench but the success fees has not been approved being unreasonable. This Bench has relied on the judgment of the Hon'ble NCLAT passed in the matter of MR. DEVARAJAN RAMAN, RESOLUTION PROFESSIONAL, POONAM DRUM CONTAINERS PVT. LTD. VERSUS BANK OF INDIA LTD. 2020 (7) TMI 758 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI that the fees of the RP is not the commercial wisdom of the CoC. This Bench hereby directs to proportionately distribute the said amount of ₹ 3 Crores among the employees/operational creditors/unsecured creditors - Application dismissed.

Summary

Issues:
1. Alleged unilateral alteration of distribution matrix by the Respondent during the Committee of Creditors meeting.
2. Approval of success fee for the Resolution Professional by the Committee of Creditors without consent.

Analysis:

Issue 1: Alleged Unilateral Alteration of Distribution Matrix
The applicant filed an application seeking to challenge the Respondent's conduct during the adjourned 20th meeting of the Committee of Creditors. The applicant alleged that the Respondent unilaterally altered the distribution matrix post the applicant's departure from the meeting. The applicant contended that the Respondent's actions were in violation of the prevalent law, as the right to determine the distribution pattern lies with the CoC members. The applicant emphasized that the distribution matrix was changed to benefit specific entities, breaching the fiduciary duty owed to the CoC members. The applicant sought the Tribunal to reject the altered distribution matrix and reconvene the CoC meeting for proper consideration.

Issue 2: Approval of Success Fee
The applicant challenged the approval of a success fee of ?3 Crores to the Resolution Professional (RP) by the CoC, alleging it to be illegal and inequitable. The applicant argued that the Insolvency Code does not provide for a "Success Fee" in addition to the RP's professional fees. Moreover, the applicant, an unsecured creditor, highlighted the substantial reduction in their claim under the approved plan, questioning the justification for the success fee. The applicant contended that the RP's actions in approving the success fee without the CoC's consent and altering the distribution matrix post-vote were indicative of a breach of fiduciary duties and a disregard for the Code's provisions.

Tribunal's Findings and Judgment
After hearing both parties and reviewing the submissions, the Tribunal noted that the CoC had unanimously approved the Resolution Plan submitted by Prestige Estates Projects Ltd. However, the Tribunal found the success fee awarded to the RP to be unreasonable, citing a precedent judgment. Consequently, the Tribunal directed the proportional distribution of the ?3 Crores among employees, operational creditors, and unsecured creditors, as justified in the previous order. As a result, the Tribunal dismissed the application's prayer regarding the distribution matrix but allowed the prayer challenging the success fee. The application was partially allowed and disposed of accordingly, with the Tribunal emphasizing the equitable distribution of the success fee among the creditors.

This detailed analysis encapsulates the core issues, arguments presented by both parties, and the Tribunal's findings and judgment in a comprehensive manner, preserving the legal nuances and key points from the original judgment.