2021 (5) TMI 432 - Tri - Insolvency and Bankruptcy

Approval of Resolution Plan - whether additional litigation cost is required to be met out of amounts due and payable to the related party financial creditors? - HELD THAT - All the parties are bound by the terms of the said resolution plan, which has been approved by this Tribunal on and from the date of the Order approving the resolution plan, which also includes the CoC as well as the 1st Respondent and the Resolution Applicant - there are no force in the contention of the 1st Respondent that the CoC has passed a resolution in its 9th CoC Meeting dated 24.06.2019 that additional litigation cost is required to be met out of amounts due and payable to the related party financial creditors like the Applicant herein and that the said expenses are required to be defrayed by the said related party financial creditors out of the amounts due to them. If that were so, the same should have been included in the resolution plan itself, which was placed before the Adjudicating Authority for its approval. There cannot be any open end in relation to the resolution plan and its implementation as sought to be portrayed by the 1st Respondent erstwhile Resolution Professional. If the CoC and RP had not factored the cost in relation to additional litigation and provided for it and having failed to include the same as it should have been included in the resolution plan, the said additional expenditure at a later stage (i.e.,) after approval of the Resolution Plan cannot be mulcted on the related party financial creditors - the 1st Respondent also fairly concedes the additional litigation expenses had not been provided in the Resolution Plan. The amount which is payable to the Applicant is required to be paid out of the total resolution plan amount provided for the stakeholders in a sum of ₹ 28,55,06,654/- by the 1st Respondent without any demur within a period of 90 days from the date of this Order - Application allowed.

Summary

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.