2021 (5) TMI 475 - Tri - Insolvency and Bankruptcy

Payment of additional litigation cost - scope of Resolution Plan - challenge to the Resolution as passed by the CoC to meet the expenditure in relation to the additional litigation costs out of the amounts payable to the related party, the Applicant being one of them, however, not being provided in the Resolution Plan - HELD THAT - 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. By virtue of the provisions of IBC, 2016 (i.e.,) Section 21 of IBC, 2016, they are also not part of the CoC and hence could not have raised any objections in relation to the same being disabled from the participation in the CoC Meeting and its deliberations. 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 Additional Litigation Costs

Issue 1: Challenge to Resolution Plan Allocation for Additional Litigation Costs
The judgment involves an Application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, where the Corporate Insolvency Resolution Process (CIRP) was initiated against a Corporate Debtor. The Resolution Plan was approved by the Committee of Creditors (CoC) and submitted to the Tribunal. The Applicant, a Financial Creditor, challenged the Resolution Plan's provision for meeting additional litigation costs from the amounts payable to related parties, including the Applicant. The Applicant sought disbursement of a specific amount along with interest as per the Resolution Plan and relevant circulars issued by the IBBI.

Issue 2: CoC's Decision and Applicant's Counter Statement
The CoC approved the Resolution Plan, allocating a portion of the funds to related party Financial Creditors to cover contingent litigation costs. The CoC justified this allocation due to pending litigations and inability to increase the resolution plan amount further. The Applicant, also a shareholder of the Corporate Debtor, contended that the CoC's decision to earmark funds for litigation costs was not included in the Resolution Plan. The CoC's decision was based on commercial wisdom, considering various pending litigations and the inability to raise additional funds.

Issue 3: Tribunal's Analysis and Decision
The Tribunal analyzed the Resolution Plan's approval and found that the earmarked amount for related party Financial Creditors was binding on all stakeholders, including the Applicant. The Tribunal emphasized that the Resolution Plan's terms, once approved, were mandatory for all parties involved. The Tribunal rejected the CoC's argument that additional litigation costs should be borne by related party Financial Creditors post-approval of the Resolution Plan. It held that such costs should have been factored into the Resolution Plan initially. Consequently, the Tribunal directed the 1st Respondent to disburse the amount due to the Applicant as per the Resolution Plan within 90 days from the date of the Order.

In conclusion, the Tribunal allowed the Application, emphasizing the importance of adherence to the approved Resolution Plan's terms and rejecting the CoC's attempt to allocate additional litigation costs to related party Financial Creditors after the Resolution Plan's approval.