2021 (9) TMI 984 - AT - Insolvency and Bankruptcy

Approval of Resolution Plan - seeking success fees to the Resolution Professional - grievance raised is that the approval of the success fees was a commercial decision of the CoC and the Adjudicating Authority could not have interfered with the same while approving the Resolution Plan and directing distribution of the amount set apart for success fees - HELD THAT - The provisions as appearing in IBC and as can be seen from Regulations read with the Code of Conduct all indicate that although quantum of fees have not been fixed that the Code and Regulations do intend to control the manner in which Resolution Professional charged fees and according to Learned Amicus Curiae, the quantum of fees payable is a subject which is justiciable before the Adjudicating Authority if it is found to be unreasonable and if the manner, method of payment is inconsistent with the Regulations. The quantum of fees can be fixed by the CoC but it would be subject to scrutiny by the Adjudicating Authority as what is reasonable fee is context specific and it is not part of the commercial decision of the CoC. The CoC exercised commercial decision with regard to Resolution Plan which is required to be approved and although CIRP Costs are required to be paid on priority, the reasonableness of fees is not part of commercial decision. The IBBI has power to take disciplinary action in the event of misconduct or breach by Insolvency Professional. In the absence of such power with Adjudicating Authority, the matter of fees would be completely unchecked and devoid of scrutiny. Para 30 of the Written Submissions filed by the Learned Amicus Curiae may be reproduced. Reference to term success fee in Annexure-B of the Circular dated 12.06.2018 which was view of the Society for Insolvency Practitioners of India is a term which is unguided. Rather even the said society has a caveat to it when it mentions that the success and contingency fee is only to the extent that it is consistent with the requirements of integrity and independence of Insolvency Professionals. In our view, if the Resolution Professional seeks to have success fee at the initial stage of CIRP, it would interfere with independence of Resolution Professional which can be at the cost of Corporate Debtor. If success fee is claimed when the Resolution Plan is going through or after the Resolution Plan is approved, it would be in the nature of gift or reward. Success fee - term is contrary to what IBBI provided in its Circular dated 16.01.2018 that Insolvency Professional shall render services for a fee which is a reasonable reflection of his work. The success fees which is more in the nature of contingency and speculative is not part of the provisions of the IBC and the Regulations and the same is not chargeable. Apart from this, even if it is to be said that it is chargeable, it is found that in the present matter, the manner in which, it was last minute pushed at the time of approval of the Resolution Plan and the quantum are both improper and incorrect - argument that the Adjudicating Authority should have sent the matter back to the CoC if it was not approving the success fee deserves to be discarded as the Adjudicating Authority while not accepting the success fee merely asked proportionate distribution which would even otherwise have happened if success fee was set aside as the money would become available improving percentage of other creditors dues. There is no substance in the Appeal - appeal dismissed.

Issues Involved:
1. Legality of the success fee for the Resolution Professional (RP).
2. Whether the success fee is within the commercial wisdom of the Committee of Creditors (CoC).
3. Reasonableness and justiciability of the success fee.
4. Adjudicating Authority's jurisdiction to interfere with the CoC's decision on the success fee.

Issue-wise Detailed Analysis:

1. Legality of the Success Fee for the Resolution Professional (RP):
The Appellant contended that the success fee was permissible under Circular No. IBBI/IP/013/2018 dated 12th June 2018. However, the Adjudicating Authority disagreed, stating that the success fee was not part of the commercial wisdom of the CoC and was unreasonable. The Circular emphasized that fees should be reasonable, directly related to and necessary for the CIRP, and determined on an arm's length basis. The Circular did not expressly provide for success fees, and the term "success fee" was only mentioned illustratively in Annexure-B, which was not binding.

2. Whether the Success Fee is within the Commercial Wisdom of the Committee of Creditors (CoC):
The Appellant argued that the approval of the success fee was a commercial decision of the CoC and should not be interfered with by the Adjudicating Authority. However, the Adjudicating Authority and the Amicus Curiae emphasized that the quantum of fees is justiciable and must be reasonable. The Adjudicating Authority noted that the success fee was introduced at the last moment and was not transparent. The judgment cited by the Adjudicating Authority, "Mr. Devarajan Raman, Resolution Professional Poonam Drum & Containers Pvt. Ltd. v. Bank of India Ltd.," supported the view that fixation of fees is not a business decision depending upon the commercial wisdom of the CoC.

3. Reasonableness and Justiciability of the Success Fee:
The Adjudicating Authority found the success fee of ?3 Crores unreasonable and an afterthought, as it was only claimed in the last CoC meeting. The Circular dated 12.06.2018 and the IBBI Discussion Paper emphasized that fees must be reasonable and transparent. The Amicus Curiae argued that the absence of a regulation quantifying the fee indicates an expectation of self-regulation by market players, and the quantum of fees is subject to scrutiny by the Adjudicating Authority. The judgment in "Alok Kaushik vs. Bhuvaneshwari Ramanathan & Ors." affirmed that the Adjudicating Authority has the power to determine fees and expenses payable to professionals.

4. Adjudicating Authority's Jurisdiction to Interfere with the CoC's Decision on the Success Fee:
The Adjudicating Authority held that the success fee was not part of the commercial wisdom of the CoC and could be reviewed for reasonableness. The Amicus Curiae supported this view, stating that the decision of the CoC in the matter of fees is subject to checks and balances through the provisions of the Code and Regulations. The Adjudicating Authority directed the proportionate distribution of the success fee amount among the employees, underpaid operational creditors, and unsecured creditors of the corporate debtor, which would have happened even if the success fee was set aside.

Conclusion:
The Appeal was dismissed, and the Adjudicating Authority's decision to disallow the success fee was upheld. The judgment emphasized that the success fee is not chargeable under the provisions of the IBC and the Regulations, and even if it were, the manner and quantum in which it was claimed were improper and incorrect. The Adjudicating Authority's jurisdiction to review the reasonableness of fees was affirmed.

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