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NCLAT | In last meeting of CoC, unreasonable pushed in ‘success fee’ appears like an afterthought-Affirms proportionate distribution

National Company Law Appellate Tribunal (NCLAT): The Coram of Justice A.I.S. Cheema, Officiating Chairperson and Alok Srivastava, Technical Member while dismissing an appeal affirmed adjudicating authority’s impugned order on not finding any substance in the appeal.

In the pertinent matter the impugned order of NCLT, Mumbai Bench, Mumbai was challenged where the adjudicating authority disagreed with the Committee of Creditors which had approved ‘success fees’ to the Resolution Professional of an amount of  ₹ 3 Crore. The adjudicating authority had opined, “We believe that if the RP was so certain, he should have claimed/ asked for the success fees in the beginning itself and now when the plan is approved. It was only in the distribution matrix that he/CoC had approved the success fees to the RP. With this observation RP and the CoC to proportionately distribute the said amount of Rs 3 Cr. among the employees/ underpaid operational creditors/unsecured creditors of the corporate debtor and if left, it is to be proportionately distributed among the underpaid operational creditors”. The appellants submitted 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. To which the adjudicating authority replied in its order that, “…Fixation of fee is not a business decision depending upon the commercial wisdom of the Committee of Creditors”.

Interestingly, Amicus Curiae submitted that there were many instances of exorbitant charging of fees by the resolution professional and the adjudicating authority has interfered so as to rationalise the same. In the present matter, at the last stage when Resolution Plan was being approved the Resolution Professional without putting on record necessary particulars for the success fee got the same included. CoC may be approving the fees but as it has to be reasonable under the provisions of the Code and Regulations, it is justiciable.

The Tribunal while appreciating the support of the Amicus Curiae and concurring with the NCLT’s order opined,

“we hold that ‘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, we find 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”.

And further stated that,

“The 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”.

[Jayesh N. Sanghrajka v. Monitoring Agency nominated by the Committee of Creditors of Ariisto Developers Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 392 of 2021, decided on 20-09-2021]


Agatha Shukla, Editorial Assistant has reported this brief.


Counsel for the Parties:

For Appellant:

Mr Dhruv Mehta, Senior Advocate with Mr Tishampati Sen, Ms Riddhi Sancheti, Mr Ashish Perwani, Mr Devesh Juvekar, Ms Jyoti Goyal and Mr Dikshat Mehra, Advocates.

For Respondents:

(Notice not issued)

Mr. Sumant Batra, Ld. Amicus Curiae

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