NCLAT: CoC has Discretionary Power Over Payment of Performance Linked Incentive Fee, NCLT/NCLAT Cannot Interfere with CoC’s Decision

NCLAT: CoC has Discretionary Power Over Payment of Performance Linked Incentive Fee, NCLT/NCLAT Cannot Interfere with CoC’s Decision

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member), has held that the payment of performance linked incentive fee to the Insolvency Resolution Professional/Resolution Professional under Regulation 34B of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 lies within the discretion of Committee of Creditors (CoC).

The bench clarified that if the CoC refuses to pay such incentive fee, then the Adjudicating Authority or Appellate Authority does not possess the jurisdiction to interfere with CoC’s decision.

In the present case, on 26 April, 2022, Yashasvi Yarns Limited (Corporate Debtor) was admitted into Corporate Insolvency Resolution Process (CIRP) by the National Company Law Tribunal (NCLT/Adjudicating Authority).

Ravindra Kumar Goyal (Resolution Professional/Appellant) was appointed as the Interim Resolution Professional and thereafter as the Resolution Professional. A Resolution Plan was approved for the Corporate Debtor by the CoC.

Regulation 34B (4) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) grants discretion to CoC to pay performance linked incentive fees to the IRP/Resolution Professional.

The Resolution Professional claimed Rs. 21,33,000 as performance linked incentive fee for timely resolution and Rs. 11,64,256 for value maximization. The CoC rejected the claim with 91.55 per cent voting.

Afterwards, the Resolution Professional filed an application before NCLT seeking payment of such performance linked incentive. The NCLT rejected the application.

Aggrieved by the same, the Resolution Professional came up in appeal before the NCLAT.

The NCLAT upon perusal of Sub-Regulation 4 of Regulation 34B(4) noted that ‘the committee may decide, in its discretion, to pay performance linked incentive fee.’ The use of two expressions ‘MAY’ and ‘IN ITS DISCRETION’ clarifies that the provision is enabling provision, which vests discretion in the CoC to pay performance linked incentive fee, the bench discerned.

The NCLAT noted that decision of the CoC, approving the Resolution Plan which also contains consideration of resolution regarding performance linked incentive fee is a commercial decision of the Committee of Creditors.

In this regard, the NCLAT affirmed that the law is well settled that the commercial decision of the CoC has to be given due credence and the Adjudicating Authority or the Appellate Authority is not to interfere in the commercial decision of the CoC unless it does not fulfill the requirement of Section 30 of the Insolvency and Bankruptcy Code, 2016.

The NCLAT was of the considered view that the CoC’s refusal to pay performance linked incentive fee cannot be faulted, since it was held to be in accordance with the discretionary power vested with the CoC under Regulation 34B.

The bench observed, “Appellant at best was entitled for consideration of his claim under statutory scheme. When claim is considered and not approved, Appellant has no right to claim that he was mandatorily entitled for payment of performance linked incentive fee…….We thus are satisfied that Appellant had no right to claim performance linked incentive fee and his claim having been considered and rejected by the Committee of Creditors with 91.55% vote share cannot be faulted nor it can be interfered with by the Adjudicating Authority or Appellate Authority in exercise of its jurisdiction.”

Therefore, the NCLAT held that the statute entitled the Resolution Professional for consideration of his claim. However, it cannot be said that the performance linked incentive has to be mandatorily paid. The NCLT or NCLAT do not have the jurisdiction to interfere with the decision of CoC.

Accordingly, the appeal was dismissed.