Jayesh N. Sanghrajka Vs The Monitoring Agency nominated by the Committee of Creditors of Ariisto Developers Pvt. Ltd. (NCLAT Delhi)
Appellant claiming that he had done excessively well to deserve Rs. 3 Crores of success fees, the Adjudicating Authority had made comments as to what was the scenario when it was supervising the CIRP. We have seen the observations of the Adjudicating Authority in impugned para 23 of the impugned order. The Adjudicating Authority was at the ground level monitoring the progress of CIRP and its observations cannot be simply ignored.
For the above reasons, 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.
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.
For such reasons, we do not find that there is any substance in the Appeal. The Appeal is dismissed. No order as to costs.
FULL TEXT OF ORDER OF NATIONAL COMPANY LAW APPELLATE TRIBUNAL
1. This Appeal has been filed by the Resolution Professional of Corporate Debtor- ‘Ariisto Developers Pvt. Ltd.’. The Respondent- Monitoring Agency of the Corporate Debtor is formal party.
2. The Appeal is filed against observations and findings of the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench in Para 23 of the impugned order dated 23.03.2021 passed in M.A. No. 3714 of 2019 in C.P. (IB) No. 2714 of 2018. By the impugned order, while approving the Resolution Plan submitted by Successful Resolution Applicant- ‘Prestige Estates Projects Ltd.’, the Adjudicating Authority disagreed with the Committee of Creditors (“CoC” for short) which has approved ‘success fees’ to the Resolution Professional of an amount of Rs.3 Crores.
3. Impugned Para 23 of the impugned order (Page 59) is as under:-
“23. Even though the plan is approved, we would like to disagree with the decision of the COC wherein it has approved the success fees to the RP. It has been made clear by the Hon’ble NCLAT in the matter of Mr. Devarajan Raman, Resolution Professional Poonam Drum & Containers Pvt. Ltd v. Bank of India Ltd. [Company Appeal (AT) (Insolvency) No. 646 of 2020] that the fees of the RP is not the commercial wisdom of the COC. The following para from the said judgment is hereby reproduced:
“…Fixation of fee is not a business decision depending upon the commercial wisdom of the Committee of Creditors. We accordingly find this appeal lacking merit. The appeal is accordingly dismissed. No costs.”
Therefore, we believe that by disallowing the success fees to the RP, we are not intruding in the commercial wisdom of the COC. Further, we believe the success fees amounting of Rs.3 Crores is unreasonable. Also, it was only in the last meeting of the COC that the fees was claimed. We have been supervising this matter and are aware of all the scenarios since its admission and therefore, are aware that even the RP was uncertain about the success of the Resolution Plan. It was this Bench who had warned the RP time and again and thus, we believe that the success fees is merely an afterthought. 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, we direct the 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.”
4. Against above part of the impugned order, the present Appeal has been filed. The 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.
5. When this Appeal come up before us, it was noted that the Respondent is the Monitoring Committee and the Appellant claimed that it is formal party. It being more a legal issue, we had observed on 07.06.2021 that it is not necessary to call the response of the Respondent- CoC as the CoC had already (supposedly) expressed itself in the minutes of meeting. We had observed that considering the issue involved, we may appoint an Amicus Curiae. On 14.06.2021, we had passed the following order:-
“14.06.2021: In this matter the issue relates to approval of fee to Resolution Professional which is stated to be success fee to the extent of Rs.3 Crores. Learned Senior Counsel for the Appellant refers to Circular No. IBBI/IP/013/2018 dated 12th June, 2018, which is stated to be filed on Page 771 of the compendium – Vol. III. It is stated that such success fee is permissible and that the Adjudicating Authority erred in Para 23 of the impugned order in interfering with the decision taken by the Committee of Creditors in this regard.
Considering the issue involved, we request Advocate Mr. Sumant Batra to assist us as Amicus Curiae. The Counsel for the Appellant to send the copy of the appeal and its annexures to the Amicus Curiae.
List the Appeal ‘For Admission Hearing’ on 25th June, 2021.”
6. Thus, Advocate Mr. Sumant Batra came to be appointed as Amicus Curiae to assist us in the decision of the issue which has arisen in this matter. It is necessary for us to consider whether the ‘success fees’ could be charged, and the manner in which it has been charged.
7. The Appellant has filed Written Submissions as well as we have the Written Submissions filed by the Amicus Curiae and we have also heard Learned Senior Counsel for the Appellant as well as the Learned Amicus Curiae. Before discussing the submissions made, it may be appropriate to refer to the relevant parts of documents as are available in this matter.
8. The Corporate Insolvency Resolution Process (CIRP) was initiated on 20.11.2018. In the first CoC meeting dated 24.12.2018, the appointment of Appellant was approved by the CoC as Resolution Professional. The proposal and resolution in this regard of the first CoC meeting can be seen from Page 1 @ Page 5 in the convenience compilation (Diary No. 28117) filed by the Learned Amicus Curiae. The Proposal-9 may be reproduced:-
“9. To propose CA Jayesh Sangrajka as RP :
One member of the COC, Shri Rasik Chheda, proposed the name of one IP CA Jayesh Sanghrajka as RP at a fees of Rs. 3,00,000 + taxes and Fixed Cost of Rs. 5,00,000.00.
The name of Shri Rasik Chheda is proposed to be voted in the e-voting as an additional resolution. Members voting in favour of Resolution No. 5 can not vote in favour of this resolution, which may please be noted.
RESOLVED THAT CA Jayesh Sanghrajka be proposed as RP of the company at a monthly fees of Rs. 3.00 lakhs plus taxes and Fixed Cost of Rs. 5.00 lakhs.”
9. Now, it would be relevant to refer to the Agenda of the 20th CoC meeting scheduled for 12.11.2019. The same is in Diary No.28117 (Page 222). The Agenda Item No.5 was regarding evaluation of Resolution Plans, to finalize the Resolution Applicant and decide the distribution matrix and way forward. In this Item, Resolution Plans of three entities including the Successful Resolution Applicant were to be put up. With the Agenda 5 having main subject of approval of Resolution Plan and CIRP time running out, there is Agenda Item No.7 which is relevant for present matter and may be reproduced:-
“ITEM No. 7
TO RATIFY THE CIRP COST INCURRED TILL DATE AND TO
APPROVE THE BUDGET FOR FURTHER EXPENSES TO BE
INCURRED AND DECIDE WAY FORWARD FOR FURTHER
FUND RAISE IN THIS CONNECTION
It is proposed to discuss and ratify the total expenses incurred till date and further to raise fund to meet Legal expenses for various matters at NCLT and NCLAT, fees of professionals, fees of RP and supporting professionals, site protection, property tax, insecticide treatment charges, salary and various other expenses etc.”
10. At Page 226 is a chart of CIRP expenses as on 10.11.2019. The Learned Amicus Curiae has submitted that he has collected all these copies of minutes of meetings from the Appellant and cannot say if this chart was part of the agenda when it was sent to the CoC Members. The Agenda does not have any link to this chart made available by the Appellant- Resolution Professional. If the chart is perused, the fine print has various entries of CIRP expenses in which there is one entry ‘Success Fees’ with an *(Asterisk) and a fine print footnote stating that ‘Amount of Success Fees to be decided by the COC’.
11. Then there are minutes of 20th CoC meeting dated 12.11.2019 with the adjourned meeting dated 13.11.2019. The document is at Annexure A-1 in the Appeal (Page 63). In these minutes, Item No.4 shown is ‘Subject to the decision of the Hon’ble NCLT Mumbai Bench, to evaluate Resolution Plans, to finalize the Resolution Applicant, decide the distribution matrix and way forward’. The minutes then show the discussion with regard to the Resolution Plans received. Then Item No.5 may be referred. The same reads as:-
“5. TO RATIFY THE CIRP COST INCURRED TILL DATE AND TO APPROVE THE BUDGET FOR FURTHER EXPENSES TO BE INCURRED AND DECIDE WAY FORWARD FOR FURTHER FUND RAISE IN THIS CONNECTION:
The Chairman informed that he has circulated list of expenses incurred during the CIRP Process of the Corporate Debtor along with the notice of 20th COC Meeting.
The COC members appreciated the efforts made by the RP and his team in bringing successful Resolution Plan of the Corporate Debtor with increment in upfront receipts, which was initially Rs.200 Crores offered by Keystone Realtors Put Ltd as refundable deposit and now been enhanced to R5.370 Crores offered by Prestige as nonrefundable deposits and bringing down the timeline of the project from 11 years offered by Keystone Realtors Put Ltd to 4 years by Prestige for repayment/area share to Financial Creditors and Operational Creditors.
The COC members discussed and deliberated on CIRP Cost incurred till date, budget of expenses and success fee of the RP. After detailed discussion of the COC, it was decided by the COC that Rs.3 Crores is just, fair and reasonable success fee of the RP in the light efforts made by the RP in bringing successful Resolution Plan. (Copy of the List of expenses incurred till date, budget including success fee of Rs.3 Crores of the RP is annexed herewith as Annexure -D).
Post which, the Chairman proceeded to conduct voting on CIRP Cost incurred till date including budgeted expenses and success fee of Rs.3 Crores, by way of ballot paper in the Meeting.
After completing each agenda item, the Chairman declared voting results of the item no. 4 and 5 of this Meeting, which is as follows:
