Payment Of Performance Linked Incentive Fee By COC Is Discretionary, NCLT Or NCLAT Can’t Interfere With COC’s Decision: NCLAT Delhi

Background Facts

On 26.04.2022, Yashasvi Yarns Limited (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. 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 Committee of Creditors (“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% voting.

Thereafter, the Resolution Professional filed an application before NCLT seeking payment of such performance linked incentive. The NCLT rejected the application, against which the Resolution Professional came up in appeal before the NCLAT.

Relevant Provision

Regulation 34B(4) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

“34B. Fee to be paid to interim resolution professional and resolution professional.

(4) For the resolution plan approved by the committee on or after 1st October 2022, the committee may decide, in its discretion, to pay performance-linked incentive fee, not exceeding five crore rupees, in accordance with clause 3 and clause 4 of Schedule-II or may extend any other performance-linked incentive structure as it deems necessary.”

NCLAT Verdict

The Bench opined that Regulation 34B(4) states 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.

It has been held that the CoC’s refusal to pay performance linked incentive fee cannot be faulted, since it is in accordance with the discretionary power vested with the CoC under Regulation 34B.

The statute entitles 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.

“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.”

The appeal has been dismissed.

Case Title: Ravindra Kumar Goyal v Committee of Creditors of Yashasvi Yarns Limited & Anr.

Case No.: Company Appeal (AT) (Insolvency) No. 809 of 2023

Counsel for Appellant: Mr. Smaksh Goyal, Advocate

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