TaxTMI 
TaxTMI 
CHARTERED ACCOUNTANT LLP AS AN OPERATIONAL CREDITOR UNDER SECTION 9 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016
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....HARTERED ACCOUNTANT LLP AS AN OPERATIONAL CREDITOR UNDER SECTION 9 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016<br>By: - DR.MARIAPPAN GOVINDARAJAN<br>Corporate Laws / IBC / SEBI<br>Dated:- 21-9-2026<br>In Ernst & Young LLP Versus Mobase Electronics India Private Limited, Thiruvallur - 2026 (9) TMI 1218 - NATIONAL COMPANY LAW TRIBUNAL, CHENNAI, the respondent corporate debtor was incorporated as a Private Company, under the Companies Act, 2013 on 24.10.2024. The Authorised capital of the corporate debtor is Rs.211 crores and paid up capital of the company is Rs.209.32 crores. The petitioner filed the present petition before the National Company Law Tribunal ('NCLT' for short) under section 9 of the Insolvency and Bankruptcy Code, 2016 ('Code'....
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.... for short) for initiation of corporate insolvency resolution process against the corporate debtor. The Corporate Debtor engaged the petitioner for handling the GST notices issued in GST proceedings initiated by the Tamil Nadu GST Department. On 16.10.2023 an engagement letter was executed between the petitioner and the corporate debtor. It was agreed that the corporate debtor would pay Rs.25 lakhs on the execution of the said letter and 1% of total amount of relief granted to the corporate debtor. In case of partial success 1% of the amount would be paid on the favourable amount. On presentation of the invoices by the petitioner, the same shall be paid by the corporate debtor within 28 days from the date of receipt of the invoices. Inte....
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....rest will be levied for the delayed payment beyond 28 days. The applicant, being a Chartered Accountant firm, secured substantial reduction in the GST demands raised against the Corporate Debtor- • For FY 2019-20, against a demand of Rs. 1,50,10,25,041/-, relief of Rs. 12,71,83,650/- was obtained; • for FY 2020-21, against a demand of Rs. 2,63,20,12,889/-, relief of Rs. 2,20,68,67,717/- was obtained; and • for FY 2021-22, against a demand of Rs. 46,07,01,939/-, relief of Rs. 2,25,15,661/- was obtained. Thus, against the aggregate demand of Rs. 4,59,37,39,869/-, the Applicant claims to have secured relief of Rs. 2,35,65,67,028/-. Accordingly, the petitioner raised its outcome-based professio....
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....nal fee at 1% of the proportionate relief. The petitioner issued invoices to the corporate debtor on 19.06.2024 and 23.08.2024. Since the same were not paid the petitioner issued a demand notice and also a recovery notice to the corporate debtor. A cumulative invoice was raised on 11.02.2025, including GST, for the professional services rendered for FY 2019-20 to FY 2021-22, and forwarded the same to the Corporate Debtor by email dated 18.02.2025. The Corporate Debtor paid Rs.25 lakhs to the petitioner and not the remaining amount. The petitioner claimed an operational debt of Rs. 2,78,07,136.60/- towards principal, together with Rs. 33,18,648.43/- towards interest from 11.03.2025 to 20.11.2025, aggregating to Rs. 3,11,25,785.03/-. Accor....
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....ding to the petitioner the default occurred on 11.02.2025. The petitioner issued a statutory demand notice on 06.03.2025. The Corporate Debtor has failed to discharge the outstanding amount, thereby committing default under the Code. The respondent submitted the following before NCLT- • The present Application is misconceived and liable to be dismissed, as there exists a genuine and bona fide pre-existing dispute between the parties in relation to the alleged success fee claimed by the Petitioner. • The agreed professional fee was a fixed amount of Rs. 25,00,000/-, which was duly invoiced and paid in full and final settlement on 19.01.2024. • The respondent denied any contractual liability towards t....
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....he alleged success fee. • The Petitioner raised draft invoices dated 19.06.2024 and 23.08.2024 towards the alleged success fee. • The Respondent, vide email dated 20.06.2024, expressly disputed and denied its liability towards the success fee. • The respondent also disputed the demand and recovery notice issued by the petitioner. • The respondent filed an appeal before the High Court challenging the order of the Assessing Officer. • The High Court quashed the impugned order and remanded the matter to the original authority. • The final invoice dated 11.02.2025 for Rs. 2,78,07,136/- towards the alleged success fee was rejected by the Respondent on the GST Portal. ....
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.... • Such rejection was communicated to the Petitioner. • The petitioner also denied its liability vide the email dated 22.02.2025. • Thus, the dispute was raised contemporaneously and well before initiation of the present proceeding. • The success fee itself is legally impermissible and unenforceable which is a fee contingent upon the outcome of professional employment. • Success fee is prohibited under Clause 10 of Part I of the First Schedule to the Chartered Accountants Act, 1949, as well as the applicable professional codes. The petitioner, in its rejoinder, submitted the following before the NCLT- • The 1% fee was specifically negotiated by the Responde....
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....nt and incorporated in the executed Engagement Letter. • The Respondent's correspondence does not disclose any genuine dispute regarding the liability or quantum. • The contractual entitlement to the outcome-linked fee crystallised upon the relief being granted at the GST adjudication stage. • The subsequent proceedings before the Hon'ble High Court relate only to residual demands and do not extinguish the Applicant's accrued contractual entitlement. • It is denied that the rejection of the invoices on the GST Portal or the emails dated 20.06.2024 and 22.02.2025 constitute a pre-existing dispute, as these merely evidences that the Respondent's refusal to make payment and do....
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.... not raise any genuine dispute regarding the contractual entitlement. • The agreed fee is a quantified commercial outcome-linked fee and, in the absence of any competent forum declaring the clause illegal, the Respondent cannot rely upon such objections to avoid payment. The NCLT heard the submissions of both the petitioner and the respondent. The NCLT also analysed the case and perused the documents on record. The NCLT considered the issues to be discussed in the petition are as to whether- • the alleged operational debt had crystallised? And • there existed a pre-existing dispute prior to the issuance of the statutory Demand Notice? The NCLT observed that the GST proceedings which forms the ....
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....basis of the claim of the petitioner did not reach its finality. The High Court set aside of the GST Authority for the Financial year 2020 - 21 and for the other financial years the same were pending before the High Court. Therefore, the High Court was of the view that the Applicant's contention that the mere reduction of the GST demand constituted a final "success giving rise to an unconditional entitlement to the alleged fee cannot be accepted without further adjudication. The result-based professional fees, where prohibited by the governing regulatory framework, cannot be enforced. The NCLT observed that the dispute is not confined merely to the quantum of the amount claimed. There is a substantive dispute regarding the very entit....
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....lement to the success fee, the meaning and occurrence of the contractual "success", the legal effect of the pending GST proceedings, the nature and capacity of the services rendered, and the enforceability of a fee calculated with reference to the relief obtained in statutory proceedings. These are matters which require examination beyond the limited jurisdiction contemplated under Section 9 of the Code. In the present case, the NCLT observed that the dispute is supported by contemporaneous correspondence, rejection of invoices and the subsequent developments in the GST proceedings. The petitioner has taken the stand that it is not itself a firm of Chartered Accountants; nevertheless, the Engagement Letter and the scope of work placed be....
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....fore the NCLT indicate that the engagement involved services relating to GST proceedings and representation before statutory authorities. The question as to the capacity in which such services were rendered, and whether the arrangement complied with the applicable professional standards and regulations, is therefore a matter which may appropriately be examined by the Institute of Chartered Accountants of India, in accordance with law, if the services were rendered through persons governed by its regulatory framework. The NCLT is satisfied that Corporate Debtor has established a genuine and bona fide pre-existing dispute concerning the alleged operational debt. The dispute involves issues relating not only to the computation of the amount....
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.... but also to the crystallisation, enforceability and legal permissibility of the alleged success fee arrangement. The NCLT found that the ingredients of admission of the petition under Section 9 of the Code are not satisfied. The NCLT dismissed the petition filed by the petitioner. The NCLT directed the Registry to forward its order to the Institute of Chartered Accountants of India for such examination, if considered appropriate, in accordance with law, particularly with regard to the nature of the professional services rendered and the permissibility of the outcome-based fee arrangement. This dismissal shall not preclude the Applicant from pursuing such other remedies as may be available to it in law for adjudication of its contractual....
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