The National Company Law Tribunal (NCLT), Chennai Bench, has dismissed an insolvency petition filed by EY against Mobase India Ltd. over a disputed professional fee linked to GST proceedings.
EY had claimed around Rs 3.11 crore, including interest, from Mobase towards an outcome-based fee under an engagement agreement. The fee was linked to the reduction in GST demands obtained in proceedings for the financial years 2019-20, 2020-21 and 2021-22.
The tribunal, however, found that Mobase had raised a genuine and bona fide dispute over EY's entitlement to the claimed success fee. Since a pre-existing dispute existed between the parties, the insolvency route could not be used to recover the disputed contractual amount.
EY's 1% Success Fee Arrangement
EY was engaged by Mobase to provide assistance in GST proceedings. Under an Engagement Letter dated December 16, 2023, the agreed remuneration included an initial professional fee of Rs 25 lakh.
The agreement also provided for an additional fee equivalent to 1% of the relief obtained if the GST proceedings resulted in a favourable outcome. In the event of partial success, the additional fee was to be paid proportionately.
EY subsequently claimed that its efforts had resulted in substantial reductions in the GST demands and raised a claim of approximately Rs 3.11 crore, including interest, towards the outcome-based component.
Mobase disputed the claim and questioned two fundamental issues: whether EY was entitled to the success fee at all and whether the reductions in GST demand actually amounted to the "success" contemplated under the engagement agreement.
NCLT Finds Dispute Goes Beyond the Amount Claimed
The NCLT bench comprising Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy observed that the dispute was not merely about the quantum of EY's claim.
According to the tribunal, the issues included:
- Whether EY was contractually entitled to the outcome-based fee;
- What constituted "success" under the Engagement Letter;
- Whether the GST proceedings had reached sufficient finality;
- The nature and capacity in which EY's services were rendered; and
- Whether a fee linked to the amount of tax relief obtained was enforceable.
These questions, the tribunal observed, required further adjudication and could not simply be treated as an undisputed debt for insolvency proceedings.
GST Proceedings Had Not Reached Finality
A significant factor considered by the tribunal was that the GST proceedings forming the basis of EY's success-fee claim were still not fully concluded.
In particular, the GST order relating to FY 2020-21, which EY had relied upon, was subsequently set aside by the Madras High Court on July 9, 2024. Proceedings relating to the other assessment years were also pending.
Against this background, the tribunal rejected the argument that the mere reduction of GST demand automatically established a final success under the agreement.
The tribunal observed that the reduction in demand could not, without further adjudication, be treated as a final "success" giving EY an unconditional right to the 1% outcome-based fee.
Question Over Outcome-Based Professional Fee
Mobase had also challenged the permissibility of the fee structure itself.
It argued that an outcome-based fee arrangement could raise professional-regulatory concerns where the underlying services involved professionals governed by the regulatory framework applicable to Chartered Accountants.
EY, on the other hand, maintained that it was not itself a firm of Chartered Accountants and that the agreed fee represented a commercially valid arrangement linked to the outcome of the assignment.
The tribunal noted that the Engagement Letter covered professional services connected with GST proceedings, including representation before statutory authorities. Therefore, the capacity in which the services were actually provided and the regulatory framework applicable to the professionals involved were relevant considerations.
Matter May Be Examined by ICAI
The NCLT observed that the question of whether the arrangement complied with applicable professional standards and regulations could appropriately be examined by the Institute of Chartered Accountants of India (ICAI), if the services were rendered through persons governed by its regulatory framework.
Importantly, the tribunal clarified that this observation was not a finding of professional misconduct against EY or any individual professional.
Instead, ICAI, as the competent regulatory authority, could independently examine the matter and take appropriate action, if warranted under the applicable legal and professional framework.
The tribunal also observed that a copy of its order could be forwarded to ICAI for examination, if considered appropriate, particularly in relation to the nature of the professional services and the permissibility of the outcome-linked fee arrangement.
Dispute Existed Before Insolvency Proceedings
Another important aspect of the case was the timing of Mobase's objections.
The tribunal found that Mobase had questioned EY's entitlement to the success fee before the statutory demand notice was issued. Correspondence between the parties showed that Mobase had already disputed the fee, the interpretation of "success" and the impact of the pending GST proceedings.
Therefore, the objection could not be characterised as a defence raised for the first time after EY initiated insolvency proceedings.
This distinction was crucial because the existence of a genuine pre-existing dispute can prevent an operational creditor from invoking the insolvency mechanism under the Insolvency and Bankruptcy Code (IBC) for recovery of a disputed debt.
NCLT Dismisses EY's Insolvency Petition
After considering the contractual, regulatory and factual issues, the Chennai Bench concluded that Mobase had established a genuine and bona fide pre-existing dispute concerning EY's claimed outcome-based fee.
The insolvency petition was accordingly dismissed.
The order does not prevent EY from pursuing another remedy available under law for adjudication and recovery of its contractual claim.
The case highlights an important distinction in insolvency proceedings: a disputed contractual fee cannot automatically be converted into an insolvency claim merely because one party asserts that money has become payable.
Where the underlying entitlement, contractual conditions and occurrence of the agreed trigger event remain genuinely disputed, those questions may require adjudication outside the summary insolvency mechanism.
Key Takeaways
- EY claimed approximately Rs 3.11 crore, including interest, as an outcome-based GST fee.
- The fee was linked to 1% of the relief obtained under the December 16, 2023 Engagement Letter.
- Mobase disputed both EY's entitlement and whether a qualifying "success" had occurred.
- GST proceedings relied upon by EY had not attained finality.
- The FY 2020-21 GST order had subsequently been set aside by the Madras High Court.
- NCLT found a genuine and pre-existing dispute between the parties.
- The tribunal indicated that ICAI may examine the professional and regulatory aspects of the fee arrangement, if applicable.
- The NCLT dismissed EY's insolvency petition, while leaving EY free to pursue other remedies available under law.
For Applicant: Advocates Aparajitha Vishwanath & Dharshan
For Respondent: Advocates R. Sankaranarayanan & Sai Prashanth
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