The National Company Law Tribunal (NCLT), Chennai, has dismissed an insolvency petition seeking recovery of approximately ₹3.11 crore as an outcome-based professional fee for services rendered in GST proceedings. The Tribunal held that substantial disputes existed over the entitlement, enforceability and legal permissibility of the success-fee arrangement before the statutory insolvency demand notice was issued.
The Bench of Jyoti Kumar Tripathi (Judicial Member) and Ravichandran Ramasamy (Technical Member) observed that proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016, could not be used to resolve complex contractual disputes requiring detailed adjudication.
The Bench also directed that a copy of its order may be forwarded to the Institute of Chartered Accountants of India (ICAI) for examining the nature of the professional services and the permissibility of the outcome-based fee arrangement, if considered appropriate.
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The bench clarified that its observations should not be treated as a finding of professional misconduct against the applicant or any individual professional.
The petition was filed by Ernst & Young LLP against Mobase Electronics India Private Limited under Section 9 of the IBC, seeking initiation of the Corporate Insolvency Resolution Process.
According to the petitioner, Mobase had engaged it under an engagement letter dated December 16, 2023, to provide professional assistance in connection with orders and notices issued by the Tamil Nadu GST authorities.
The scope of work reportedly included preparing replies, representing the company before GST authorities, attending personal hearings and handling appellate proceedings.
Under the fee arrangement relied upon by the petitioner, Mobase was required to pay an initial professional fee of ₹25 lakh upon execution of the agreement. An additional fee equivalent to 1% of the relief obtained was allegedly payable following a favourable outcome, with proportionate payment in the event of partial success.
The petitioner claimed that it successfully secured a substantial reduction in the GST demands raised against Mobase for three financial years.
For FY 2019-20, relief of approximately ₹12.72 crore was allegedly obtained against a GST demand of ₹150.10 crore. For FY 2020-21, relief of around ₹220.69 crore was claimed against a demand of ₹263.20 crore. For FY 2021-22, relief of nearly ₹2.25 crore was stated to have been secured against a demand of ₹46.07 crore.
Thus, against an aggregate GST demand of approximately ₹459.37 crore, the petitioner claimed to have secured relief totalling about ₹235.66 crore.
On that basis, it raised an outcome-linked professional fee calculated at 1% of the proportionate relief obtained.
The petitioner stated that draft invoices were issued on June 19, 2024, and August 23, 2024, but remained unpaid. It subsequently issued a demand notice on September 30, 2024, followed by a recovery notice on December 5, 2024.
A cumulative invoice dated February 11, 2025, was thereafter raised for the services rendered in relation to FYs 2019-20, 2020-21 and 2021-22.
Although Mobase paid the initial fee of ₹25 lakh, the petitioner alleged that the outcome-based component remained outstanding. It consequently claimed ₹2.78 crore as principal and approximately ₹33.19 lakh as interest, taking the total alleged operational debt to ₹3.11 crore.
A statutory demand notice in Form 3 was issued on June 6, 2025, and received by the corporate debtor on June 9, 2025.
Mobase opposed the insolvency petition on the ground that a genuine and bona fide dispute existed over the claimed success fee.
The company maintained that the agreed professional fee was a fixed amount of ₹25 lakh, which had been fully paid on January 19, 2024. It denied having agreed to pay an additional fee equivalent to 1% of the relief obtained in the GST proceedings.
According to Mobase, the disputed clause was obscurely placed in an asterisk and footnote in Appendix A of the engagement agreement and had neither been properly negotiated nor agreed upon.
The company also relied upon an email dated June 20, 2024, through which it had expressly disputed its liability towards the success fee. It maintained that the objection was raised immediately after the draft invoices and well before the statutory demand notice under the IBC.
Mobase further stated that it rejected the final invoice dated February 11, 2025, on the GST portal and once again denied its liability by an email dated February 22, 2025.
Another significant objection was that the GST orders forming the basis of the success-fee computation had not attained finality.
Mobase informed the Tribunal that the GST order dated April 4, 2024, relating to FY 2020-21 was challenged before the Madras High Court. The High Court set aside that order on July 9, 2024, and remanded the matter for fresh consideration.
The company argued that approximately ₹2.20 crore of the claimed success fee was linked to the relief allegedly obtained under the order subsequently quashed by the High Court. Therefore, the related fee could not be treated as a final and crystallised liability.
Proceedings concerning the other assessment years were also stated to have been challenged or remained pending.
The petitioner, however, contended that its entitlement arose as soon as relief was granted at the GST adjudication stage. According to it, subsequent challenges concerning the residual GST demands did not retrospectively extinguish its accrued contractual entitlement.
Mobase also questioned the legal enforceability of the outcome-based fee arrangement.
It argued that a fee contingent upon the result of professional employment was prohibited by the statutory and ethical rules applicable to regulated professionals, including chartered accountants. Reliance was placed on Clause 10 of Part I of the First Schedule to the Chartered Accountants Act, 1949.
The company contended that the disputed fee arrangement was contrary to the applicable professional restrictions and public policy and was therefore hit by Section 23 of the Indian Contract Act, 1872.
It also referred to Section 116 of the Central Goods and Services Tax Act, 2017, which specifies the categories of persons permitted to appear as authorised representatives before GST authorities.
The petitioner denied that the arrangement was illegal. It argued that it was not itself a firm governed by the regulatory framework applicable to chartered accountants and described the disputed amount as a quantified commercial outcome-linked fee.
It relied upon the Bombay High Court’s decision in Jayaswal Ashoka Infrastructures Private Limited v. Pansare Lawad Sallagar to argue that an outcome-based consultancy fee charged by a person not acting as a legal practitioner was not necessarily void under Section 23 of the Contract Act.
After examining the documents and correspondence, the NCLT concluded that Mobase had disputed the petitioner’s entitlement to the success fee much before the statutory demand notice was issued.
The correspondence showed that the corporate debtor had questioned the meaning of “success,” the applicability of the success-fee clause and the effect of the pending proceedings challenging the GST orders. The invoices raised by the petitioner had also been expressly disputed.
The Tribunal observed that the dispute was not limited to the amount or computation of the claim. It extended to the very entitlement to the fee, the meaning and occurrence of contractual success, the consequences of the subsequent GST litigation, the nature and capacity of the services rendered and the legal enforceability of the fee arrangement.
“These are matters which require examination beyond the limited jurisdiction contemplated under Section 9 of the Code,” the NCLT observed.
The Tribunal took note of the fact that the GST proceedings forming the foundation of the claim had not attained finality.
In particular, the GST order for FY 2020-21 had been set aside by the Madras High Court. Proceedings relating to other years were also pending or had been challenged.
Consequently, the petitioner’s argument that a reduction in the GST demand automatically constituted final “success” and created an unconditional right to the fee could not be accepted without further adjudication.
The NCLT was not required to finally determine whether the success-fee clause was valid or invalid. It held that the objections raised by the corporate debtor were sufficiently plausible and required investigation before an appropriate adjudicatory forum.
The Bench relied upon the Supreme Court’s decision in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, which governs the treatment of disputed operational debts under the IBC.
Under the Mobilox test, a Section 9 insolvency application must be rejected where the corporate debtor demonstrates a plausible contention requiring further investigation, provided that the defence is not patently feeble or a mere assertion unsupported by evidence.
In the present case, the NCLT found that the dispute was supported by contemporaneous email correspondence, rejection of the invoices and subsequent developments in the GST proceedings.
The corporate debtor’s defence could not, therefore, be characterised as a sham or “moonshine” dispute created merely to avoid insolvency proceedings.
The Tribunal separately observed that the professional nature of the engagement and the charging of an outcome-based fee deserved examination by the competent professional or regulatory authority.
Although the petitioner claimed that it was not itself a chartered accountants’ firm, the engagement letter and the scope of work indicated that the services involved GST proceedings and representation before statutory authorities.
The question of the capacity in which those services were rendered and whether the arrangement complied with applicable professional standards could appropriately be considered by ICAI if the services were rendered through persons governed by its regulatory framework.
The NCLT emphasised that this was not a finding of misconduct. It merely permitted the regulatory authority to examine the matter independently and take appropriate action, if warranted under the law.
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