The National Company Law Tribunal (NCLT), Chennai, has questioned the validity of a 1 per cent outcome-based fee claimed by Ernst & Young LLP (EY) for securing relief for Mobase Electronics India Private Limited in GST proceedings.
A Bench of Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy rejected EY’s plea under Section 9 of the Insolvency and Bankruptcy Code (IBC), which sought to initiate insolvency proceedings against Mobase over an alleged operational debt of about Rs 3.11 crore.
EY had claimed that Mobase engaged it for professional assistance in GST proceedings concerning financial years 2019-20, 2020-21 and 2021-22. The engagement, according to EY, provided for an initial fee of Rs 25 lakh and an additional fee equivalent to 1 per cent of the relief obtained.
EY said GST demands totalling around Rs 459.37 crore were raised against Mobase and that it secured relief of approximately Rs 235.66 crore. It consequently raised an outcome-linked fee, claiming Rs 2.78 crore as principal and around Rs 33.18 lakh as interest.
Mobase disputed the claim, saying the agreed fee was only Rs 25 lakh and that the amount had already been paid. It denied having agreed to the additional success fee.
The company also questioned whether such an outcome-based arrangement was permissible under professional regulations governing chartered accountants and other regulated professionals. It argued that the arrangement could also be opposed to public policy under Section 23 of the Indian Contract Act.
The Tribunal noted that the dispute extended beyond the amount allegedly payable. Mobase had challenged EY’s entitlement to the success fee itself, while questions remained over what constituted “success” under the engagement and whether the relief relied upon by EY was final.
The issue was further complicated by the fact that one of the GST orders forming the basis of EY’s fee calculation had been set aside by the Madras High Court and remanded for fresh consideration.
The NCLT said the nature of EY’s engagement, the enforceability of the fee arrangement and the status of the GST proceedings required examination beyond the limited scope of Section 9 proceedings.
“These are matters which require examination beyond the limited jurisdiction contemplated under Section 9 of the Code,” the Bench said.
It also noted that Mobase had raised objections to EY’s claim before the statutory demand notice was issued, supported by contemporaneous correspondence and rejection of invoices.
While dismissing the insolvency petition, the NCLT clarified that it was not recording any finding of professional misconduct against EY or any individual professional. It said the nature of the engagement and compliance of the fee arrangement with applicable professional standards could be examined by the Institute of Chartered Accountants of India (ICAI).
