NCLT Dismisses EY’s ₹3.11 Crore Insolvency Plea Against Mobase Electronics, Flags Success-Fee Arrangement for ICAI Review
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New Delhi, September 4 : The National Company Law Tribunal (NCLT) has dismissed an insolvency petition filed by EY seeking recovery of around ₹3.11 crore from Mobase Electronics India Private Limited, observing that the dispute involved questions over the validity and enforceability of an outcome-based professional fee arrangement.
A Bench comprising Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy said that the nature of EY’s engagement and the success-fee arrangement could appropriately be examined by the Institute of Chartered Accountants of India (ICAI).
The Tribunal clarified that it was not recording any finding of professional misconduct against EY or any individual professional.
“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 (ICAI), in accordance with law,” the NCLT observed.
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EY had approached the NCLT under Section 9 of the Insolvency and Bankruptcy Code (IBC), seeking initiation of insolvency proceedings against Mobase Electronics.
According to EY, Mobase had engaged the firm for professional assistance in GST proceedings relating to the financial years 2019-20, 2020-21 and 2021-22. The engagement allegedly provided for an initial professional fee of ₹25 lakh, along with an additional fee equivalent to 1% of the relief obtained in the GST proceedings.
EY claimed that against aggregate GST demands of approximately ₹459.37 crore, it had helped secure relief of around ₹235.66 crore. Based on this, the firm raised an outcome-linked fee.
The claim ultimately comprised around ₹2.78 crore as principal and ₹33.18 lakh as interest, taking the total alleged operational debt to approximately ₹3.11 crore.
NCLT flags Ernst & Young's 1% success fee for securing relief in GST cases; asks ICAI to examine
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Mobase also questioned whether such an outcome-based fee arrangement was legally permissible under the professional rules applicable to chartered accountants.
The company argued that such an arrangement could be contrary to professional regulations and public policy under Section 23 of the Indian Contract Act.
Mobase further pointed out that subsequent developments had affected the GST proceedings on which EY had based its fee calculation. One of the GST orders relied upon by EY was later set aside by the Madras High Court and remanded for fresh consideration.
The NCLT observed that the dispute was not simply about the amount claimed by EY. There were substantive questions regarding whether EY was entitled to the success fee in the first place, what constituted “success” under the engagement and how pending GST proceedings would affect the fee claim.
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The Tribunal also noted that the nature of the services provided and the enforceability of the fee arrangement were themselves disputed.
“These are matters which require examination beyond the limited jurisdiction contemplated under Section 9 of the Code,” the Tribunal said.
The NCLT further observed that Mobase had raised objections to EY’s entitlement even before the statutory demand notice was issued. These objections were supported by contemporaneous correspondence and the company’s rejection of the invoices.
Consequently, the Tribunal dismissed EY’s insolvency petition.