Legal Consultancy Fee Claims Under IBC Require Credible Proof; Unsupported Invoices Not Admissible in CIRP: NCLAT
- REEDLAW
- Aug 22
- 3 min read
REEDLAW Legal News Network reports: In a significant decision, the National Company Law Appellate Tribunal (NCLAT) ruled that claims for legal consultancy fees in the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016, must be substantiated with credible documentary evidence directly attributable to the Corporate Debtor. The Tribunal clarified that unsupported engagement letters or invoices, without corroboration from financial records or proof of services rendered, cannot justify the admission of such claims in the CIRP process.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain and Justice Mohd. Faiz Alam Khan, Judicial Members, and Mr. Naresh Salecha, Technical Member, adjudicated a company appeal and held that mere submission of invoices or engagement letters is insufficient to establish a valid claim for legal consultancy fees under the IBC. The Tribunal stressed that the onus lies on the claimant to produce corroborative evidence, such as payment proofs or entries in the books of accounts of the Corporate Debtor, as CIRP cannot accommodate claims based on unverified or unilateral documentation.
The appellant had challenged the order dated 12.09.2023 passed by the NCLT, New Delhi, which had dismissed its application seeking directions to the Resolution Professional (RP) to admit its claim for legal consultancy services provided to the Corporate Debtor (CD). The appellant claimed to have been engaged by the CD under an engagement letter dated 01.06.2016 to provide corporate legal consultancy services for a fixed monthly fee of ₹6,00,000 and alleged default in payment for the period between April 2018 and September 2019, amounting to ₹1,08,45,000. The appellant argued that the RP and Adjudicating Authority wrongly rejected its claim merely because it was not reflected in the books of accounts of the CD and contended that Regulation 7 of the CIRP Regulations, 2016 permitted verification of claims based on other documentary evidence such as contracts and invoices.
The respondent and RP submitted that the claim lacked verification from the CD’s books and that the engagement letter appeared doubtful because it bore the LLP seal, though the appellant became an LLP only on 06.09.2016. They further contended that the services were not exclusively for the CD but for all group companies, and the expenses were allocated among them. It was also highlighted that the appellant’s claim could not be accepted in the absence of acknowledged bills, supporting entries in the corporate debtor’s accounts, and clarity on adjustments allegedly made through allotment of flats by group entities for litigation services rendered to them.
The NCLAT observed that although Regulation 7 permits reliance on documents other than financial records, such documents must inspire confidence. It noted that the engagement letter covered services for the CD and its group companies, and the appellant failed to furnish any evidence segregating the consultancy services rendered exclusively to the CD. The Tribunal also recorded that the appellant admitted receiving flats from group companies towards litigation services but failed to provide details or documents substantiating such adjustments. Additionally, the absence of any demand or legal notice by the appellant for the unpaid retainer fee raised doubts about the genuineness of the claim.
On these findings, the Appellate Tribunal held that the IRP had exercised due diligence in verifying the claim and that the rejection of the appellant’s claim was justified. The appeal was dismissed without costs, and pending applications were closed.
Mr. Mahjadeen, Advocate, Mr. Tanweeralam (Party in Person), represented the Appellant.
Mr. Abhishek Anand and Ms. Palak Kalra, Advocates, appeared for the Resolution Professional (RP).
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