Pre-Existing Dispute over Legal Fees Bars CIRP: NCLAT Affirms Dismissal of Section 9 Petition by Senior Advocate for Non-Payment of Professional Services

NCLAT held that the existence of a pre-existing dispute precluded the initiation of CIRP and accordingly upheld the dismissal of the Section 9 petition filed by a senior advocate against the State Trading Corporation of India Ltd.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member), while adjudicating an appeal, held that where the record demonstrates a genuine pre-existing dispute over unpaid legal fees—raised through contemporaneous objections prior to the issuance of the statutory demand notice—the threshold requirement under Section 9 of the IBC is not satisfied, thereby precluding initiation of CIRP, in accordance with the test laid down in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd.

In the present case, the National Company Law Appellate Tribunal (NCLAT) dealt with an appeal filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 ("IBC") challenging the order of the National Company Law Tribunal (NCLT), Delhi Bench, which had dismissed a Section 9 application for initiation of Corporate Insolvency Resolution Process (CIRP) against State Trading Corporation of India Ltd. The Appellant, a senior advocate, had claimed unpaid professional legal fees amounting to Rs. 6.26 crore, asserting that services were rendered over several years and invoices were raised in accordance with agreed terms. The Appellant relied on substantial correspondence, statutory demand notices, TDS acknowledgements, and even admissions made in other legal proceedings to establish that the debt was both due and acknowledged.

The Adjudicating Authority, however, dismissed the petition on the ground of pre-existing disputes, which the Appellant argued was both factually and legally erroneous. According to the Appellant, the so-called disputes were only raised after issuance of the Section 8 demand notice and lacked any substantive basis. It was contended that the Authority failed to consider key documentary evidence and misapplied the law under Mobilox Innovations Private Limited v. Kirusa Software Private Limited, REEDLAW 2017 SC 09545, which lays down the test for determining the existence of a pre-existing dispute. The Appellant also highlighted alleged judicial bias and argued that the professional status of the applicant as a lawyer could not be a basis for rejection under the IBC framework.

On the other hand, the Respondent raised multiple grounds to oppose the initiation of insolvency proceedings. It argued that the claim was largely barred by limitation, as many invoices dated back to 2006 and the application was filed only in 2019. Citing the Supreme Court’s ruling in B.K. Educational Services Private Limited v. Parag Gupta And Associates, REEDLAW 2018 SC 10542, the Respondent asserted that time-barred debts could not form the basis of a Section 9 application. As for the more recent invoices, the Respondent pointed to pre-litigation objections over inflated billing and deviation from agreed fee schedules. It also claimed that the Appellant's initiation of a writ petition before the Delhi High Court for recovery of dues was indicative of his own belief in the Respondent’s solvency and rendered the insolvency plea unnecessary and misconceived.

The NCLAT, after examining the chronology of correspondence and invoices, concluded that disputes regarding the claimed fees predated the issuance of the statutory demand notice and were supported by materials on record. It held that the threshold laid down in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, REEDLAW 2017 SC 09545, was satisfied, since there existed a plausible contention requiring further investigation and not a patently feeble legal argument. The appellate tribunal thus found no merit in the appeal and upheld the NCLT’s dismissal of the Section 9 application, holding that the existence of a pre-existing dispute precluded the invocation of CIRP against the Respondent under the IBC.

Ms. Stuti Jain and Mr. Akshu Jain, Advocates, represented the Appellant, while Mr. D.R. Choudhuri, the Appellant, appeared in person.

Mr. Uday Gupta, Sr. Advocate with Ms. Shivani Lal, Mr. Hiren Dasan, Mr. Sanam Singh, Mr. Unmukt Gera and Mr. Ajay Sharma, Advocates, appeared for the Respondent.

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