Senior Advocate's Application For CIRP Over Non Payment Of Legal Fees: NCLT Delhi Rejects Application

The bench noted that there exists a pre-existing dispute regarding the invoices issued, as they do not conform to the agreed schedule of fees. The invoices contained discrepancies that have not been rectified despite prior communications highlighting these issues.

The bench noted that this discrepancy underscores a substantial dispute between the parties concerning the legitimacy of the invoiced amounts. Therefore, it held that there existed a pre-existing dispute exists regarding the invoices and their alignment with the agreed schedule of fees.

Brief Facts:

The matter pertained to an application filed by Mr. Debabrata Ray Choudhuri ('Applicant' or 'Operational Creditor') under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Applicant sought to initiate the Corporate Insolvency Resolution Process against The State Trading Corporation of India Limited ('Respondent' or 'Corporate Debtor') for defaulting on the payment of an outstanding amount of Rs. 6,26,90,985/-. This sum includes a principal amount of Rs. 3,93,55,110/- and an interest amount of Rs. 2,33,35,875/- at 15% per annum, which the Corporate Debtor failed to pay.

The Operational Creditor provided professional services amounting to Rs. 4,84,70,481/- and submitted bills for the same to the Corporate Debtor. The Corporate Debtor made a partial payment of Rs. 91,15,371/-, which included TDS of Rs. 11,80,109/- and a payment through RTGS of Rs. 79,35,262/-. Thus, the remaining amount payable to the Operational Creditor by the Corporate Debtor was Rs. 3,93,55,110/-. The Applicant, a Designated Senior Advocate, was approached by the Corporate Debtor in early 2006 to assist with significant challenges in recovering various amounts and dealing with legal disputes arising from controversial contracts. Over 200 bills/invoices for professional charges totaling Rs. 3,93,55,110/- were raised for services rendered from 2009 to 2018. The Operational Creditor argued that invoices were raised periodically and no disputes were ever raised by the Corporate Debtor. In an email dated 07.02.2017, the Corporate Debtor acknowledged the bills submitted by the Operational Creditor except for 23 bills lacking order sheets. The Operational Creditor, who regularly appeared with a briefing advocate whose bills were settled, remained unpaid. Despite deductions for payments made and bills lacking order sheets, the admitted outstanding amount exceeded the threshold limit under the IBC. A demand notice under Section 8 of the IBC was issued and the application under Section 9 of the IBC was filed meeting the pecuniary limit of Rs. 1 lakh under Section 4 of the IBC. The Applicant maintained that there was never a dispute over the bill amounts with the Corporate Debtor merely assuring payment while holding back on the pretext of possessing relevant Court/Arbitral Tribunal Orders.

Observations by the NCLT:

The NCLT noted that the Operational Creditor initially sent a demand notice on January 8, 2019, demanding an outstanding amount of ₹6,48,17,455. The Corporate Debtor responded to this notice on January 18, 2019. However, the first demand notice was recalled due to a calculation mistake and a subsequent demand notice was issued on July 26, 2019, for ₹6,26,90,985.02/-, including a principal amount of ₹3,93,55,110/- and an interest of ₹2,33,35,875.02/- at 15% per annum.

In the details of the operational debt claimed by the Applicant in Form 5, the claimed amount remained consistent at ₹6,26,90,985.02/- which included the principal and interest amounts as specified. The bench noted that one of the principal requirements for admitting a Section 9 application is the absence of any pre-existing dispute between the Operational Creditor and the Corporate Debtor before issuing the Section 8(1) notice.

The NCLT referred to the Supreme Court in the case of Mobilox Innovations Private Limited vs. Kirusa Software Private Limited where it was held that the objective of the IBC regarding operational debts is to ensure that smaller operational creditors do not prematurely push corporate debtors into the insolvency resolution process or for extraneous reasons. The existence of a dispute must be plausible, requiring further investigation, and should not be a patently feeble legal argument or unsupported assertion of fact.

The Supreme Court reiterated this judgment in Sabarmati Gas Limited vs. Shah Alloys Limited where it was held that a pre-existing dispute must be credible and not spurious, hypothetical, or illusory. It held that the Court's role is not to examine the merits of the dispute but to determine the existence of a substantial dispute before the receipt of the demand notice under Section 8.

The NCLT noted that disputes and conflicts existed regarding the alleged outstanding amount before issuing the statutory demand notice and the institution of the present application. It noted that the invoices issued by the Applicant/Operational Creditor did not conform to the agreed schedule of fees with discrepancies that were not rectified despite previous communications.

The NCLT noted that the Applicant alleged non-payment of fees by the Corporate Debtor dating back to 2007 even though the Applicant continued to represent the Corporate Debtor until 2018. The Applicant did not raise grievances regarding unpaid bills over the past decade. The Corporate Debtor contended that the issue of recovery of dues was raised only after they ceased engaging the Applicant's legal services in 2018. The bench noted that the role of the Applicant as a Senior Advocate involves diligent oversight making it implausible that significant dues would remain unaddressed for such a prolonged period.

Therefore, the NCLT examined the existence of a pre-existing dispute between the parties.

Consequently, the NCLT held that the Applicant didn't make a case for the initiation of CIRP under Section 9 of the IBC.

Case Title: MR. Debabrata Ray Choudhuri vs The State Trading Corporation of India Limited

Case Number: Company Petition No. (IB) 242(PB)2020

For the Applicant : Ms. Stuti Jain, Mr. Akshu Jain, Advs.

For the Respondent : Mr. Uday Gupta, Senior Advocate Ms. Shivani Lal, Mr. Hiren Dasan, Ms. Sanam Singh, Ms. Yogamaya, M. G., Mr. Rupam Gupta, Advocates

Date of Judgment: 26.07.2024

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