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An unsuccessful 'success fee' litigation

Published: Sep 21, 2026

By CA Ramanujam Srinivasan

A. Introduction:

WE all have read many stories about ambulance chasers – a term used to denote advocates (especially in USA) chasing victims travelling in ambulances hurt in serious accidents to make them as their clients after full recovery and in the process make them sue the person who caused the accident vis a vis his insurance company for exemplary damages and after the verdict secure a percentage of the compensation as their professional fees.

On the other hand, we see a code of conduct or professional ethics, especially for Chartered Accountants which prohibits entering into agreements for professional fee, based on outcome of the case of a client. At the same time, we have also seen other professionals like - valuers of properties collecting a fee based on the valuation of the property or even some advocates practicing on recovery of insurance claims on lost properties (cargo etc) or advocates involved in class action suits collecting fees based on the claim money recovered (see discussion on the case law at the end). Be that it may, one can readily foresee what can in a country like ours if success fee is negotiated either for full or partial success in litigations involving statutory dues with corrupt officials attempt to fleece the unsuspecting assesses by raising a non-legally justifiable dispute and then create a story of reducing considerably the so-called disputed demands.

The author also recalls that in the early 80's there was a CBDT circular issued (later withdrawn) stating that if the additions made in the assessment order are confirmed by the first appellate authority, a tax free reward of 10% or so (probably) will be given to the AO for his efforts, which, of course, was contrary to an English judgment where it has been held that no assessing officer can have any pecuniary interest on the demands raised by him in the assessee's case. Of course, at present through the faceless assessment / appeal provisions, these situations are voided to a great extent.

B. Ernst & Young LLP (EY) v MOBASE ELECTRONICS INDIA PRIVATE LIMITED - 2026-TIOLCORP-24-NCLT

Coming back to This case, let us look at the facts of the case which in a nutshell are given below:

1. The assessee, a limited company based in Chennai had a dispute under GST in the State of TN and it had engaged Ernst & Young LLP to represent them in his case

2. EY quoted an initial fee of Rs 25 lacs and then a "success fee of 1%" on the reduction in the demand (called "success") if any, achieved through its efforts...

3. The assessment years involved are – AY 2019-20, 20-21 & 21-22

4. The total demand – gross & the modified demand as per EY's efforts along with their corresponding claim of 'success fee' are indicated below: (Rs in crores)

5. EY raised invoices for the amount due which remained unpaid and was disputed by the client in the GST portal as not payable. A consolidated invoice was raised by EY on 11-02-2025 seeking payment

6. Accordingly, EY filed a petition under sec 9 Of the IBC against the client as an operational creditor.

For the sake of Reference, sec 9 (1) is reproduced below:

Application for initiation of corporate insolvency resolution process by operational creditor :

(1) After the expiry of the 10 days from the date of delivery of the notice or invoice demanding payment under subsection (1) of section 8, if the operational creditor does not receive the payment from the corporate debtor or notice of the dispute under subsection (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution

C. Argume nts by EY before NCLT :

EY produced all the documents and the proof regarding the service of the recovery Notice and contended that it is a crystallised operational debt due that need to be dealt Under IBC

D. Corporate debtor's contention :

There exists a genuine and bona fide pre-existing dispute between the parties in relation to the alleged "success fee" claimed by the Petitioner.

1 What was agreed was a fixed fee of Rs 25 lacs, which was duly paid.

2 The Success Fee was never agreed to nor negotiated.

3 Vide email dated 20.06.2024, the company expressly disputed and denied its liability towards the "success fee". The Petitioner's Demand Notice dated 30.09.2024 and Recovery Notice dated 05.12.2024, were also disputed.

4 The company had challenged the GST orders before the Hon'ble Madras High Court. In particular, the order dated 04.04.2024 relating to FY 2020-21 was quashed by the Hon'ble High Court on 09.07.2024 and the matter was remanded for fresh consideration. The proceedings relating to FY 2021-22 which was disposed of on 23.10.2025.

5 The final invoice dated 11.02.2025 for Rs.2,78,07,136/- towards the alleged "success fee" was rejected by the Respondent on the GST Portal and such rejection was communicated to the Petitioner. Also, the email dated 22.02.2025, once again expressly denied its liability. Thus, the dispute was raised contemporaneously and well before initiation of the present proceedings.

6 The alleged success fee itself is legally impermissible and unenforceable, particularly in view of the statutory and ethical restrictions governing professional fees of chartered accountants and other professionals and that a fee contingent upon the outcome of professional employment is prohibited under Clause 10 of Part I of the First Schedule to the Chartered Accountants Act, 1949, as well as the applicable professional codes. Thus, no legally enforceable debt has crystallised.

7 The alleged success fee arrangement, being contrary to statutory provisions and public policy, is also hit by Section 23 of the Indian Contract Act, 1872 and the question of legality and enforceability of the alleged fee requires detailed adjudication and cannot be decided in the summary jurisdiction of this Tribunal under Section 9 of the Code.

8. The disputes raised are contractual in nature and concern the interpretation and enforceability of the Engagement and relies on Mobilox Innovations Private Limited v. Kirusa Software Private Limited = 2017-TIOLCORP-05-SC-IBC

9. Part payment does not constitute an unconditional admission of liability for the remaining amount and cannot amount to waiver of a pre-existing dispute.

10. A substantial portion of the alleged success fees is premature and not due or payable, since the GST order dated 04.04.2024 forming the basis of the Petitioner's computation for FY 2020-21 had already been quashed by the Hon'ble Madras High Court. Consequently, the alleged success fee of approximately Rs. 2,20,16,677/- referable to the said order cannot be sustained.

11. Without prejudice, the success fee clause is void and opposed to public policy, as the Engagement Agreement contemplated professional services and representation before GST authorities, which could be undertaken only by recognised professionals under Section 116 of the CGST Act, 2017. Such professionals are prohibited under their respective regulatory enactments from charging result-based fees.

12. Reliance is placed upon G, A Senior Advocate of the Supreme Court, In Re; B. Sunitha v. State of Telangana; R.B. Basu v. P.K. Mukherjee; O. Muthu v. P. Ashok; and Shree Pathology Laboratory v. Big dream Ventures Pvt. Ltd., to contend that such success fee arrangements are unenforceable and also submits that the Petitioner's status as a separate legal entity cannot be used to circumvent statutory professional prohibitions.

13. The Respondent distinguished Jayaswal Ashoka Infrastructures VT. Ltd. v. Pansare Lawad Sallagar, relied upon by the Petitioner, submitting that the said decision did not concern services governed by a statutory professional framework such as Section 116 of the CGST Act

E. Petitioner's reply:

1. The subsequent proceedings before the Hon'ble High Court relate only to residual demands and do not extinguish the Applicant's accrued contractual entitlement.

2. It is denied that the rejection of the invoices on the GST Portal or the emails dated 20.06.2024 and 22.02.2025 constitute a pre-existing dispute, as these merely evidences that the Respondent's refusal to make payment and do not raise any genuine dispute regarding the contractual entitlement.

3. It is further denied that the fee arrangement is illegal or unenforceable, as the provisions relied upon by the Respondent under the Chartered Accountants Act and Advocates Act have no application to the present engagement. The agreed fee is a quantified commercial outcome-linked fee and, in the absence of any competent forum declaring the clause illegal, the Respondent cannot rely upon such objections to avoid payment.

4. The Respondent has failed to establish a real, genuine and pre-existing dispute as required under Section 9 of the IBC. The initial payment of Rs. 25,00,000/- and the admitted contract, services rendered and relief obtained demonstrate acceptance of the contractual arrangement, while the objections were raised only after the liability had crystallised.

5. Its entitlement became due upon the GST adjudication order dated 04.04.2024, and the subsequent challenge before the Hon'ble High Court does not retrospectively extinguish the accrued contractual right. The decision in Umesh Saraf v. Tech India Engineers Pvt. Ltd., - 2020-TIOLCORP-120-NCLAT relied on by the respondent is clearly distinguishable

F. Findings of the Tribunal:

1. It is evident that the Corporate Debtor had disputed the Applicant's entitlement to the alleged success fee much prior to the issuance of the Demand Notice. The Respondent had questioned the interpretation of the expression "success", the applicability of the success-fee clause and the effect of the pending appellate proceedings. The invoices raised by the Applicant were also disputed.

2. The GST proceedings forming the basis of the Applicant's claim had not attained finality. In respect of FY 2020-21, the GST order relied upon by the Applicant was subsequently set aside by the Hon'ble Madras High Court by order dated 09.07.2024.The Respondent has also placed on record the pendency of proceedings in respect of the other assessment years. Thus, the Applicant's contention that the mere reduction of the GST demand constituted a final "success" giving rise to an unconditional entitlement to the alleged fee cannot be accepted without further adjudication.

3. There is another aspect which assumes significance. The Engagement Letter describes the services as professional services in connection with GST proceedings, including preparation of replies, representation before the authorities, personal hearings and appellate proceedings. The Respondent has specifically relied upon Section 116 of the CGST Act, 2017, (reproduced below) which prescribes the categories of persons who may appear as authorised representatives before GST authorities.

4. However, the Applicant has not placed sufficient material before this Tribunal to clearly establish the legal capacity in which the persons representing the Corporate Debtor before the GST authorities actually acted, particularly when the Applicant disputes being a firm governed by the regulatory framework applicable to Chartered Accountants. The above aspect becomes relevant because the alleged consideration is not a conventional fixed professional fee, but a "success fee" calculated as a percentage of the relief obtained in statutory proceedings. The Respondent has raised a specific objection that such an arrangement, insofar as it relates to services which could be rendered only through regulated professionals, is contrary to the statutory and professional restrictions governing such professions and is consequently opposed to public policy under Section 23 of the Indian Contract Act, 1872.

5. In the present case, the dispute is not confined merely to the quantum of the amount claimed. There is a substantive dispute regarding the very entitlement to the "success fee", the meaning and occurrence of the contractual "success", the legal effect of the pending GST proceedings, the nature and capacity of the services rendered, and the enforceability of a fee calculated with reference to the relief obtained in statutory proceedings. These are matters which require examination beyond the limited jurisdiction contemplated under Section 9 of the Code.

6. The Hon'ble Supreme Court in Mobilox Innovations Private Limited v. Kirusa Software PrivateLimited, - 2017-TIOLCORP-05-SC-IBC, has held that Where the Corporate Debtor demonstrates a plausible contention requiring further investigation and the defence is not patently feeble, the Adjudicating Authority is required to reject the Section 9 application. In the present case, the dispute is supported by contemporaneous correspondence, rejection of invoices and the subsequent developments in the GST proceedings.

7. We also observe that the issue concerning the professional nature of the engagement and the charging of an outcome-based fee deserves appropriate examination by the competent professional/regulatory authority. The Applicant has taken the stand that it is not itself a firm of Chartered Accountants; nevertheless, the Engagement Letter and the scope of work placed before us indicate that the engagement involved services relating to GST proceedings and representation before statutory authorities. 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, if the services were rendered through persons governed by its regulatory framework.

8. We make it clear that the aforesaid observation is not a finding of professional misconduct against the Applicant or any individual professional. We merely consider it appropriate that the competent regulatory authority, having regard to the nature of the engagement and the outcome-based fee arrangement reflected in the documents, may examine the matter independently and take such action, if any, as maybe warranted under the applicable statutory and professional framework.

In view of the foregoing discussion, we are satisfied that the Corporate Debtor has established a genuine and bona fide pre-existing dispute concerning the alleged operational debt. The dispute involves issues relating not only to the computation of the amount but also to the crystallisation, enforceability and legal permissibility of the alleged success fee arrangement.

Consequently, the ingredients for admission of the Petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 are not satisfied. The present Company Petition is, therefore, dismissed.

Additional issues :

In The above judgment, two other connected matters are dealt subtly but not elaborated. The author is of the view that these are of great professional importance and hence narrated below for the understanding of the readers

G. Professional misconduct in relation To Chartered Accountants in practice:

First Schedule

A chartered accountant in practice will be guilty of professional misconduct, if he –

....

(10) charges or offers to charge, accepts or offers to accept in respect of any professional employment, fees which are based on a percentage of profits, or which are contingent upon the findings, or results of such employment except as permitted under any regulation under this Act

H. CGST ACT

*Section 116. Appearance by authorised representative. -

(1) Any person who is entitled or required to appear before an officer appointed under this Act, or the Appellate Authority or the Appellate Tribunal in connection with any proceedings under this Act, may, otherwise than when required under this Act to appear personally for examination on oath or affirmation, subject to the other provisions of this section, appear by an authorised representative.

(2) For the purposes of this Act, the expression "authorised representative" shall mean a person authorised by the person referred to in sub-section (1) to appear on his behalf, being-

(a) his relative or regular employee; or

(b) an advocate who is entitled to practice in any court in India, and who has not been debarred from practicing before any court in India; or

(c) any chartered accountant, a cost accountant or a company secretary, who holds a certificate of practice and who has not been debarred from practice; or

(d) a retired officer of the Commercial Tax Department of any State Government or Union territory or of the Board who, during his service under the Government, had worked in a post not below the rank than that of a Group-B Gazetted officer for a period of not less than two years:

Provided that such officer shall not be entitled to appear before any proceedings under this Act for a period of one year from the date of his retirement or resignation; or

(e) any person who has been authorised to act as a goods and services tax practitioner on behalf of the concerned registered person.

(3) No person, -

(a) who has been dismissed or removed from Government service; or

………………..

SC On charging of Fees by an advocate as percentage of the decretal amount

B Sunita V state of Telangana order dated 5 December 2017 (SC)

Facts of the case are interesting:

1. Here the appellant's husband died in accident and the Motor accident claims tribunal awarded a compensation. the appellant paid a fee of Rs 10 lacs to the advocate, but the advocate forced the client to issue additionally a cheque of Rs 3 lacs which was dishonoured. The advocate through email informed the client that his fees is 16% of the amount of compensation received

2. The appellant submitted that charging a fee based on the amount of compensation obtained is against the professional ethics and hence not payable

3. The advocate proceeded against the client under sec 138 of the Negotiable Instruments Act

Questions answered By The hon'ble SC in this case are tabulated below:

The Hon'ble SC further held :

"In view of the above, the claim of the respondent advocate being against public policy and being an act of professional misconduct, proceedings in the complaint filed by him have to be held to be abuse of the process of law and have to be quashed.

We may note that after the hearing was concluded, learned counsel for Respondent No.2 mentioned the matter to the effect that Respondent No.2 wanted to withdraw the complaint. An e-mail to this effect was also handed over to Court. The same has been kept on the record. However, we did not permit this prayer. Having committed a serious professional misconduct, the respondent No.2 could not be allowed to avoid the adverse consequences which he may suffer for his professional misconduct. The issue of professional misconduct may be dealt with at appropriate forum.

Thus, while proceedings against the appellant will stand quashed, the issue of professional misconduct is left to be dealt with at the appropriate forum"

J. Conclusion : In the light of what is extracted above the author's advice:

"Succeed in life, without success fee."