GST Compliance Services During CIRP Qualify As IRP Costs, But Fees Must Be Reasonable: NCLT Kolkata

The National Company Law Tribunal (NCLT) at Kolkata has held that GST compliance services rendered during a corporate insolvency resolution process may form part of insolvency resolution process costs when they are necessary for running the corporate debtor as a going concern.

However, the tribunal declined to direct payment of an additional claim of ₹6.48 lakh after finding the fees sought were unreasonable in light of the work performed.

A coram of Judicial Member Bidisha Banerjee and Technical Member Siddharth Mishra dismissed an application filed by GST consultant Prateek S. Jain & Associates.

The firm had sought payment of outstanding professional fees arising from the insolvency process of Nandini Impex Private Limited.

"The services rendered by the Applicant pertained to GST compliance and were essential for smooth functioning of the business operations of the Corporate Debtor during the CIRP. Thus, the professional services rendered by the Applicant would squarely fall in the ambit of 'costs incurred by the resolution professional in running the business of the corporate debtor as a going concern' as contemplated under Section 5(13)(c) of the IBC, 2016,” the tribunal observed.

The corporate insolvency resolution process against Nandini Impex commenced on September 20, 2022. Prateek S. Jain & Associates claimed that it continued to provide GST consultancy services during the process until September 2024.

The firm claimed that professional fees of ₹12.88 lakh had accrued. Of this amount, ₹6.40 lakh had already been paid by former resolution professional Shantanu Bhattacharjee. The balance claim was ₹6.48 lakh.

The tribunal noted that invoices raised by the consultant, partial payments made by the former resolution professional and email correspondence between the parties showed the existence of a professional relationship. They also demonstrated that the services rendered had been acknowledged.

Referring to the Insolvency and Bankruptcy Board of India's circular on fees and expenses incurred during the insolvency process, the tribunal noted that resolution professionals are required to exercise commercial prudence while incurring costs. It also referred to the applicable regulations governing insolvency professionals.

“A conjoint reading of the Circular and the Regulation 27 of the IBBI (Insolvency Professionals) Regulations, 2016 indicates that there exists a statutory duty upon the RP to exercise commercial prudence while incurring expenses during CIRP. The main object is to ensure that only legitimate and reasonable costs are treated as Insolvency Resolution Process Cost,” the tribunal held.

It held that a resolution professional must ensure that costs incurred during the insolvency process are reasonable. Such costs must also be proportionate to the nature and extent of the services rendered.

While acknowledging that GST compliance services were necessary during the insolvency process, the tribunal found that Nandini Impex had negligible business activity during the relevant period. It also noted that GST compliances largely involved filing nil returns.

“Charging a hefty sum of Rs. 2500 per month per State towards filing of Form GST-3B and Form GSTR-1 where Nil returns were required is unreasonable and results in unnecessary depletion of the assets of the Corporate Debtor,” the tribunal observed.

After examining the invoices placed on record and the volume of work undertaken, the tribunal concluded that the fees claimed were exorbitant compared to the work performed. It held that the claim did not satisfy the standard of reasonableness envisaged under the Insolvency and Bankruptcy Code.

The application was consequently dismissed.