IBC – A Savior for Employees
IBC - A Savior for Employees
The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “Code”) provides that all the employees and workmen must be considered within the meaning of the operational creditors as defined under Section 5 (20) of the IB Code which states that:
“"Operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;”
So for this we need to understand the definition of Operational Debt as defined under Section 5 (21) of the Code which states that:
“"Operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.”
So from the definition it is clear that if there is any due arising in the course of employment then that will be considered as the operational debt and the person to whom the operation debt is owed i.e. the employee shall be treated as the Operational Creditor.
So if the amount was not paid to the operational creditor then he can file a case against the corporate debtor under section 9 of the code but before that he has to comply with the procedure of sending demand notice in the form of FORM 3 and FORM 4 to the corporate debtor and provide them time duration of 10 days.
If the corporate debtor has not paid the amount of debt even after sending the demand notice then the operational creditor can initiate corporate insolvency resolution process under section 9 of IB Code.
WHO IS AN EMPLOYEE?
It is now very important to understand who can be termed as an employee for the purpose of initiating proceedings under IBC.
For clear understanding a general interpretation may be that, an employee is a person who has been hired by the employer to perform a particular job or specific labour of the employer. So the essential criteria that are being looked upon here may be:
There is a specific wage or salary.
The work being done is under control of the employer or is being regulated by him.
There is an existing implied or written contract in relation to this work being carried out and the employer and the employee have consented to the same.
PRE REQUISITES FOR APPROACHING
Before filing any petition before NCLT for recovery of unpaid salaries, the employee must ensure beforehand that-
The person must be an employee of the company against which his payment is pending.
He must owe an operational debt against the defaulter company.
The minimum amount of salary due to the person must be one lakh rupees.
INITIATION OF CORPORATE INSOLVENCY PROCEEDINGS
FIRST: The operational creditor is required to serve a demand notice to the corporate debtor mentioning that his payment is pending in lieu of the work done or the services provided.
After waiting for 10 Days, if he does not receive either his payment or notice of pendency of any suit, he can file an application to the NCLT for initiating a corporate insolvency resolution process against the operational debtor.
The documents with the application for initiating the process are:
A copy of pay in slips, Bank Statement, Offer letter and other documents which help in identifying that there is an undisputed debt.
An affidavit stating that there is no notice given by the debtors in respect of any dispute related to unpaid amount.
A copy of the bank certificate from the financial institutions of the creditor stating that no amount has been paid by the debtor to the creditor as unpaid operational debt.
TIME LIMIT WORKING AS AN EARLY REMEDIAL MECHANISM
It is mandated upon NCLT that an order regarding acceptance or rejection of this application is to be passed within 14 days of receipt of the application from the operational creditor.
It is also provided that the corporate resolution process needs to be completed within 180 days from the date of the admission of the application, but on the application of the resolution professional, NCLT is empowered to extend the period beyond 180 days.
EXCEPTION OF ADMISSION
There are various exception in the admission of the application as well but there are 2 major exception in the case of operation creditor application such as: