Insolvency & BankruptcyIBC – A Savior for Employees

March 21, 20180
IBC- A Saviour For Employees! (1)
 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.
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.
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.
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.
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.
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:
  1. Pending Suit,
  2. Disputed debt
There is the prima facie exception that:
If there is any suit pending in the other court then the application cannot be filed under the NCLT
If the amount of operational debt is disputed then also the application cannot be admitted.
It is to be noted here that, the Insolvency and Bankruptcy Code, 2016 is a weapon in the hands of the employees as against corporate debtors to recover its debts but such weapon is to be allowed to put in use only after careful scrutiny.
This IBC code gives the employees as well as workmen of the company a great opportunity with an easy and fast procedure to recover their dues by approaching NCLT as against the debtor.
In the case of Nitin Gupta vs M/s Applied Electro-Magnetic Pvt. Ltd. Company petition No. (IB)-334(ND)/2017, an application had been filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by an employee of the Respondent Company, for non-payment of salary amount of Rs. 46,77,124/-. The respondent in its reply accepted a non-payment of salary amount Rs. 28,84,160/- and raised objections for the balance amount.
The Court admitted the application on the ground that there had been a part admission of the salary due and the non-payment of such due has caused default by the Respondent Company.
The Court went into examining the Definition of “operational debt” under Section 5(21) and “Operational Creditor” under Section 5(20) of the Code and held that the applicant being in employment in the respondent company, providing services under such employment falls under the purview of Operational Creditor and hence the dues arising fall under the definition of operational Debt. Respondent company who has admitted a debt of Rs. 28,84,160/- falls under the definition of corporate debtor.
Secondly the Debt was not completely Time-barred as objected by the Respondent Company. The Code provides for admission of a claim of Rs. 1,00,000/- and above. The Current claim is much above the given limit and hence liable to be admitted.
The issue regarding ‘existence of a dispute’ has also been rejected by the Tribunal, as the respondent Company could not substantially prove of a case pending before the Deputy Labour Commissioner.
” Mere Repudiating the claim in the reply without material particulars can be termed as vague, got up and to evade the liability.”
As regards to the objection of Quantum of the claim, the court held as follows:
“ This forum is not here to adjudicate as to how much is “due”. In any case the respondent corporate debtor would be entitled to raise objection regarding the claim amount before the COC or the Resolution Professional.”
The material issue is that the claim is above the statutory limit and has been defaulted in terms of payment. The provisions of Section 9(3)(a) to (c) have been complied with. Hence, the application is admitted.
In the case of Mr. N Subramanian vs M/s Aruna Hotels Limited, CP/597/(IB)/CB/2017, an application had been filed by an Ex-employee, claiming arrears of Salary due amounting to Rs.1,87,75,631/- since the year 1999 under Section 9 of the Insolvency and Bankruptcy Code, 2016, before the Division Bench at NCLT, Chennai.
The Employee had left the job on 30.06.2013.
In spite of repeated assurances given by the respondent company, the due amount had not been settled. A letter by the Respondent dated 30.09.2014 assuring payment of salary, list of arrears and a 9% interest for late payment has also been put on record by the applicant along with its petition.
The demand Notice had been sent to the respondent Company on 29.06.2017 and the reply to such notice had been made on 06.07.2017 stating that the salary had been paid and only a gratuity amount of Rs. 5,85,577/- was pending.
The respondent also stated that the claim was barred by limitation and that they had already made a Payment of Rs.2,10,00/- on 31.07.2015 via ‘Payment Voucher’. The said voucher had been rejected by the Tribunal on the ground of fraud as it was visible to the naked eye that the hand writing in the columns were different.
Secondly, the Respondent Company had approached the City Civil Court in Chennai on 06.07.2017 and filed an OS No.36/33/2017 against the Operational Creditor to declare the previous letter and notice communications as null and void and grant a permanent injunction on the creditor from relying on the same letters, including the letter of 30.09.2014. The Court rejected this objection stating that the Suit had been filed after the Demand Notice being sent to the respondent. Hence, filing of such civil suit by the Corporate Debtor was only to Camouflage/circumvent the initiation of the Corporate Insolvency Resolution Process by the Creditor against the Corporate Debtor.
Lastly the objection that the claim is time barred has also been rejected, as the letter dated 30.09.2014 contains a list of all the arrears along with interest payment at the rate of 9% for delayed payment.
Thus, the claim has been admitted on the ground that the Corporate Debtor defaulted in the payment of salaries due.


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