Salary during the notice period does not fall under the definition of “operating debt” according to the IBC: NCLT, Mumbai

the NCLT, Mumbai Bank made up of Justice HV Subba Rao, Judicial Member and Chandra Bhan Singh, Technical Member in the case of Sandesh Naik v MT Educare Limited ruled that the salary for the alleged notice period amounted to the specific performance of the letter of appointment and did not fall within the definition of “operational debt”, as it was not the salary for the actual work performed by the operational creditor.

Factual background-

The operational creditor/plaintiff has made a claim under Section 9 of the Insolvency and Bankruptcy Code, 2016, read together with Rule 6 of the Insolvency and Bankruptcy Rules (Application to Arbitration Authority) , 2016 for the initiation of CIRP against the debtor/respondent company, M /s. MT Educare Ltd. for the resolution of the operational debt owed to him in the amount of Rs. 22,41,735.

The Applicant was employed by the Respondent as a financial manager. The Applicant resigned from his job and sent several emails to the Debtor Company requesting payment of his dues.

Subsequently, the Respondent confirmed the termination of the Operational Creditor’s employment and acknowledged its liability and accepted full and final payment of the contributions due to the Claimant.

The plaintiff issued a formal notice u/s 8 of the Code, in response to which the defendant admitted liability to the tune of Rs. 7,26,626 and sent a check for the admitted amount. The Applicant demanded from the Respondent the balance due to him, for which he relied on a letter of appointment which provided for a notice period of 3 months or a salary instead of the alleged notice period of 3 months.

The Respondent argued that the letter of appointment on which the Applicant relies is a forged and fabricated document and that, in accordance with the original letter of appointment, the standard resignation policy provided that the Applicant’s term would expire within 30 days, which corresponds to the period of notice and he is only entitled to treatment for the said period. In response, the Respondent also stated that according to the initial appointment letter, the CO is only entitled to 1 month’s notice and not 3 months as alleged, and that the amount of the check therefore corresponds to full and final settlement of the amount due.

Court Decision-

The NCLT denied the Section 9 claim filed by the Operational Creditor on the basis that there was a dispute between the parties that needed to be resolved by producing evidence and conducting trials in the court of competent jurisdiction and that the claimant could not use the IBC as a substitute. prosecution procedures.

The Tribunal noted that in this case there was a dispute regarding the alleged liability of the debtor company due to alleged discrepancies in the letter of appointment, which existed prior to the date of issuance of the formal notice under the Coded.

She relied on the Supreme Court’s decision in Mobilox Innovations Pvt. Ltd v Kirusa Software Pvt. ltd.where it was judged that-

“what the adjudicating authority needs to see at this stage is whether there is a plausible assertion that requires further investigation and whether the ‘dispute’ is not a patently weak legal argument or assertion of fact not supported by evidence. It is important to separate the wheat from the chaff and reject a spurious defense that is merely bluster. However, in doing so, the Court does not need to be convinced that the defense is likely to succeed. this stage examine the merits of the dispute except insofar as indicated above. As long as a dispute actually exists in fact and is not spurious, hypothetical or illusory, the contracting authority must reject the claim.”

With respect to the question of whether the amount owed as salary for the alleged 2 month notice period is classified as an “operating debt” under the Code, the Court held that it does not was not an operating debt as it was not a salary for the actual work performed by the Operating Creditor and was, in fact, the specific execution of the letter of appointment.

Rejecting the request, the Chamber observed that the recourse of the Operational Creditor is to initiate the legal proceedings necessary for recovery before the appropriate legal forum and not under the IBC.

Sandesh Naik v MT Educare Ltd.

Counsel for the Claimant: Adv. Pooja Batia

Counsel for the Respondent: Adv. Nausher Kohli

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