Insolvency Action Against Company For Not Paying Employee On Time
Employee triggers insolvency proceedings against a company for unpaid dues.
The Delhi bench of the National Company Law Tribunal admitted an insolvency petition against a company for its failure to pay an employee’s dues on time in one of the first such cases under the new law.
Nitin Gupta, a manager of the company, filed a plea under the Insolvency and Bankruptcy Code as an ‘operational creditor’ against Applied Electro-Magnetic Pvt. Ltd., a maker of handheld computing devices. Unpaid salary amounted to Rs 46 lakh due to delayed and irregular payments by the company, he said in his petition.
Operational creditors, including employees and vendors, is one of the two categories under the IBC permitted to initiate insolvency proceedings against a corporate debtor. The other one being financial creditors such as banks and financial institutions.
With employees being able to trigger the intricate, complex and time-consuming insolvency process which would result in suspension of powers of directors, companies have to exercise caution to ensure timely payments to employees and workmen as per the agreements, said Abir Roy, partner at law firm Lakshmikumaran & Sridharan to BloombergQuint over the phone.
Companies have to recognise that the insolvency code gets triggered on default and not on an inability to pay debt or erosion of net worth.Abir Roy, Partner, Lakshmikumaran & Sridharan
Applied Electro-Magnetic rebutted Gupta’s arguments stating that a portion of the claims are from 2008 and time-barred - that is, the deadline to file claims has lapsed. It also accused Gupta of ‘forum shopping’.
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The tribunal rejected both the arguments. Some of these claims arose in 2015-2017 and were admissible, the NCLT said, refusing to dismiss the insolvency application.
There is no law that an unpaid employee who has complained before the Labour Department cannot initiate corporate insolvency resolution process against its employer.National Company Law Tribunal, Delhi
The tribunal said it’s not a forum to adjudicate on what portion of the claim is due and recoverable. That will be for the committee of creditors/resolution professional to decide, it said.
The NCLT imposed a moratorium on the company in its October order and referred the appointment of an interim resolution professional to the Insolvency and Bankruptcy Board of India.