Arrears Of Salary Due Beyond Three Years, Barred By Limitation, Cannot Be The Basis For Initiating CIRP: NCLAT Delhi

The National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, New Delhi, comprising of Justice Ashok Bhushan (Chairperson) and Ms. Shreesha Merla (Technical Member) while adjudicating an appeal filed in Omega Laser Products B.V. v Anil Agrawal, has held that arrears of salary due beyond a period of 3 years would be barred by limitation for the purposes of initiating Corporate Insolvency Resolution Process ("CIRP"). The Managing Director had initiated CIRP against the Corporate Debtor over salary arrears dues which were barred by limitation. NCLAT has set aside the order of CIRP vide an order dated 10.05.2022. Background Facts Mr. Anil Agrawal was the Managing Director of Omega Icehill Pvt. Ltd. ("Corporate Debtor") and had filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("IBC") before NCLT, New Delhi ("Adjudicating Authority"), seeking initiation of CIRP against the Corporate Debtor, for arrears of salary not paid to him between 16.01.2010 to 14.05.2019. Mr. Anil Agrawal ("MD") had contended that he was entitled to a salary of Rs. 3 Lakhs p.m. as remuneration from 16.01.2010, which was revised from 01.08.2014 to Rs. 4 Lakhs p.m. However, the payment made to him by the Corporate Debtor was short of the agreed sum and the arrears were promised to be paid when the financial health of the Corporate Debtor improves. On 14.05.2019, the MD was removed by the Corporate Debtor without clearing the salary dues. The Section 9 petition was filed claiming salary arrears to the tune of Rs.1,29,34,187/- alongwith interest. The Adjudicating Authority admitted the petition and had initiated CIRP against the Corporate Debtor vide an order dated 15.02.2022. Thereafter, Omega Laser Products B.V., a Dutch company and the shareholder of the Corporate Debtor, had filed an appeal against the said order dated 15.02.2022 before the NCLAT, challenging the initiation of CIRP against the Corporate Debtor. Contentions Of The Appellant Omega Laser Products B.V ("Appellant") submitted that the pay slip of the MD dated April 2019 depicted that he was drawing a gross salary of Rs.3,43,100/-, which establishes that the salary was never fixed at Rs. 4 Lakhs p.m. or Rs. 5 Lakhs p.m. There was no Employment Agreement or Board Resolution to validate the increase in salary. It was contended that as salary arrears were due since 2010, therefore, a part of the alleged operational debt (claims prior to 2016) was 'barred by Limitation' in view of Article 7 of the Limitation Act, 1963, as the petition was filed in August 2021. It was stressed that only Rs. 9.50 Lakhs was the shortfall which may be 'due and payable' to the MD for the period between 01.04.2016 to 31.03.2018, if the contention of the MD that his salary was fixed at Rs. 4 Lakhs p.m. is considered. Nonetheless, as this amount is less than the threshold of Rs. 1 Crore, as specified in IBC for initiating insolvency, the Adjudicating Authority had erroneously initiated the CIRP. It was argued that the Adjudicating Authority had only assumed 'default' and had not given any finding on 'default', 'Pre-Existing Dispute' between the parties or the debt being time barred. Contentions Of The Respondent No. 1 Respondent No. 1 contended that there was always a promise from side of the Corporate Debtor to pay the MD's arrears of salary. Reliance was placed on the Minutes of Meeting of Shareholders' Meet dated 12.05.2016, wherein it was recorded stated that the transactions between the three Companies i.e. Omega Group, Omega Engineering and Corporate Debtor needed to be settled by actual transfer of funds as per legal roles and that: "Mr. Anil Agrawal also took lesser salary than what was agreed between the Shareholders and the statement of the same is enclosed. The statement will be checked and confirmed by Omega. This needs to be paid to him as and when the Company cash position improved and in the definite period of time. Besides, the salary will be reviewed with effect from 01.04.2016 as soon as the Agreement will be reached on the JV Agreement and budget." On the issue of limitation it was contended that the cause of action was a continuing one, hence, claims were not time barred. Decision Of The NCLAT Claims Barred By Limitation The NCLAT Bench observed that the Minutes of Meeting dated 12.05.2016 and other emails being relied upon by the Respondent No. 1 had no 'specific approval' of the payment of arrears, nor did they mention any fixation of the MD's remuneration or increase in salary and perks. It was all merely a 'proposal' under discussion, in respect of which no resolution for acceptance was ever passed before the Board of Directors. Further, there was no crystallized quantum of amount which can be claimed as salary/remuneration fixed by the Board of Directors in accordance with Section 196 of the Companies Act, 2013. "We are of the...

Arrears Of Salary Due Beyond Three Years, Barred By Limitation, Cannot Be The Basis For Initiating CIRP: NCLAT Delhi

Pallavi Mishra

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