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

Pallavi Mishra
13 May 2022 4:21 AM GMT
Arrears Of Salary Due Beyond Three Years, Barred By Limitation, Cannot Be The Basis For Initiating CIRP: NCLAT Delhi
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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 considered view that the emails, the correspondence relied upon by the Learned Counsel for the Respondent do not give any definitive quantum of salary to have been accepted by way of any Resolution by the Board of Directors, to fall within the ambit of the definition of 'acknowledgement of debt' as contemplated under Section 18 of the Limitation Act, 1963. Therefore, this Tribunal if of the earnest view that the Section 9 Application filed on 27/08/2021 is 'barred by Limitation' as the claims of Rs.96,92,000/- and Rs.18,00,000/- pertain to the period prior to 31/03/2016 and more than three years have lapsed since."

Pre-Existing Dispute Between The Parties

Reliance was placed on the Supreme Court judgment in Mobilox Innovations (P) Ltd. Vs. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353, and it was held that the remuneration of the MD being a 'disputed question of fact', "it is not within our domain under IBC to 'decide the issue of the fixation of the salary of the MD', but to ascertain if there is any 'Dispute' regarding the issue."

The Bench observed that as per the documents on record, the 'Dispute' raised is not a feeble legal argument nor is it a spurious one but one which is supported by evidence.

The Impugned Order dated 15.02.2022 passed by the Adjudicating Authority was set aside and the Appeal was allowed.

Case Title: Omega Laser Products B.V v Anil Agrawal, COMPANY APPEAL (AT) (INSOLVENCY) No.194 of 2022.

Counsel for Appellant: Sr. Adv. Arun Kathpalia with Sarojanand Jha (Founding Partner, Vedanta Legal), Mr. Karan Sharma, Mr. Suraj Malik, Mr. Vineet Dwivedi, Advocates.

Counsel for Respondent No. 1: Mr. Rohit Sharma, Mr. Arju Chaudhary, Mr. Rounak Nayak, Advocates.

Click Here To Read/Download Order

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