EMPLOYMENT LAW UPDATE
27th May 2022
Issue No. 04/22-23
NOTICE PERIOD SALARY NOT OPERATIONAL DEBT UNDER IBC
Recently, in Sandesh Naik v. MT Educare Limited [C.P. (IB) -678 (MB)/2020], the NCLT – Mumbai bench has held that salary for purported notice period which needs to be specifically performed as per the appointment letter, would not fall within the definition of “Operational Debt” as it was not for the actual work done by the Operational Creditor.
Brief Facts
Mr. Sandesh Naik (Operational Creditor (OC)/Applicant) filed an application u/s 9 of the IBC, 2016 (“Code”) for a resolution of Operational Debt amounting to Rs. 22,41,735/-.
The Applicant was employed with MT Educare Limited (Corporate Debtor (CD)/Respondent) in the capacity of Chief Financial Officer (CFO). The Applicant resigned from the job and had several mails exchanged with the CD for the payment of his dues.
Thereafter, the Respondent confirmed the termination of the OC and acknowledged his liability and agreed to full and final settlement of dues owed to the Applicant.
In response to the demand notice issued u/s 8 of the Code, the Respondent admitted its liability of Rs. 7,26,626 and sent a cheque of the same amount. The Applicant demanded the balance due to him from the Respondent, reliance was placed on the appointment letter which stated that the notice period is of three months or salary in lieu of the purported notice period of three months.
According to the Respondent, the appointment letter on which the Applicant has relied is a forged and fabricated document and that as per the original appointment letter the notice period is of one month and accordingly the cheque given was towards full and final settlement of the dues.
Issue
The following issue came up for consideration before the Tribunal:
Whether the notice of termination of the employment of the OC is three months or one month? And whether it would amount to a pre-existing dispute between the parties?
Findings of the Tribunal
Upon hearing both parties, the Tribunal dismissed the application filed under u/s 9 of the Code on the ground that the existing dispute between the parties ought to have been adjudicated by following the procedure of leading evidence and conducting trails before the Courts of Competent Jurisdiction. Hence, the OC cannot use IBC as a substitute of debt enforcement procedures.
The present dispute between the parties has arisen owing to the discrepancies in the appointment letter, which was in existence prior to the issuance of the Demand Notice. The Tribunal placed reliance on the Hon’ble Supreme Court’s decision in the case of Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd.
The salary of two months pertaining to the purported notice period does not fall within the definition of “Operational Debt” as it was not salary for the actual work done by the OC and related to specific performance of the appointment letter.
Therefore, the Bench was of the opinion that the OC should initiate the necessary legal proceedings for recovery before appropriate legal forum and not through the route of IBC.
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