[Breaking] Arrears Of Salary Beyond Three Years Barred By Limitation For Initiating CIRP

NCLAT holds that that arrears of salary beyond a period of 3 years would be barred by limitation for the purposes of initiating CIRP.

Omega Laser Products B.V., a Dutch company and a shareholder of the Corporate Debtor preferred an appeal before the NCLAT challenging the order passed by the NCLT, New Delhi Bench initiating CIRP against the Corporate Debtor.

The Operational Creditor being the Managing Director of the Corporate Debtor filed a petition under Section 9 of the IBC claiming default on the part of Corporate Debtor to make the payment of the arrears of salary from the Corporate Debtor.

The NCLT allowed the Section 9 petition and admitted the Corporate Debtor into CIRP.

The Operational Creditor relied upon various documents including certain discussions between the shareholders of the Corporate Debtor. The NCLAT after going through the records of the case, however, came to conclusion that there was no specific approval either of the payment of arrears of any ‘fixation of the MD’s renumeration’ or increase of his salary/perks. The NCLAT also held that there was no crystallized quantum of amount which could be claimed as salary/remuneration fixed by the Board of the Corporate Debtor as contemplated under Section 196 of the Companies Act, 2013.

The Court also relied upon Articles of Association of the Corporate Debtor which required the remuneration of the MD to be fixed by the Board of Directors.

The NCLAT also held that there was no acknowledgement of debt in terms of Section 18 of the Limitation Act, 1963 in absence of any approval of quantified amount by the Board of Corporate Debtor.

The NCLAT accordingly held that majority of the claims of the Operational Creditor was barred by time.

The NCLAT also relied upon the judgment of the Hon’ble Supreme Court in Mobilox Innovations (P) Ltd. Vs Kirusa Software Pvt. Ltd. (2018) 1 SCC 353 and held that “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.

After glancing through the records of the case, the NCLAT held that the ‘Dispute’ raised by the Corporate Debtor was not a feeble legal argument nor was a spurious one but one which is supported by evidence.

Accordingly, the NCLAT allowed the appeal and set aside the order of NCLT admitting the Corporate Debtor into CIRP.

Mr. Arun Kathpalia Senior Advocate along with Mr. Sarojanand Jha, Founding Partner, Vedanta Legal appeared for the Dutch Company.