[Exclusive] NCLAT Sets Aside NCLT’s Order Directing CoC to Raise Finances for Paying Employee Salaries/Wages
NCLT's order directing CoC to raise finances for paying employee salary set aside
On Tuesday, NCLAT set aside NCLT’s order directing CoC to raise finances for paying employee salaries/wages.
In the present case, an application was preferred by the employees/ex-employees of the Corporate Debtor seeking payment due to the employees during the CIRP period. As per an affidavit filed in this regard, payment towards wages and salaries to the employees during the CIRP period was about Rs. 80 lacs per month. It was also brought to the notice of the NCLT that certain employees who are on the rolls of the company are coming to the plant but are not being paid any wages.”
The NCLT had directed the Resolution Professional to provide funds to meet expenses to the tune of 2.21 Crores and submit a compliance report for the same on 12. 03.2020.
Aggrieved by the order of the NCLT, the appellant approached the NCLAT and filed an appeal against the directions issued by NCLT in the matter.
Arguments made by the appellant
Learned Counsel appearing for the Appellant/CoC made the following arguments.
Directions issued by the NCLT were contrary to the provisions of the IBC.
66 % of votes are required under section 28 (3) of the Code to raise interim funds.
The CoC has not granted any approval raising the interim funds and the decision of the CoC is non-justiciable.
NCLT Mumbai had passed the order without hearing the CoC.
The Counsel for the appellant also emphasised on the minutes of a meeting dated 08.01.2020 wherein the CoC members were of the view that EMCO Ltd was not a going concern and therefore it was viable at the stage to confirm the unpaid salary and wages to all the employees and the workmen,
Arguments made by the respondent
Failure of the CoC to raise Interim finance despite requests made by the Resolution Professional has resulted in pending work orders.
Even though approval of CoC is required for raising any interim finance, however, the approval of CoC is not required for payment of salaries to the workmen of the Corporate Debtor for the period of CIRP, he added.
The company allegedly misappropriated the amounts from the Corporate Debtor after the commencement of CIRP and the genuine dues of the workmen have not been paid.
No provision in the I&B Code empowering NCLT to oversee the justness of the approach of the dissenting financial creditors in rejecting the proposed resolution plan says NCLAT
Before rejecting the order passed by NCLT, the judge affirmed that the resolution professional can raise interim finance only subject to the approval of the Committee of Creditors by a vote of 66 % under Section 28.
It also stated that NCLT may cause an enquiry into the “approved” resolution plan on limited grounds referred to in Section 30(2) read with Section 31(1) of the I&B Code. but It cannot make any other inquiry nor is competent to issue any direction in relation to the exercise of commercial wisdom of the financial creditors-be it for approving, rejecting or abstaining, as the case may be.
“To take any other view would enable even the minority dissenting financial creditors to question the logic or justness of the commercial opinion expressed by the majority of the financial creditors albeit by requisite percent of voting share to approve the resolution plan, and in the process authorize the adjudicating authority to reject the approved resolution plan upon accepting such a challenge. That is not the scope of jurisdiction vested in the adjudicating authority Under Section 31 of the I&B Code dealing with the approval of the resolution plan”.- NCLAT
Sanjeev Kumar and Anshul Sehgal, Counsel for the appellant welcomed the decision and opined that there is no provision under the law that gives NCLT the power to direct CoC to raise financing.
"In fact to the contrary, this decision needs to be passed with a 66 percent majority. So once the discretion is with the CoC and that too with 2/3rd majority, there is no question of NCLT intervening and telling the CoC what to do, they added.
