Definition Of Operational Debt Under IBC Does Not Include Salary During Notice Period

Posted On - 30 June, 2022 • By - Sachin Priya Daniel

Operational Debt Does Not Include Salary of Notice Period

On 12.05.2022, Hon’ble National Company Law Tribunal, Mumbai Bench in the matter of M/s. SandeshNaik v. M/s. MT Educare Limited[1], dismissed the company petition filed by the operational creditor for not falling within the definition of “Operational Debt” as it was not for the salary for the actual work done by the Operational Creditor.

In C.P. No. 678/IBC/MB/2020, the Operational Creditor sought to initiate the Corporate Insolvency Resolution Process (CIRP) against Corporate Debtor by invoking the provisions of Section 9 Insolvency and Bankruptcy Code read with rule 6 of Insolvency & Bankruptcy Rules, 2016 for a Resolution of Operational Debt of Rs. 22,41,735.

The facts of the case are that the Operational Creditor was employed as Chief Financial Officer of the Corporate Debtor Company on in 2017. On 14.11.2019, the Operational Creditor resigned from the job prior to the board meeting. On 13.12.2019, by email, the Corporate Debtor informed the Operational Creditor that the last working day of the Operational Creditor would be 13.12.2019, acknowledged the liability towards the Operational Creditor and accepted that it would settle the full and final dues.

With no other option left, the Operational Creditor sent a demand notice and in reply, the Corporate Debtor admitted and acknowledged dues owed to the Operational Creditor to the tune of Rs. 7,26,626/- and sent a cheque for the said amount. Now, the Operational Creditor claims that the Operational Creditor is entitled to a notice of three months or a salary in lieu of the said notice.

Upon hearing of the submissions made by both the parties, the Hon’ble National Company Law Tribunal has held that “the present Company Petition is being pressed by the Operational Creditor only in respect of salary for the remaining two months’ notice period. Upon perusing the documents filed by both the parties, the opinion of this Bench does not fall within the definition of ‘Operational Debt’ as it was not for the salary for the actual work done by the Operational Creditor.

Therefore, this Bench is of the considered opinion that the remedy of the Operational Creditor is to initiate necessary legal proceedings for recovery before an appropriate legal forum and not through the route of IBC. Accordingly, the above Company Petition is dismissed.”

[1]2. C.P.(IB)-678(MB)/2020