NCLT Bengaluru (08.06.2020) In Harish.P Vs Chemizol Additives Pvt Limited, [C.P. (IB) No.62/BB/2020 ] Adjudicating Authority, in ex-parte order, instead of accepting the application of operational debtor, an ex-employee, under section 9, directed the applicant to invoke the arbitration clause as available under Clause-6 of the Employment Agreement dated 01.09.2015, while observing as under;
Therefore, the Respondent Company prima facie appears to be solvent Company so as to resolve the issue of outstanding amount in question. The NCLT is conferred power, even to refer the matter pending before it, to Mediation and Conciliation. U/s 442 of the Companies Act, 2013. The Adjudicating Authority, being NCLT, U/s 60(1) of the Code, can suo motto refer the matter to either Mediation and Conciliation or to Arbitration to settle the dispute. Since, there is already Arbitration clause is available in the Agreement in question, the Petitioner can be permitted to invoke Arbitration clause in respect of the issue in question.
Excerpts of the order;
# 1. C.P.(IB) No.62/BB/2020 is filed by Mr. Harish.P (hereinafter referred to as Applicant/Operational Creditor) U/s 9 of the IBC, 2016, R/w Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, by inter alia seeking to initiate Corporate Insolvency Resolution Process in respect of M/s.Chemizol Additives Private Limited (hereinafter referred to as “Respondent/Corporate Debtor) on the ground that it has committed default for a total amount of Rs.4,40,100/-(Rupees Four Lakh Forty Thousand One Hundred only) as on November 2018.
# 2. Brief facts of the case, as mentioned in the Application/Petition, which are relevant to the issuein question, are as follows:
(2) The Operational Creditor/Petitioner was an employee of the Corporate Debtor,
(4) The Corporate Debtor acknowledged the dues that they owed to Operational Creditor at the time of his resignation and promised to pay the same at the earliest. However, the Corporate Debtor deliberately avoiding the obligation to pay the due amount of Rs. 4,40,100 / - (Rupees Four Lakhs Forty Thousand One Hundred only) towards the arrears of salary from November 2018 to July 2019 and bonus payable (Rs. 4,26,100/- + 14,000/-).
# 5. It is not in dispute that the Petitioner is an employee having worked with the Corporate Debtor/Respondent, and the salary dues to be payable for him. The instant application is filed with an intention to recover the salary dues and other consequential dues like bonus etc. However, the object of the Code is not to recover the alleged dues, it was meant for initiation of CIRP on justified reasons.
# 6. For an aggrieved party, knocking at the doors of Judiciary would be last resort. Such party should exhaust alternative remedy available by virtue of Agreement(s) they themselves have voluntarily executed and the terms and conditions in those Agreement(s) would bind them. In the instant case, as stated supra, approaching this Adjudicating Authority is not only the remedy available for the Petitioner as per the terms of agreement. In terms of Clause 6 of the Agreement, as stated supra, both the parties agreed to settle the issue by resorting to Indian Arbitration and Conciliation Act 1996. Therefore, the Petitioner can also avail alternative remedy available in the Agreement, which is binding on both the parties. Since the Petitioner has relied upon the very terms and conditions of the Agreement in support of its claim, it cannot selectively choose to insist payment in terms of the agreement, without making/ invoking provisions of alternative remedy.
# 7. It is a settled position of law that the provisions of the Code cannot be invoked to settle the dispute(s) or to recover the alleged outstanding amount. Admittedly the Petitioner has not invoked other remedies available except the provisions of the code by issuing demand notice. The mere acceptance of the debt in question by the Respondent would not automatically entitle the Petitioner to invoke the provisions of the Code, unless the debt and default is undisputed and proved it to the satisfaction of the Adjudicating Authority. As per the copy of Annual Returns for the Financial year 2017-18, filed by the Petitioner in respect of the Respondent Company, its turnover and net worth are Rs. 103,322,162 and Rs. 1,325,365,853/ - respectively. Therefore, the Respondent Company prima facie appears to be solvent Company so as to resolve the issue of outstanding amount in question. The NCLT is conferred power, even to refer the matter pending before it, to Mediation and Conciliation. U/s 442 of the Companies Act, 2013. The Adjudicating Authority, being NCLT, U/s 60(1) of the Code, can suo motto refer the matter to either Mediation and Conciliation or to Arbitration to settle the dispute. Since, there is already Arbitration clause is available in the Agreement in question, the Petitioner can be permitted to invoke Arbitration clause in respect of the issue in question.
# 8. For the aforesaid reasons and circumstances of the case, and the law on the issue, we are of considered view that instead of initiating exparte CIRP proceedings, the instant Company Petition can be disposed of with the directions as mentioned below, duly following the principle of ease of doing business.
# 9. In the result CP (IB) No. 62/BB/ 2020 is disposed of with the following directions:
(1) The Respondent is directed to settle the issue amicable, failing which, the Petitioner is at liberty to invoke the arbitration clause as available under Clause-6 of the Employment Agreement dated 01.09.2015, and the Respondent is directed to participate in such Arbitration, as per law, in order to resolve the issue rather than to aggravate the issue.
(2) The Petitioner is also granted liberty to invoke appropriate remedy, as per law, in case, the Petitioner is aggrieved by the proceedings passed during Arbitration to be invoked in pursuance to this order. (3) No order as to costs.
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Author’ comments; Let’s look the provisions of section 9(5)(ii) of the Code, of which reasons for rejection of the application reads as under;
(ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if -
- (a) the application made under sub-section (2) is incomplete;
- (b) there has been payment of the unpaid operational debt;
- (c) the creditor has not delivered the invoice or notice for payment to the corporate debtor;
- (d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or
- (e) any disciplinary proceeding is pending against any proposed resolution professional:
Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the Adjudicating Authority.
Apparently, there was not any reason for not accepting the application. The order is not in consonance with the provisions of the Code. The same bench of NCLT, in another case accepted the application of corporate debtor under section 10, for liquidation, without undergoing the process of Corporate insolvency resolution process (CIRP). [In the matter of: M/s. GNB Technologies (India) Private Limited, C.P. (IB)No.167/BB/2019 ]
Doctrine of Per Incuriam
# Hon’ble Supreme Court of India, in Government of A.P. and Another v. B. Satyanarayana Rao (dead) by LRs. and Others (2000) 4 SCC 262 observed as under:
"The rule of per incuriam can be applied where a court omits to consider a binding precedent of the same court or the superior court rendered on the same issue or where a court omits to consider any statute while deciding that issue."
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