NCLT Mumbai (09.04.2019) in Edelweiss Asset Reconstruction Co. Ltd Vs Birla Cotsyn (India) Ltd. [MA 1098/2019 in (IB) 579(MB)/2018] held that;
the appointment of RP does not amount to a suspension of officers, employees, etc and they continue to function. If RP wishes to terminate the contract of employment of any of employees, the same ought to be done by the contract of employment
It is to be clarified that during the pendency of CIRP, the RP must ensure that the company should remain a going concern. Given the decision of Hon’ble NCLAT in the case “Subasri Realty” supra, it is clear that during CIRP the employees of the Corporate Debtor can only be terminated after giving notice as per the terms of the employment. However, since RP has not filed any reply, we direct the RP to disburse the salaries of the employees in accordance with rules and Regulations, to keep the Corporate Debtor a going concern, subject to the availability of the funds.
Excerpts of the order;
MA 1098/2019 has been filed by the employees of the Corporate Debtor under Section 60(5) of IBC, 2016, seeking direction against the Resolution professional in respect of the payment of salaries of the employees by the Resolution Professional.
It is stated in the application that the Corporate Debtor Birla Cotsyn (India) Ltd is undergoing Insolvency Process and the RP has been appointed by the CoC in its meeting dated 20.12.2018. It is further stated that the applicants in the present MA are the employees of the Corporate Debtor, who have not received their salaries for January and February 2019.
The applicants have stated that Resolution Professional has failed to disburse the salaries of the applicants for the said months without assigning any justification for holding back the same, even though the other employees of the Corporate Debtor continue to receive their salaries for the said period.
The applicant has stated that their salaries were proposed to be rationalized by the CoC members for the reasons best known to them, with no go-ahead given to the RP for the same. No justification has been provided by the RP for holding back the salaries of the applicants.
Counsel for the application has relied on the order of the Hon’ble NCLAT passed in appeal No.290/2017 in the matter of Subasri Realty, wherein Hon’ble NCLAT has held that “ the appointment of RP does not amount to a suspension of officers, employees, etc and they continue to function. If RP wishes to terminate the contract of employment of any of employees, the same ought to be done by the contract of employment. Accordingly, RP is required to give notice as per the letter of appointment, and in case of immediate termination of employment, RP is required to pay the said notice period pay. By not doing the same, RP has violated/contravened the provisions of the Contract Act, which is illegal”.
Relying on the above order of Hon’ble NCLAT, the applicant has filed this application.
Ld. Counsel representing the RP submitted that he needs time for filing reply. It is pertinent to mention that the applicant has filed Affidavit of service which shows that notice on RP has been served on 15.3.2019. However to date, no reply has been filed.
It is to be clarified that during the pendency of CIRP, the RP must ensure that the company should remain a going concern. Given the decision of Hon’ble NCLAT in the case “Subasri Realty” supra, it is clear that during CIRP the employees of the Corporate Debtor can only be terminated after giving notice as per the terms of the employment. However, since RP has not filed any reply, we direct the RP to disburse the salaries of the employees in accordance with rules and Regulations, to keep the Corporate Debtor a going concern, subject to the availability of the funds.
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