The National Company Law Appellate Tribunal’s (NCLAT) New Delhi bench has ruled that a claim for interest and gratuity fall under the definition of operational debt under section 5(21) of Insolvency and Bankruptcy Code, 2016 (IBC). This makes it completely maintainable to file an application under Section 9 of the Code, 2016 based on such a claim.
A request submitted by R-1 under section 9 of the Code The adjudicating body heard Devi Prasad’s case and, in an impugned ruling dated 19.01.2024, admitted the Section 9 application, concluding that the operative creditor had demonstrated the debt and delinquency.
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Additionally, it was decided that R-1’s application under Section 9 was submitted on time. The Interim Resolution Professional (IRP) was appointed by the adjudicating body, which also announced the moratorium. This appeal has been submitted because the adjudicating authority’s order on January 19, 2024, has angered me.
The appellant, Sashi Kanta Jha and Anr, argued that res judicata invalidated the petition that R-1 had filed. Since R-1 had previously asserted his position in JK Jute Mazdoor Morcha in Comp. App. which this Tribunal had rejected on 17.03.2023, R-1’s application was denied by res judicata, and the adjudicating authority erred in accepting the Section 9 application.
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Additionally, it was argued that the adjudicating body erred in admitting the Section 9 application, that there is a pre-existing dispute between the parties, and that actions are still pending and were filed prior to the issuing of the demand notice. In contrast, the Respondent argued that the creditor’s payment of the gratuity claim constituted an operational obligation for the purpose of admitting the Section 9 application.
There is no pre-existing disagreement, it was also contended. The corporate debtor’s filing of Suit No. 500/2017, which sought a declaration against the Union of India with the DRS or any other pleading before the DRS, was solely intended to compromise worker due and was not an admission of debt.
Furthermore, it was argued that the Labour Commissioner’s award from February 26, 2024, is final and that there are no outstanding disagreements between the parties over the amount of the gratuity. Finally, it was argued that since this Tribunal rejected the JK Jute Mazdoor Ekta Union’s case on the grounds that it was premature, there is no dispute regarding the applicability of res judicata. No such matter that could operate res judicata against R-1’s claim was resolved in that proceeding.
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Judge Ashok Bhushan, a judicial member, and Mr. Barun Mitra, a technical member, noted that JK Jute Mazdoor Morcha had filed an application under section 9 of the Code, which had been initially denied by the adjudicating authority on April 28, 2017, and that the Appellate Tribunal had also denied the appeal.
Following the Supreme Court‘s remand, the Appellate Tribunal reheard the case and dismissed the appeal in its ruling dated March 17, 2023. The Tribunal ruled that JK Jute Mazdoor Morcha’s Section 9 application was untimely because it was filed within ten days of the demand notice, making it unmaintainable.
The Tribunal while distinguishing the present case from its own judgment in Kishore K. Lonkar’ Vs. ‘Hindustan Antibiotics Ltd.’ 2022 held that the claim before the Tribunal was based on unpaid LTC and Earned Leave Encashment. The Tribunal held that initiating CIRP on such welfare-related grounds does not align with the intent and objective of the Code. It also noted that the gratuity amount had been paid and that interest could not be adjudicated in a Section 9 proceeding. Accordingly, the Tribunal affirmed the adjudicating authority’s order rejecting the Section 9 application.
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The tribunal held that the application under Section 9 was entirely maintainable and that the claim of a gratuity with interest was fully included in operational debt.
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