In a recent case, the Chennai bench of the National Company Law Appellate Tribunal (NCLAT) observed that payment slip will not establish retention allowance as part of salary in the absence of supporting documents and the bench upheld the National Company Law Tribunals (NCLT) order denying the retention allowance.
M/s. Lanco Infratech Employees Welfare Association, the instant company appeal, engages consideration of a very short question, as to, whether the members of the Appellant Association, which is a registered body in the name of M/s. Lanco Infratech Employees Welfare Association, who are 212 in number, are entitled to be paid with the “retention allowance” or not. They had raised a claim for, payment of the retention allowance, along with payment of salary for the month of June 2017, which they contend, that since they being an Operational Creditor, in the capacity of Operational Creditor were entitled to be paid with the salary for the month of June 2017, and the retention allowance too.
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It is not in controversy, and rather admitted too, that the salary for the month of June 2017 had been paid to the members of the Appellant Association. The only controversy which is now confined to be considered by this Appellate Tribunal is the payment and the entitlement for the payment of the remittance of the retention allowance.
The said claim of the payment of the retention allowance has been rejected, by the Adjudicating Authority, on the ground, that the internal note made by the officials of the corporate debtor approving the payment of retention allowance cannot be taken as the basis for the payment of the retention allowance, as retention allowance does not constitute or form part of the salary.
The Counsel for the Appellant has submitted that the NCLT, has observed that merely a noting made by the Managing Director on an internal note, does not in itself confer a statutory right, to be paid with the retention allowance, and we find it to be logical too because any emolument, which is likely to be paid to the employee of an organization, since it would be having a financial implication on the employer , it has to be an allowance or a wage or a salary, which is payable under the applicable rules, policies or standing orders of the employer Company.
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Since the Appellant, who on behalf of the employees was claiming for payment of the retention allowance, then it became all the more necessary, on part of the Appellant to establish, by law and by evidence, to sustain the said claim for grant of such claim. In fact, the Tribunal has observed that, there was nothing on the record, brought by the Appellant, to show that the retention allowance is part of salary which alone is payable during the CIRP period, for the reason being, that until and unless the said fact is established, under the law regarding its payability, the retention allowance cannot be treated as to be a salary or a part of the salary.
The Appellant has rather based its claim, on the basis of one of the communications made by the then Managing Director of the Corporate Debtor on 18.05.2017, where the head of HR department of the Corporate Debtor, M/s. Lanco Infratech Limited, put up an internal note and the Managing Director has made an endorsement in the same note to the following effect, “let us agree, on paying retention allowance of 7% to employees continuing roles till March 2018”, if this particular endorsement which is the basis of claim as made in the correspondence on 18.05.2017, is considered in its entirety, it cannot be taken as a conclusive decision, because it was simply an expression and exchange of a privileged communication, between the two officials of the Corporate Debtor, where the scope of agreeing for the payment of retention allowance, was yet to be considered to be granted in terms of the policy of the Corporate Debtor.
Thus the very basis of claim of retention allowance is not based upon any sound material which could be supported by any law as such. It is not the case of the Appellant that, based upon this endorsement of 18.05.2017, any further decision was taken by the Corporate Debtor or its officials, for the payment of the retention allowance and therefore the endorsement relied upon, will be only in the shape of a proposal, and not a decision. A proposal in itself is not an entitlement and therefore, the said endorsement cannot be derived to be a basis to sustain the claim raised by the members of the Appellant Association, for the purposes of payment of the retention allowance.
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There is another important aspect, which is required to be considered. The endorsement of 18.05.2017, as extracted above, if it is read further, it was carving out a distinction that, the proposal for paying the retention allowance at the rate of 7 percent was to the, “employees continuing in role” and “till March 18”, meaning thereby, it engaged once again a determination which was to be made as to who were the employees continuing in their assigned roles of the Corporate Debtor, which was not a fact ever endeavored to be established by the Appellant, in the proceedings before the NCLT, while pressing their IA No. 251/2022.
Besides this, if the language of the said endorsement is taken into consideration, its payability was limited to March 2018, and not for a period thereafter, or prior to the 18, 2017. Thus, for the intervening period of 18.05.2017 till March 2018, the retention allowance will not constitute to be a segment of salary, which could be claimed by the Appellant before the liquidator by filing the Interlocutory Application, which has been rejected by the impugned Order.
If we analyse the said Judgment from the perspective of Section 53 of the IBC code, it was rendered in those circumstances where, the issue that came up for consideration before the Apex Court, was pertaining to the claim of the workmen employees towards their wages, salary, during CIRP proceedings. It was not a case which was dealing with, any of the aspect of payment of the retention allowance which is a subject altogether, alien to the one which was under consideration in the matter of Sunil Kumar Jain and others.
Adjudicating Authority, after considering the rival contentions, and particularly the stand taken by the Appellant, based upon the endorsement of 18.05.2017, pertaining to the denial of payment of the retention allowance amounting to Rs. 2,80,36,076/- (Rupees Two Crores Eighty Lakhs Thirty-Six Thousand Seventy-Six Only), we determine it to be non-payable as, no service conditions were placed on record, based upon the terms of the appointment, that the retention allowance did ever form as to be part of an emolument, which was ever made payable to the members of the Appellant association, based upon the service contract entered into with them.
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A two member bench of Justice Sharad Kumar Sharma, Member ( Judicial ) and Jatindranath Swain, Member ( Technical ) viewed that the payment slip placed on record and the endorsement of the then managing director, on which the counsel for the appellant has relied heavily, will not establish the case for making the retention allowance as part of salary in itself in the absence of there being any supporting documents, about its legal enforceability. Accordingly, the appellant and its members would not be entitled for, the payment of the ‘retention allowance’, for the period of claim since not being part of the salary and since not being a fact established by the Appellant before the NCLT.
The logic that has been assigned by the NCLT, while rendering the impugned order does not suffer from any apparent error as such, which could call for any interference, in so far as the aspect and entitlement of, the retention allowance is concerned. But having said so, as far as the amount pertaining to the determination of salary for the month of June 2017 is concerned, that will be considered to be paid as per the decision dated 11.03.2024, subject to the condition that it has not already been paid or it is subjected to a challenge before any superior forum.
The Tribunal upheld the impugned order as it does not suffer from any apparent error as such, which could call for interference in the exercise of our appellate jurisdiction and dismissed the appeal.
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