1. Introduction

The case of Ranjeet Singh v. M/s Karan Motors Private Limited addressed critical issues surrounding the application of the Insolvency and Bankruptcy Code, 2016 (IBC), particularly Section 9, which pertains to the initiation of insolvency proceedings by operational creditors. This commentary delves into the comprehensive judgment delivered by the National Company Law Appellate Tribunal (NCLAT) on August 18, 2021, examining its implications on future insolvency proceedings initiated by employees seeking recovery of unpaid salaries and related dues.

2. Summary of the Judgment

The appellants in this case—Ranjeet Singh, Shally Sati, Deepa Sati, Hansa Dutt Sati, and Asha Devi—employed by M/s Karan Motors Private Limited, filed applications under Section 9 of the IBC to recover unpaid salaries, gratuity, and interest. The Adjudicating Authority (National Company Law Tribunal, NCLT) dismissed these applications, stating that the admitted principal amount had been paid, eliminating any default or due debt. The appellants subsequently appealed to the NCLAT.

Central to the appellants' argument was the assertion that their appeals were not time-barred, citing a Supreme Court order extending limitation periods due to the COVID-19 pandemic. They further contended that their claims for interest and gratuity fell within the scope of operational debts as defined under the IBC.

The NCLAT, after thorough deliberation, upheld the NCLT's dismissal of the applications. The tribunal emphasized the necessity of adhering to procedural mandates laid out in the IBC and found the appellants' claims either time-barred or procedurally deficient.

3. Analysis

3.1 Precedents Cited

The appellants referenced several key judgments to bolster their case:

• CWP-2411/2019 (Jagdish Chand Vs State of Himachal Pradesh & Ors.) - Highlighted that non-payment of salary constitutes a recurring cause of action, thereby preventing claims from being time-barred.
• JK Jute Mill Mazdoor Morcha Vs Juggilal Kamlapat Jute Mills Company 2019 (11) SCC 332 - Asserted that unpaid wages or salaries by an employer establish the employee as a creditor under the IBC.
• Mobilox Innovations (P) Ltd. Vs. Kirusa Software (P) Ltd. 2018 (1) SCC 353 - Addressed procedural requirements under the IBC, emphasizing the necessity of complying with specific sections before initiating insolvency proceedings.
• Transmission Corp. of A.P Ltd. Vs. Equipment Conductors & Cables Ltd. 2019 (12) SCC 697 - Reinforced the principles established in Mobilox regarding procedural compliance in insolvency filings.

3.2 Legal Reasoning

The tribunal's legal reasoning pivoted on several pivotal aspects:

• Limitation Period: The appellants argued that a Supreme Court order extended limitation periods, making their appeals timely. The NCLAT agreed, rejecting the respondent's contention that the appeals were filed beyond the statutory period.
• Definition of Operational Debt: While appellants contended that unpaid salaries and gratuity qualify as operational debts under Sections 5(20) and 5(21) of the IBC, the tribunal scrutinized the nature of these claims and their procedural initiation.
• Procedural Compliance: The tribunal noted that several appellants failed to follow the requisite procedure of issuing notices under Section 8 before invoking Section 9, thereby rendering their applications procedurally flawed.
• Interest and Gratuity Claims: The tribunal observed that claims for interest and gratuity should be pursued through appropriate legal channels outside the IBC framework, as they may not strictly fall within the operational debt category as defined.
• Case Law Applicability: The tribunal distinguished between constitutional court rulings and statutory tribunal obligations, indicating that the precedents cited by appellants do not bind the NCLAT due to jurisdictional differences.

3.3 Impact

This judgment reinforces the importance of strict procedural adherence in initiating insolvency proceedings under the IBC. Employees seeking recovery of unpaid dues must ensure compliance with all procedural requirements, including timely filings and appropriate notices. Additionally, it delineates the boundaries of what constitutes an operational debt, potentially limiting the scope for employees to leverage the IBC for claims like gratuity or interest outside the immediate unpaid salary context.

Furthermore, the affirmation of the necessity for Section 8 notices before invoking Section 9 underscores the structured approach the IBC mandates for insolvency proceedings, which could influence how operational creditors strategize their claims in the future.

4. Complex Concepts Simplified

4.1 Insolvency and Bankruptcy Code (IBC), 2016

The IBC is a comprehensive statute aimed at consolidating and amending laws related to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. It facilitates the resolution of insolvency through a clear framework that balances the interests of all stakeholders.

4.2 Section 9 of the IBC

Section 9 empowers operational creditors, like employees, to initiate insolvency proceedings against a defaulting corporate debtor. An operational creditor is defined as a person to whom any operational debt is owed, including debts arising out of the provision of goods, services, or employment.

4.3 Operational Creditor

An operational creditor is a stakeholder who provides goods or services to a company and is owed payment for those provisions. In the context of employment, this includes unpaid salaries, wages, or allied benefits.

4.4 Section 8 Notice

Before filing for insolvency under Section 9, operational creditors must issue a demand notice under Section 8 of the IBC, specifying the debt owed. This procedural step ensures that the defaulting debtor is aware of the claim and has an opportunity to rectify the default before insolvency proceedings are initiated.

4.5 Time-Barred Claims

A claim is time-barred if it is not filed within the period prescribed by the Limitation Act or any special law. Time-barred claims are generally considered void and cannot be enforced through legal proceedings.

5. Conclusion

The judgment in Ranjeet Singh v. M/s Karan Motors Private Limited underscores the judiciary's resolute stance on upholding procedural compliance within the framework of the IBC. By affirming the dismissal of the appellants' claims, the NCLAT emphasizes that operational creditors must meticulously adhere to the statutory procedures laid out in the IBC. This ensures that insolvency proceedings are initiated in a methodical and justified manner, preserving the integrity of the insolvency resolution process.

For employees seeking to recover unpaid dues through the IBC, this judgment serves as a crucial reminder of the necessity to comply with all procedural mandates, including timely filings and the issuance of requisite notices. Moreover, it delineates the scope of what can be classified as operational debt, potentially narrowing the avenues through which employees can invoke insolvency proceedings for claims beyond unpaid salaries.

In the broader legal context, this judgment contributes to the evolving jurisprudence surrounding the application of the IBC, balancing the rights of creditors with the procedural safeguards essential for fair and orderly insolvency resolutions.