Case Title: Kishore K. Lonkar v. Hindustan Antibiotics Ltd.
The Hon'ble NCLAT held that the operational debt for the purpose of initiation of CIRP does not go to the extent of leave encashment or superannuation dues.
In this case, an individual was working as an employee for the corporate debtor and got superannuated. However, the corporate debtor defaulted on paying gratuity, EL encashment, and LTC.
The employee approached the NCLT under Section 9 of the Insolvency and Bankruptcy Code. However, NCLT dismissed the section 9 application on the ground that the amount due towards gratuity, leave encashment, and LTC would not qualify under operational debt. Furthermore, the NCLT concluded that the aforementioned amount of the employee does not fall under the purview of the object of the code, as the object is only resolution and not recovery.
Aggrieved by the order of NCLT, the appellant approached NCLAT. The Hon'ble NCLAT observed that the scope and objective of the code cover the maximization of the value of assets in order to balance the interests of all stakeholders and not just the recovery of dues. In addition to that, NCLT observed that Section 5(21) of the code includes any provision in respect of goods and services, including employment. Furthermore, the NCLAT bifurcated the claims of the employees as service claims and welfare claims, wherein the service claims include salary, wages, bonuses, dues, etc., and the welfare claims include "gratuity," "leave encashment," "superannuation dues," and "workmen's compensation" for the closure of the entity, all of which depend on the tenure of the employment. It also observed that such claims can be mentioned in Form D under Regulation 9 of the CIRP Regulations, 2016.
However, the NCLAT refused to initiate CIRP on the grounds that LTC and EL encashment had not been paid.
Subsequently, the tribunal held that the intent and objective of the code fell beyond the recovery of the service benefits or welfare benefits.