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Subasri Realty Private Limited v. N. Subramanian
Factual and Procedural Background
This appeal was filed by M/s. Subasri Realty Private Limited, a shareholder of M/s. Aruna Hotels Limited (Corporate Debtor), challenging the order dated 17th November 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Chennai Division Bench. The impugned order admitted an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, filed by the Respondent, Mr. N. Subramanian (Operational Creditor), and consequently imposed a moratorium and appointed an Interim Resolution Professional with directions.
The Respondent was an employee of the Corporate Debtor and claimed arrears of salary from 1998 until his retirement in 2013, amounting to Rs. 1,87,75,631/-. A demand notice under Section 8(1) was issued by the Respondent on 29th June 2017. The Corporate Debtor replied on 5th July 2017, denying dues except gratuity, citing records including a letter from the Employees Provident Fund Organisation dated 13th April 2016 stating that the Respondent's claim had already been settled.
Legal Issues Presented
- Whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was maintainable in view of the existence of a dispute between the parties.
- Whether the claim by the Operational Creditor was barred by limitation and affected by delay and laches.
Arguments of the Parties
Appellant's Arguments
- There exists a dispute regarding the claim of arrears.
- The claim is barred by limitation.
- There is delay and laches in raising the claim, rendering the application not maintainable.
Respondent's Arguments
- No dispute existed regarding the claim.
- The record in Form-5 was complete.
- There was a debt and default, justifying the admission of the application by the Adjudicating Authority.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Innoventive Industries Ltd Vs. ICICI Bank (2017 SCC OnLine SC 1025) | Explanation of Section 9 of the Insolvency and Bankruptcy Code, 2016, particularly the requirement of absence of dispute for the application to be maintainable. | The Court relied on this precedent to emphasize that the existence of a pre-existing dispute precludes the operational creditor from proceeding under the Code, and thus the application was not maintainable. |
Court's Reasoning and Analysis
The Court examined the facts and noted that the Respondent was an employee claiming arrears of salary from 1998 to 2013 but failed to explain the delay in raising the claim for about 18 years. The Corporate Debtor’s records, including a letter from the Employees Provident Fund Organisation, indicated that the claim had already been settled. The Court referred to the Supreme Court’s decision in Innoventive Industries Ltd Vs. ICICI Bank, which clarified that under Section 9 of the I&B Code, if a pre-existing dispute exists, the operational creditor cannot proceed with the application. Given the existence of a dispute and unexplained delay, the Court held that the application under Section 9 was not maintainable.
Holding and Implications
The Court set aside the impugned order dated 17th November 2017 passed by the Adjudicating Authority.
All orders passed pursuant to the impugned order, including appointment of the Resolution Professional, declaration of moratorium, freezing of accounts, and actions taken by the Interim Resolution Professional, were declared illegal and set aside. The application under Section 9 was dismissed, and the Adjudicating Authority was directed to close the proceedings. The Corporate Debtor was released from all restrictions and allowed to function independently through its Board of Directors with immediate effect.
The Court directed that the Adjudicating Authority fix and the Corporate Debtor pay the fees of the Interim Resolution Professional for the period served. The appeal was allowed without any order as to costs.
SUDHANSU JYOTI MUKHOPADHAYA, J. This appeal has been preferred by M/s. Subasri Realty Private Limited., Shareholder of M/s. Aruna Hotels Limited- (Corporate Debtor) against the order dated 17th November, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Division Bench, Chennai, whereby and whereunder the application preferred by the Respondent- Mr. Company Appeal (AT) (Insolvency) No. 290 of 2017 N. Subramanian- (Operational Creditor) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as I&B Code) has been admitted, order of Moratorium has been passed and Interim Resolution Professional was appointed with certain directions.
2. The main plea taken by the Appellant is that there is an existence of dispute and the claim also is barred by limitation and there is delay and laches; therefore, the application was not maintainable.
3. Learned counsel appearing on behalf of the Respondent- (Operational Creditor) submitted that there was no existence of dispute and the record in Form-5 being complete, and taking into consideration the fact that there is a debt and default, the Adjudicating Authority rightly admitted the application.
4. Admittedly, the Respondent- (Operational Creditor) was an employee of M/s. Aruna Hotels Limited- (Corporate Debtor). He claimed arrears in salary from 1998 to till his retirement in 2013. At the time of his last tenure, his salary was Rs. 35, 000/- per month and the difference in wages till the date of retirement claimed to be Rs. 1,87,75,631/- (Rupees One Crore Eighty Seven Lakh Seventy Five thousand Six Hundred and Thirty One Only).
5. The demand notice under Section 8(1) was issued by the Respondent- (Operational Creditor) on 29th June, 2017 showing total debt of Rs. 1,87,75,631/- (Rupees One Crore Eighty Seven Lakh Seventy Five thousand Six Hundred and Thirty One Only). On the receipt of such notice, the Company Appeal (AT) (Insolvency) No. 290 of 2017 Corporate Debtor by reply dated 5th July, 2017 intimated as follows: Company Appeal (AT) (Insolvency) No. 290 of 2017 Company Appeal (AT) (Insolvency) No. 290 of 2017 Company Appeal (AT) (Insolvency) No. 290 of 2017 Company Appeal (AT) (Insolvency) No. 290 of 2017
6. From the aforesaid letter, it is clear that the Respondent- (Operational Creditor) was working with the Corporate Debtor and retired on 1st February, 2013, when the Corporate Debtor was under the control of erstwhile management. After takeover by present management, on the basis of record the Corporate Debtor intimated the Respondent that nothing was due except the gratuity amount. It was brought to our notice that the Employees Provident Fund Organisation, Chennai by letter dated 13th April, 2016 intimated the Corporate Debtor that the claim of the Respondent- (Operational Creditor) has already settled which is as follows: EMPLOYEES PROVIDENT FUND ORGANISATION NO. 37, ROYAPETTAH HIGH ROAD, OPPOSITE SWAGAT HOTEL, CHENNAI TAMIL NADU, 600014 Region: CHENNAI Office: CHENNAI No: TN/XAS/145/REJECTION/ Dated: 13/04/2016 ARUNA HOTELS LTD. ARUNA CENTRE 745, STERLING ROAD, CEHNNAI, 685 TAMIL NADU, 600034 Ref. No. Claim ID: TNMAS160300026845/ Member ID: TNMAS00056010000000136 Sub: Rejection of Claim ID: TNMAS160300026845 DATED 22/03/2016 Sir/Madam, Your above mentioned claim Form 19 pertaining to Mr/Mrs/Km N. SUBRAMANIAN having A/C no. TN/MAS/0005601/000/0000136 under the EPF Scheme has been rejected/returned due to the following reason(s). CLAIM ALREADY SETTLED Initiators Remarks: CLAIM ALREADY SETTLED Note: - In case the return/rejection if for any additional information/document, the claim may be resubmitted after rectifying the discrepancies noted above. Enclosure: - Claim Form-19 Task ID: 14502 Yours Faithfully, Copy to :- N. SUBRAMAIAN AO/APFC Company Appeal (AT) (Insolvency) No. 290 of 2017
7. The Respondent- (Operational Creditor) himself has pleaded that the salary is due since 1998 which was not paid but delay of raising claim of arrears of salary for the period 1998 to 2016 has not been explained.
8. The Honble Supreme Court in Innoventive Industries Ltd Vs. ICICI Bank 2017 SCC OnLine SC 1025 while explaining the provisions of Section 9 observed as follows:
29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing- i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. Company Appeal (AT) (Insolvency) No. 290 of 2017
9. In the present case as we find that there is an existence of dispute about arrears of salary and the Respondent has also failed to explain the delay in making claim of arrears alleged to be done since 1998 to 2016 (delay of about 18 years), we hold that the application under Section 9 preferred by the Respondent was not maintainable.
10. For the reasons aforesaid, we set aside the impugned order dated 17th November, 2017 passed by the Adjudicating Authority in CP/597/(IB)/CB/2017.
11. In effect, order (s), passed by the Adjudicating Authority appointing Resolution Professional, declaring moratorium, freezing of account, and all other order (s) passed by the Adjudicating Authority pursuant to impugned order and action, if any, taken by the Interim Resolution Professional, including the advertisement, published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside. The application preferred by Respondent under Section 9 of the I&B Code is dismissed. Learned Adjudicating Authority will now close the proceeding. The Corporate Debtor (company) is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect.
12. The Adjudicating Authority will fix the fee of Resolution Professional, and the Corporate Debtor will pay the fees of the Interim Resolution Professional, for the period he has functioned. The appeal is allowed with Company Appeal (AT) (Insolvency) No. 290 of 2017 aforesaid observation. However, in the facts and circumstances of the case, there shall be no order as to cost. (Justice S.J. Mukhopadhaya) Chairperson (Justice Bansi Lal Bhat) Member(Judicial) NEW DELHI 16th July, 2018
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