NCLAT Upholds Admission Of Section 9 Application: Gratuity Claim Constitutes Operational Debt
NCLAT Upholds Admission Of Section 9 Application: Gratuity Claim Constitutes Operational Debt
Introduction
The National Company Law Appellate Tribunal (NCLAT) Principal Bench, New Delhi has dismissed an appeal filed by Sashi Kanta Jha and Anr. against an order passed by the Adjudicating Authority. The Adjudicating Authority had admitted a Section 9 application filed by Devi Prasad, an Operational Creditor, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Juggilal Kamlapat Jute Mills Company Ltd. (Now Geo Jute Ltd.), the Corporate Debtor.
Factual Background
JK Jute Mazdoor Morcha had earlier filed a Section 9 application, which was dismissed by the NCLT and subsequently by the NCLAT. However, the Supreme Court set aside the NCLAT's order and remanded the matter. After remand, the NCLAT dismissed the appeal, holding that the Section 9 application was premature. The Supreme Court affirmed this order. Thereafter, the present Section 9 application was filed by Devi Prasad, which was admitted by the Adjudicating Authority.
Procedural Background
The Appellants challenged the order passed by the Adjudicating Authority before the NCLAT, contending that the claim of gratuity with interest did not constitute an operational debt and that there was a pre-existing dispute.
Issues Involved
1. Operational Debt: Whether the payment of gratuity claim by Employees constitutes an Operational Debt within the meaning of Section 5(20) of the IBC.
2. Pre-existing Dispute: Whether the Section 9 application deserves rejection on the ground of pre-existing dispute in Suits.
Contentions of the Parties
Appellant's Contentions: The Appellants argued that the claim of gratuity with interest did not constitute an operational debt and that there was a pre-existing dispute.
Respondent's Contentions: The Respondents argued that the claim of gratuity with interest was fully included in operational debt and that there was no pre-existing dispute.
Reasoning and Analysis
The coram of Justice Ashok Bhushan (chairperson) and Technical Member Barun Mitra analyzed the provisions of the IBC and held that:
- Gratuity Claim is Operational Debt: The payment of gratuity along with interest claimed by the Respondent is an operational debt within the meaning of Section 5(20) of the IBC.
- No Pre-existing Dispute: The suits filed by the Appellants did not raise any dispute regarding the claim of the workmen, and the filing of suits was mala fide on the part of the Corporate Debtor.
Final Decision
The Tribunal dismissed the appeal, holding that the Adjudicating Authority's order admitting the Section 9 application was valid. The Tribunal also rejected the submission that the claim of the Respondent was barred by res judicata.
Implications
This decision depicts the importance of understanding the scope of operational debt and the implications of pre-existing disputes in insolvency proceedings.
In this case the appellant was represented by Mr. Abhijeet Sinha, Sr Advocate along with Mr. Anuj Tiwari, Ms. Kaanchi Ahuja and Mr. Vaibhav Vats, Advocates.
