Employees can approach NCLT for recovery of dues under IBC 2016

In general parlance, if we consider our global business, it is the fusion of Assets and Liabilities which generates the revenue or surplus or profit, whatever may be terms but finally ends up with one five letter word 'MONEY' for the company. However, only monetary assets are not only the things to be considered, for business to be a successful, there are also non-monetary assets of the Companies such as Shareholders, Customers, Employees or workmen and Secured or Unsecured Creditors who actually transform our small business into big one, or a big one into bigger one or whose contribution is more valuable than other financial assets to accelerate the pace of growth.

Despite, the aforesaid person carrying significant value in course of business, their wants and demand remained salient. If we start prioritising above assets, the first and foremost important pillar of the Company is 'CUSTOMERS' because they are the actual one bring revenue to the company, the Second crucial aspect is 'EMPLOYESS OR WORKMEN 'as they are the reason behind the generation of revenue by introducing new innovation to the business, the third are CREDITORS who make us available with the day to day working capital, and last but not the least, 'SHAREHOLDERS' who advance the company with infusion of capital.

Similarly, even if we try to connect with the a of 'Corporate Social Responsibility' it is initiative or business approach of Company which encourages the company to make a positive impact on the stakeholders including consumers, employees, investors, communities, and other where there suo moto aim is 'Returning to the society for what we have taken from them, for generation of revenue'. Therefore a comprehensive code Insolvency and Bankruptcy Code, 016 was introduced, which will be more creditor friendly which will facilitate the t aforesaid person to recover their dues from the debtor company in legalised manner. However, the legislative framework in India for restructuring and insolvency proceedings provides for only formal processes and is presently governed by multiple old laws along with some bits and pieces of recent legislation.

The new law empowers employees, creditors and shareholders to initiate winding up process at the first sign of financial stress like a serious default on repayment of a bank loan. Once they trigger the clause, the matter goes to a 180-day resolution process, which can be extended by another 90 days by the adjudicator. 'The bankruptcy law is going to enable the recovery process to move much more smoothly and effectively,'

Although from the time of Insolvency and bankruptcy code, 2016 into picture, cases that have been referred to NCLT are mostly by Financial Creditors and Operational Creditors, however, in a recent bankruptcy application, employees of ARUNA HOTELS in Chennai approached NCLT (Chennai Bench) under the shelter of IBC, 2016, against their former employer. This is for the first time Employees approached the Bankruptcy court for recovery of their dues.

EMPLOYEES RECOVERING THEIR DUES: The new Bankruptcy Law proposed fast-track recovery of dues from defaulters and employees will be first in line to get their share from liquidation of assets .Employees' rights (and) creditors' rights have been dramatically strengthened and as a result, if indeed there is a default event, employees are first in line to be able to secure (there rights),' (As per Section 178 of IBC, 2016: Priority of Payment of Debts).

INITIATION OF CIRP - OPERATIONAL CREDITOR (WORKMEN OR EMPLOYEE)

Whether workmen or employees come under operational creditor or financial creditor?

The workmen and employee whose past payments are due comes under the definition of operational creditor.

Where operational creditor is defined under sub section 20 of section 5 of IBC code, 2016: Operational Creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.

As per section 5(21) of the IBC 'Operational Debt' means a claim in respect of the provision of goods or services including employment or debt in respect of the repayment of the dues arising under any law for the time being in force and payable to central government or any state government or any local authority.

Where sub section 36 of section 3 of IBC code, 2016 defines term 'Workmen': Workmen shall have same meaning as assigned to it in clause (s) of section 2 of the industrial Dispute act, 1947(14 of 1947.

Section 2(s) defines workman as any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work, for hire or reward, terms of employment be express or implied and includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of dispute. It excludes persons employed in army/Navy/Air Force/Police and those employed in mainly managerial or administrative, supervisory capacity and drawing wages of more than INR 6500.

STATUTORY PREOVISIONS:

1. Section 8 and Section 9 of Insolvency and Bankruptcy Code, 2016
2. Insolvency and Bankruptcy (Application to Adjudicating Authority), Rules, 2016
3. Rule 9 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016
4. In accordance with Rules 20,21,22,23,24 and 26 of Part III of the National Company Law Tribunal Rules, 2016.

This section lays down procedure which differs from the procedure applicable to financial creditors. As operational debt (such as trade debts, salary or wage claim) tends to be small amounts or are recurring in nature and may not be accurately reflected on the records of information utility1. (Section 3(21): "information utility" means a person who is registered with the Board as an information utility under section 210 ;).

Process for Initiation:

1. On occurrence of default (which is first and foremost important event)

2. Serve Demand Notice or copy an invoice demanding payment of the debt in default to corporate debtor.

Where For the purposes of this section, a "demand notice" means a notice served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred.

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

Demand Notice issued in Form No. 3 (annexure attached) or
Copy an invoice demanding payment in Form No. 4 (annexure attached)

As per Rule 5(2) of, the demand notice or a copy of invoice shall be sent to corporate debtor by post, by hand or email and the copy of demand notice shall be forwarded to information utility.

3. Within the PERIOD OF 10 DAYS from the date of notice so served mentioned aforesaid, the corporate debtor will inform the Operational Creditor of the existence of dispute regarding the debt claim or of the repayment of the debt.

It ensures informal negotiations between such creditors and corporate debtors, who may result in restructuring of the debt outside the formal proceedings, whose debt are usually smaller

4. On expiry of ten days; aforesaid and on not receiving any notice of the dispute or payment due from corporate Debtor; Operational creditor shall initiate CIRP, in such manner accompanied with such fees as prescribed

Documents and records to be submitted


Form 5 (Rule 6 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016)

Application by Operational Creditor against Corporate debtor to Initiate CIRP. Creditor

Affidavit in support of the application in accordance with the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

Form 3 or Form 4

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

Copy of demand notice or invoice already being served to corporate debtor.

an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt

Form 2

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

Written communication by proposed interim resolution to act as resolution professional in (where applicable)

Accompanied by certificate confirming the eligibility of resolution professional

Form

(Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016)

FORM D Proof of claim by workmen or employee

FORM E  Proof of claim by Authorized Representative of  workmen or employee along with Affidavit

 

a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor

Existence of debt to be proved by documents

(a) the records available with an information utility, if any; or

(b) other relevant documents, including -

(i) a proof of employment such as contract of employment for the period for which such workman or employee is claiming dues;
(ii) evidence of notice demanding payment of unpaid dues and any documentary or other proof that payment has not been made; or
(iii) An order of a court or tribunal that has adjudicated upon the non-payment of a dues, if any.
(iv) Financial accounts.


Adjudicating Authority

NCLT on receipt of application along with records and documents shall within 14 days ascertain the existence of the default and may either admit or reject the application on the  following basis:


Admit & Communicate such application

Reject & Communicate the application

•  Default has occurred or

•  Application is complete

•  There is no repayment of the unpaid operational debt

•  The invoice or notice for payment to the corporate debtor has been delivered by the operational creditor

• No notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility

•  No disciplinary proceedings pending against the proposed resolution professional as the case may.

• No Default has occurred or

• Application is incomplete

• There is repayment of the unpaid operational debt

• The invoice or notice for payment to the corporate debtor has not been delivered by the operational creditor

• Notice of dispute has been received by the operational creditor or there is record of dispute in the information utility

• Any disciplinary proceedings pending against the proposed resolution professional as the case may.

NCLT before rejecting the application shall give notice to the applicant to rectify the defect in his application with 7 days of receipt such notice from NCLT.


RECENT CASE LAWS

Brief: ARUNA HOTELS VS EMPLOYEES OF ARUNA HOTELS, CHENNAI BENCH OF NCLT.

Recently employees of  'Aruna Hotels in Chennai' filed a bankruptcy application with NCLT against their former employer.

This is one of the first cases where an employee has approached the court. If the employees win, then the verdict will be landmark as the individuals will then be able to file complaints with the bankruptcy court over personal grievances.

NCLT's Chennai branch has accepted application of three employees, a report in the Economic Times said. The court has also appointed P Sriram as the interim insolvency professional (IIP).

The complaint said that the employer of Aruna Hotels failed to pay arrears of salary and levy salary to the employees.

In relation to this case, the court referred to another case - of one D Ramjees who had filed a case against his employer. Ramjees had asked for Rs 2.6 crore, which the company had denied.

However, a letter by the employer admitting to arrears worked in Ramjees's favour.

The court has asked the insolvency officer to take charge and declare moratorium against the company till the case is wrapped up. The court also asked two more employees to approach the IIP with their claims.
http://economictimes.indiatimes.com/markets/stocks/news/even-employees-can-approach-nclt-to-recover-dues/articleshow/59732131.cms

Hope this is article simplifies the conceptuality.

DISCLAIMER: The entire contents of this document have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors expressly disclaim all or any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.

READER SHOULD SEEK APPROPRIATE COUNSEL FOR THEIR OWN SITUATION. AUTHOR SHALL NOT BE HELD LIABLE FOR ANY OF THE CONSEQUENCES DIRECTLY OR INDIRECTLY.

Hope my article helps you all for conceptual and procedural clarity. Any other suggestions /opinions are welcomed. Free to contact me for specific formats

 

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