Ashvin Raina 10 June 2023

Corporate insolvency resolution process

Sir,

My Company is unable to pay debt and NCLT could declare it insolvent at any moment.

I was working there on a higher post as company staff.

The company has not paid our outstanding dues including salary, gratuity, provident fund, and Income Tax deducted from salary but not deposited in IT. I wish to keep my claim on a higher level during Corporate Insolvency Resolution Process. To keep my claim on a higher level, is it helpful if I file separate cases in the labour court and the civil court before the declaration of insolvency of the company by NCLT? Please advise.

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2 Replies

T. Kalaiselvan, Advocate (Advocate) 11 June 2023

You were working in a hgher post hence you may not be covered under labor law.

If you have dues to be paid by the company, you may file a money recovery suit by first issuing a legal demand notice to the company demanding to settle the dues accrued till this date.

The employee can file a suit under section 447 of the Companies Act which lays down punishment for fraud. The employer can be imprisoned for a period of six months to ten years. Recovery of the full amount of an amount that is three times more than the amount which was originally not paid by the employer.

The Code provides the workmen and employees of the companies with an opportunity to recover their unpaid dues from the CD, by approaching the NCLT in a systematic and time- bound manner.

The employees come under the category of operational creditors.

Moreover, the IBC also recognizes the employee as an operational creditor who can make an application for unpaid salary in the NCLT..

Shashank Saxena (Lawyer) 11 June 2023

Hi Ashvin! I understand your concern. You may chose to file separate cases before the labour court and the civil court, However, It is important to note that The NCLT has the power to alter or modify any order or decree passed by any court or tribunal, including the labor court. so it may not approve a resolution plan that does not provide for full payment of all creditors' claims. If the company is liquidated, you may be able to recover some of your losses through the liquidation process. However, the amount that you recover may be less than the full amount of your claim.

For example, if the labor court orders the company to pay the employee's dues, but the company is undergoing insolvency resolution proceedings under the IBC, the NCLT can alter the decree to reduce or waive the amount payable to the employee.

Alternatively, you and group of employees (assuming other employees are aggrieved too) may chose to file a claim for their dues with the insolvency administrator and vote on the proposed plan of arrangement. Generally, Employees dues are given priority over other creditors under the IBC but this may alter depending upon the transactions/ agreements entered into by company with other stakeholders.