The bankruptcy court has dismissed a petition filed against BSE-listed MT Educare by its former chief financial officer for allegedly failing to clear his dues.
The ruling is expected to set a precedent for similar future cases where disgruntled key managerial personnel approach the National Company Law Tribunal, seeking insolvency proceedings against their former employers.
The Mumbai bench of the NCLT has observed in its ruling that the petition, filed for the resolution of salary of two months’ notice period, did not fall within the definition of an ‘operational debt’, as it was not the salary for an actual work done by the operational creditor. In a 14-page order on May 12, a division bench of judicial member HV Subba Rao and technical member CB Singh also remarked that the remedy for the creditor here would be to initiate legal proceedings before an appropriate legal forum and not under the Insolvency and Bankruptcy Code (IBC).
Advocate Nausher Kohli, appearing for MT Educare, argued that there was a pre-existing dispute as to whether the notice period was one month or three months. He argued that MT Educare, being a listed entity, must not be put into insolvency till such a triable issue was adjudicated.
The former CFO of MT Educare had claimed that he was entitled to three months notice period salary totalling Rs 22.41 lakh. The company argued that as per the employment agreement, he was entitled to only one month’s compensation of Rs 7.26 lakh, which had already been paid.
“Considering the plethora of applications being received by NCLTs on the varied subjects, this judgement will set a yardstick for defining the matters to be falling under the ambit of the NCLT,” said Ankita Singh, founder of law firm Sarvaank Associates. “The need of the hour was to draw a line between the matters which should fall under the purview of the IBC vis-à-vis any other commercial dispute for which different legal forums are available and this ruling will surely keep this under check.”
According to Sushmita Gandhi, partner of law firm IndusLaw, the rejection of the application by the NCLT appeared to be in accordance with provisions and law laid down on the issue of a ‘pre-existing’ dispute and the time taken to file the complaint.
“Therefore, the dispute goes to the root of the very existence of the right to even make such a claim. The remedy, in such cases, for a creditor is to approach the appropriate forum for the recovery of its claim. In any event, the creditor in the instant case appears to be seeking to enforce the terms of a document which was in dispute, a relief which is not aligned with the objectives of the Code,” added Gandhi.
