2018 (11) TMI 1103 - AT - Insolvency and Bankruptcy

Corporate insolvency process - existence of dispute - claim as barred by limitation and there is delay and laches therefore, the application was not maintainable - Held that - 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. 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. 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 aforesaid observation. However, in the facts and circumstances of the case, there shall be no order as to cost

Summary

Issues:
Admission of application under Section 9 of the Insolvency and Bankruptcy Code, 2016; Existence of dispute regarding arrears of salary; Delay in raising claim of arrears; Legal validity of the application under Section 9.

Analysis:
The appeal was filed by 'M/s. Subasri Realty Private Limited,' a shareholder of 'M/s. Aruna Hotels Limited' against the order passed by the Adjudicating Authority, where the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was admitted, and an 'Interim Resolution Professional' was appointed. The Appellant contended that there was an 'existence of dispute' and the claim was time-barred, making the application not maintainable. On the other hand, the Respondent argued that there was no dispute and the application was rightly admitted considering the debt and default. The Respondent, an employee of the 'Corporate Debtor,' claimed arrears in salary from 1998 until retirement in 2013, amounting to ?1,87,75,631. The 'Corporate Debtor' responded to the demand notice stating that all dues were settled except for gratuity. The Respondent's claim was also questioned due to lack of documentation supporting the alleged salary arrears.

The Respondent's claim of salary arrears since 1998 was not adequately explained, and the settlement of claims by other entities raised doubts on the credibility of the claim. The Hon'ble Supreme Court's observations on Section 9 of the Code highlighted the importance of a pre-existing dispute to avoid insolvency proceedings. In this case, the existence of a dispute regarding the arrears of salary and the unexplained delay in raising the claim for almost 18 years rendered the application under Section 9 unsustainable. Consequently, the impugned order was set aside, and all related actions, including the appointment of the Resolution Professional and the moratorium, were declared illegal. The 'Corporate Debtor' was released from the insolvency proceedings, allowing it to function independently.

The Adjudicating Authority was directed to determine the fees of the Resolution Professional, with the 'Corporate Debtor' responsible for paying the Interim Resolution Professional's fees for the period served. The appeal was allowed with no costs awarded. This comprehensive analysis of the judgment highlights the key legal issues, arguments presented by both parties, and the final decision of the Appellate Tribunal, providing a detailed understanding of the case.