Petition for insolvency gets time-barred if filed after 3 years: NCLAT

A former managing director of a Dutch company had moved tribunal seeking payment of salary arrears from its Indian arm.

The National Company Law Appellate Tribunal (NCLAT) has set aside an order by the National Company Law Tribunal (NCLT) and held that corporate insolvency proceedings can’t be initiated on the payment of salary arrears and other remuneration as they are time-barred.

NCLAT said this is in the matter of Omega Laser Products B.V, a Dutch company, and a shareholder of its Indian arm. A former managing director(MD) of the company had moved the NCLT seeking payment of salary arrears from the Indian arm of the Company.

The appellate tribunal ruled that the former MD’s plea would be time-barred by limitation for initiating insolvency against the Indian arm, on the ground that it had been filed beyond a period of three years.

The NCLAT said there was no acknowledgement of the debt by the Board of Corporate Debtor in terms of Section 18 of the Limitation Act, 1963. It held that the majority of the claims were barred by time.

The appellant had filed a petition under Section 9 of the Insolvency and Bankruptcy Code (IBC) against the NCLT order.

The dispute started when the former MD had claimed he was entitled to Rs 3 lakh remuneration from January 16, 2010, which was revised on August 1, 2014, to '4 lakh per month but the payment fell short of the agreed sum. Meanwhile, the Indian arm of the Company alleged that such a revision of salary had to be sanctioned by the Board and there was no document to prove this.

The NCLAT, however, after examining the merits of the case, concluded that there was no specific approval either of the payment of arrears of any ‘fixation of the MD’s remuneration or increase of his salary/perks. The NCLAT also held that there was no crystallized quantum of an amount that could be claimed as salary/remuneration fixed by the Board of the Corporate Debtor as contemplated under Section 196 of the Companies Act, 2013.

Relying on one of the judgments of the Supreme Court, the tribunal held that “It is not within our domain under IBC to ‘decide the issue of the fixation of the salary of the MD’ but to ascertain if there is any ‘dispute’ regarding the issue.

“The former managing director claimed his salary was more than the stipulated amount. But this claim was not supported by any company documents. The Board never approved this supposed increase in salary. Moreover, the MD filed a petition in 2021 so any arrears are barred by limitation," he added, the Court, noting the merits of the case, allowed the appeal,” said Sarojanand Jha, founding partner, Vedanta Legal, who was the lawyer for the appellant.

Commenting on what the future course of action can be for the parties, he added, “The respondent (former MD) can file an appeal in the Supreme Court against the NCLAT order.