Chebolu Subrahmanya Gopal vs Ivrcl Limited

Dr. Binod Kumar Sinha, Member (T)

The instant Application is filed under Section 60(5) of the IB Code, 2016 by one of the employees of the Corporate Debtor, inter-alia seeking :

i. To set-aside the retraction of its resolution to approach the Central Government for its approval with regard to the remuneration of the Applicant passed in the seventh meeting of the Committee of Creditors held on 30.08.2018 and declare the same as arbitrary and illegal;

ii. Consequently direct the Resolution Professional/ Respondent herein to comply with the directions of the Committee of Creditors in the meeting held on 26.04.2018 to make an application to the Central Government seeking approval for the remuneration paid to the Applicant;

iii. Reimburse the legal expense incurred by the Applicant having been compelled to file this grievance before this Adjudicating Authority which was totally avoidable.

Brief facts of the instant Application are as under:-

a. That the Applicant joined the Corporate Debtor on 23.08.2013 as a Senior Vice President - Projects and appointment letter to that effect was also issued by the Corporate Debtor. On 17.10.2013, the Applicant was posted as Regional Head for the Delhi Regional Office. That on 26.06.2014, Corporate Debtor addressed a letter to the Applicant stating that the probation period as per the aforementioned appointment letter was completed and that the Corporate Debtor confirmed the services of Applicant as Senior Vice President - Projects in G1 grade with effect from 01.05.2014. That on 28.07.2014, the Corporate Debtor was pleased to award an increment of the gross salary with effect from 01.07.2014.

b. That in view of the commitment and hard work of the Applicant, Corporate Debtor has increased the salary of the Applicant with effect from 01.06.2016 and accordingly addressed a letter dated 02.07.2016. The remuneration of the Applicant after being nominated on the Board as Executive Director was kept the same Rs. 74,98,704.00 per annum i.e., from 01.06.2017 as it used to be since 01.06.2016. That the said remuneration of the Applicant was also confirmed by the Nomination and Remuneration Committee and Board of Directors of Corporate Debtor by respective resolutions dated 30.05.2017 which was subsequently approved by the Shareholders of Corporate Debtor vide Resolution dated 29.09.2017. In fact, in view of the inclusion of the Applicant on the Board of the Corporate Debtor as Executive Director, the Corporate Debtor addressed a letter dated 31.07.2017 to the lead member of the consortium i.e., State Bank of India seeking No Objection Certificate ("NOC") from the lenders for managerial remuneration to be filed with Central Government. In view of the aforementioned approvals, the lead lender i.e., State Bank of India also addressed a letter to all the committee members of JLF on 02.08.2017, seeking their approval for issuance of NOC in relation to the remuneration of the Applicant.

c. That in anticipation of obtaining the approval from the Central Government and in view of the recommendations of Ernst and Young (agency appointed for Interim Management Support Services by the Consortium) to the State Bank of India with regard to the payment of salary of the Applicant with effect from 01.06.2017 and in absence of any specific instruction from Consortium not to pay such remuneration, the Corporate Debtor went on paying the remuneration during the tenure of the Applicant on the Board of Corporate Debtor and also issued the salary slips month-wise to the Applicant including proper Form-16 for the FY 2017-18.

d. That on 23.01.2018, the Applicant resigned from the Board of the Corporate Debtor but continued as a regular employee of Corporate Debtor as Executive Director from 24.01.2018 with the same remuneration and also gave his full support and co-operation to the Respondent herein from the date of the appointment of the Resolution Professional i.e., 23.02.2018.

e. Inspite of the Applicant providing his services, the Applicant did not receive the salary for the months of February, 2018 and March, 2018 for the reasons not known to the Applicant.

f. In view of the above, the Applicant addressed an email dated 20.04.2018 to the Corporate Debtor informing them that his salary for the months of February, 2018 and March, 2018 was not paid to him. The Respondent herein replied by his email dated 21.04.2018, stating that the matter with regard to the pending salary is currently under consideration and that he proposes to discuss the salary of the Applicant along with past amounts of remuneration at the next meeting of the Committee of Creditors ("CoC").

g. That it was confirmed by the Respondent by his email dated 21.05.2018, that the CoC in its Second meeting held on 26.04.2018, approved the payment of pending salary of the Applicant for the months of February and March, 2018 and also asked the Respondent to avail the services from the Applicant as an employee of Corporate Debtor at the same level of remuneration and also directed the Respondent to refer the matter to the Central Government for approving the payment of salary for the period 1st June, 2017 to 23rd January, 2018. The same was acknowledged by the Applicant by his email dated 22.05.2018.

h. That despite aforementioned approval by the COC the Respondent did not release the salary of the Applicant. As such the Applicant approached this Adjudicating Authority by tiling an Application bearing I.A. No. 674 of 2018 bringing out all the aforementioned facts with a prayer for a direction to the Respondent to pay the salary arrears of the Applicant and not to initiate any action towards recovery of the managerial remuneration paid to the applicant for the period during which the Applicant was on the Board of the Directors of the Corporate Debtor. This Adjudicating Authority by its order dated 07.03.2019 directed the Respondent to pay the salary of the Applicant after setting off the amounts paid in excess to the Applicant and which are shown in the books of accounts of the Corporate Debtor as an advance paid to the Applicant.

i. The Respondent's decision to approach the COC again has caused grave hardship to the Applicant in view of the contradictory decision of the COC in its 7th meeting after having given a no objection to approach the Central Government in its 2nd meeting. The decision of the COC in its 7th meeting with regard to the retracting of the resolution to approach the Central Government has been made without any application of mind and no reasoning whatsoever and is nothing but contradictory especially having given a no objection with a direction to the Respondent to take requisite approvals from the Central Government in its 2nd meeting. . Such decision of the COC in its 7th meeting should be set-aside with a direction to the Respondent to comply with the directions given by the COC in its 2nd meeting.

j. Reiterating above, Ld. Counsel for the Applicant prayed to allow the Application as prayed for.

Counsel for the RP filed counter and written submissions, inter-alia, stating as under:-

i. That the Corporate Debtor and the Applicant had agreed on a remuneration of INR 74,98,704 to be paid by the Corporate Debtor for the services to be rendered by the Applicant ("Remuneration"). In view of the Remuneration being higher than the amount prescribed under Section 197(1) of the Companies Act, 2013, the Corporate Debtor was required to get an approval of the Central government to pay such Remuneration to the Applicant.

ii. That the Corporate Debtor proceeded on the basis that the Central Government would give the requisite approval under section 197 of the Companies Act, 2013 and paid the Applicant remuneration in excess of what was permissible under the provisions of the Companies Act, 2013 with effect from June 1, 2017. Further, this excess remuneration paid to the Applicant has been shown in the books of accounts of the Corporate Debtor as an advance paid to the Applicant.

iii. That the Corporate Debtor subsequently (before commencement of: CIRP) made an Application with the Registrar of Companies ("ROC") to obtain the approval of the Central government as required for the payment of Remuneration to the Applicant. The ROC then directed the Corporate Debtor to obtain an approval from the Board of Directors of the Corporate Debtor and from the shareholders at the Annual General Meeting of the Corporate Debtor. Further, in view of the Corporate Debtor already being a Non-Performing Asset ("NPA"), the Central Government also directed the Corporate Debtor to obtain an approval from the lenders of the Corporate Debtor under Schedule 5 of the Companies Act, 2013 for the same. The lenders did not approve the payment of Remuneration to the Applicant.

iv. That after the resignation of the Applicant from the Board of Directors of the Corporate Debtor, the Applicant has rendered services as Executive Director to the Corporate Debtor from the commencement of the Corporate Insolvency Resolution Process ("CIRP") of the Corporate Debtor. The Applicant had not received the salary payable to him for the months of February and March 2018. At the second COC meeting held on April 26, 2018 the COC suggested to the Resolution Professional to approach the Central Government for the payment of remuneration to the Applicant. However, no resolution authorizing the Resolution Professional to seek such approval was passed by the COC. Further, the COC asked the Resolution Professional to continue availing the services of the Applicant during the CIRP.

v. That the Resolution Professional informed the COC at its sixth meeting held on August 7, 2018 that for the purpose of making the requisite Application for the approval of the Central Government under section 197(1), a Resolution of the COC in support of the said application will be needed. Accordingly, the Resolution Professional put a resolution for approval of the remuneration payable to the Applicant to vote before the COC. However, only 58.80% of the COC voted in favour of the said resolution and therefore the said resolution stood rejected as it did not obtain the required vote share.

vi. That at the 7th COC meeting held on August 30, 2018, the Resolution Professional as a matter of good governance again put a resolution for approval of the remuneration payable to the Applicant to vote before the COC. However, even on this occasion the said resolution stood rejected as it obtained only 58.32% votes of the COC in favour.

vii. Further, the minutes of the 6th and 7th COC meetings sufficiently clarify the fact that the Resolution Professional had put the resolution for approval for payment of remuneration payable to the Applicant to vote before the COC on two separate occasions and the same have been rejected on both these occasions. Therefore, the Applicant's contention that the Resolution Professional has failed in his duty to apply to the ROC under section 197(1) of the Companies Act is not sustainable. The direction given to the Resolution Professional by the COC at the 2nd COC meeting was not supported by a resolution voted upon by the COC to authorize the Resolution Professional to make such application before the ROC. In view thereof, the Resolution Professional sought for a vote on the matter which was subsequently rejected.

viii. Reiterating above, the Resolution Professional prayed to reject the Application.

Heard both the sides and perused the record.

It is seen that the instant IA was filed during the period of CIRP of the Corporate Debtor and any action on the part of the RP for getting approval from the Central Government required CoC's approval with ' the requisite majority which was not forthcoming. Meanwhile this Adjudicating Authority vide its order dated 26.07.2019 in 1A Nos. 544 & 680 of 2019 has passed an Order of Liquidation.

In view of the Liquidation of the Corporate Debtor, this Adjudicating Authority deems it proper not to adjudicate upon the instant IA at this point of time and feels it proper to direct the Applicant herein to approach Liquidator for the relief in relation to the approval of remuneration by Central Government. Accordingly, the instant Application bearing IA No. 321/2019 stands closed with a liberty to the Applicant to approach the Liquidator, if desired so. No order as to costs.