Damodar Muddukrishna vs Cygilant India Research & Development Pvt. Ltd.

The facts of the case in brief are given below: -

The Appellant herein had been an employee of the Respondent Company and he was terminated from his services on 13.06.2019. The Appellant served 2 demand notices in Form 3 and Form 4 on 31.08.2019 and 04.09.2019 claiming a total amount of Rs.1,33,79,896/-. As against this claim, the Respondent Company made a total payment of Rs.22,50,599/-. As no further payment was forthcoming from the Respondent, he filed an application under Section 9 of the I & B Code, 2016, before NCLT, Hyderabad, after hearing both parties and going through the documents submitted, made a determination that there exists a real dispute between the Appellant and the Respondent Company in respect of claims vide invoice dated 31.08.2019 and rejected the Application by virtue of its Order dated 18.05.2020 in CP(IB) No.616/9/HDB/2019. Aggrieved by the said order, the Appellant has filed the instant Appeal.

The first point which engages our consideration in the instant case is the question as to whether the Appellant in the capacity of being the Employee of the Respondent, can invoke the proceedings under section 9 of I & B Code, for the purpose of initiation of CIRP Proceedings, as against the Respondent Employer when the dues payable by it are confined to the remittance of gratuity and compensation which is claimed by the Appellant. The Learned Counsel for the Respondent / Company has argued that in the capacity of the Corporate Debtor, the Appellant has got no right to initiate proceedings under Section 9 of I & B Code and that the claim which he has raised, being towards payment of gratuity and compensation will not become an “operational debt”, in accordance with the given definition of the “operational debt”, under sub-section(21) of section 5 of I & B Code. Sub-section (21) of Section 5 which is extracted hereunder: -

The Appellant on the other hand contends that the claim towards the gratuity and compensation would fall well within the provision of Sub-section (21) of Section 5 because it is inclusive of provisions of the goods or “services including employment”. By the use of the word ‘employment’, he contends that his claim which he has raised by way of demand notice, under section 8 notice and which has been issued to the Respondent on 31.08.2019 and subsequently on 04.09.2019, would be falling well within the sub-section(21) of section 5, and therefore he would be entitled to initiate the proceedings of CIRP under section 9 of I & B Code, because he will be deemed to be an “Operational Creditor” falling within the definition of Sub-section (20) of Section 5 of the code.

At this stage, not much deliberation is required to be made as to whether the claim raised by the Appellant towards the gratuity and compensation payable to him, will fall to be within the ambit of ‘Operational Debt’. Admittedly the Appellant was employed in the Respondent Company. But the compensation he claims is 24 months Gross pay which, he contends, was promised to him as part of severance pay. It is not very clear how this can be construed as a claim for provision of services including employment. Other claims such as additional compensation for false allegation and legal costs and gratuity for period which is being disputed by the Respondent will not tantamount to be a claim in respect of provision of employment as prescribed under Sub-section (21) of Section 5 of I & B Code. Particularly in the peculiar circumstances of the instant case, when the services of the Appellant were already terminated and admittedly the termination order of the Appellant has attained its finality and has not been put to challenge.

Firstly at the stage when the demand notice under section 8 was issued by the Appellant on 31.08.2019 and thereafter on 04.09.2019, there had been no existing jural relationship of master and servant. Secondly, in response to the notice of demand which was issued by the Appellant in the capacity of an “Operational Creditor”, on 31.08.2019 and 04.09.2019, the Respondent Employer has replied to the same in its letter dated 09.09.2019 denying and disputing the claims of the Appellant and providing the proof of all terminal benefits as per the Termination letter. The Respondent has also cited pre-existing dispute in relation to the amounts claimed by the Appellant which has been recorded by the Learned Adjudicating Authority. Hence once the aspect of non-admission of the liability is prevalent in the reply, and aspect of default is not established from the documents on record, the denial of liability in itself would in capacitate the Appellant to invoke the provisions contained under section 9 of I & B Code for the purpose of initiation of CIRP Proceedings, against the Respondent Company.

The Learned Counsel for the Appellant submits that there is a genuine dispute with respect to the quantum of gratuity paid to him which is in the character of ‘Operational Debt’, and since the Insolvency and Bankruptcy Code, 2016, is a subsequent legislation to the Payment of Gratuity Act 1972, it will have an overriding effect over Payment of Gratuity Act as a consequence of Section 238 of the I & B Code and accordingly the Adjudicating Authority ought to have adjudicated on this claim instead of dismissing it on grounds of ‘pre-existing dispute’, that since the I & B Code has been notified subsequent to the enforcement of Payment of Gratuity Act, that will have a prevailing effect in the light of the overriding provisions contained under Section 238 of the I & B Code. This may not be an appropriate inference to be drawn for the present purpose as I & B Code, has been given an overriding effect in respect of matters relating to Insolvency only and disputes relating to determination of gratuity will continue to be governed by the provisions of Payment of Gratuity Act. The other words, though overriding effect has been given under the I & B Code, it would be in relation to the act and action which could be brought within the ambit of I & B Code and its implications cannot be magnified to cover the provisions of Payment of Gratuity Act, as it is in the instant case. Besides, the Payment of Gratuity Act, being a beneficial legislation will govern the relevant field, particularly when the said Act itself provides for that if anybody is aggrieved over non-payment of the gratuity, he may resort to his remedies as available under the provisions of Payment of Gratuity Act. Therefore in such cases as this, it will be apt to seek remedy under the provisions of Payment of Gratuity Act rather than dragging the Employer / Respondent Company in the instant case to face the CIRP Proceedings, by invoking the provisions contained under section 9 of the I & B Code. Because of the above aspects, it may not be a rational approach to invariably apply section 9 proceedings for all the claims including the claim like one at hand, for the payment of gratuity and compensation payable on it. Further, in the context of the reply given on 09.09.2019 by the Employer / Respondent, when the amount claimed by the Appellant as ‘Due’, was not an “admitted liability” and the same was specifically denied by the Employer / Respondent, in response to the demand notice, issued under section 8 of I & B Code, there will be no case for initiating the proceedings under section 9 for initiation of the CIRP against the Respondent.

In that eventuality, when there is no admitted liability, at the behest of the Respondent and the claim stood specifically denied, invocation of section 9 of I & B Code, to initiate proceedings, particularly when the nature of the claim stands covered by the provisions of the Payment of Gratuity Act, 1972 which itself provides for remedial measures for such claims, may not be permissible to be enforced under the Law. Moreover, section 14 of the Payment of Gratuity Act, in itself provides, that the Act could have an overriding effect, qua the claim which is falling within its ambit. To press upon his point regarding claim of unpaid gratuity, the Appellant has attempted to place before this Tribunal, the service particulars of the Appellant as derived from EPFO of India to prove that gratuity remains unpaid for certain periods. We are of the view that these documents in itself cannot be projected as to be an admission of liability, based upon which the Respondent / Employer, could be forced to face proceedings under section 9 of I & B Code, as it remained to established by a competent authority as to whether gratuity is payable over the entire period of employment as claimed by the Appellant.

Thus, so far as the initiation of proceedings under section 9 of I & B Code, at the behest of the Appellant is concerned, that may not be tenable to be invoked and be held maintainable under section 9 of the I & B Code. Accordingly, under the given facts and circumstances of the case, the instant Company Appeal, which itself is peculiar in nature would stand dismissed, without creating any embargo as such against the present Appellant to resort to an appropriate remedy for securing payment of the gratuity amount and the compensation as claimed by him in accordance with the provisions of the Payment of Gratuity Act, 1972 and other relevant Acts. Subject to the aforesaid exception the Appeal is laid to rest.