Mr. Dopesh Raja vs Mr. Sadhanala Venkata Rao & Anr.

NARESH SALECHA, MEMBER (TECHNICAL)

The present `Appeal’ is filed against the ‘impugned order’ dated 27.04.2022, passed in C.P. (IB) No. 215/9/HDB/2021 by the ‘Adjudicating Authority’ (National Company Law Tribunal, Hyderabad Bench), whereby, the ‘Adjudicating Authority’ admitted application filed under Section 9 of the Insolvency & Bankruptcy Code, 2016 (in short ‘I &B Code, 2016).

Mr. Sadhanala Venkata Rao is 1^st Respondent who was appointed as Additional Director- Executive Category and Chief Executive Officer in the 2^nd Respondent Company (‘Corporate Debtor’) vide two board resolutions both dated 05.01.2018. The 2^nd Respondent Company agreed to pay Rs. 60 lakhs per annum as salary to the 1^st Respondent and Form No. MR1 was filed with the Registrar of Company recording the appointment and remuneration of the 1^st Respondent as Key Managerial Personnel. The 1^st Respondent alleged for non receipt of full payment towards services rendered and alleged that only 50% of the agreed salary payable for past three years during his employment has been paid. It has been alleged by the 1^st Respondent that total principal amount due and payable to the 1^st Respondent is Rs. 1,01,15,000/- as on 08.01.2021.

It has been pointed out by the 1^st Respondent that he made several attempts to pursue the 2^nd Respondent to settle the dues but failed to get his dues and therefore the 1^st Respondent issued a ‘Demand Notice’ on 11.05.2021 under Section 8 of the I & B Code, 2016 and even after lapse of more than 10 days, the 2^nd Respondent neither paid the dues nor issued any reply to the ‘Demand Notice’.

The Learned Counsel for Appellant herein who is the ‘Suspended Managing Director’ of the 2^nd Respondent Company who stated that due to pandemic the 2^nd Respondent could not reply to the ‘Demand Notice’ and ‘Reply’ was sent to 1^st Respondent on 10.06.2021. The Learned Counsel for Appellant also alleged that several promises made by the 1^st Respondent regarding achievements in work were not materialised and thus the 1^st Respondent allegedly failed to achieve all the promises and projected plans and later resigned from the post of ‘Chief Executive Officer’.

The Learned Counsel for the Appellant stated that the salary component had two parts i.e. 50% as fixed salary and 50% variable salary. The variable salary payment was subject to meeting ‘Key Performance Indicators’ (‘KPI’) which were not achieved by the 1^st Respondent.

The Learned Counsel for the Appellant denied claim of 1^st Respondent in the Reply to the 1^st Respondent on 10.06.2021.

The Learned Counsel for the Appellant stated that Rs. 89,00,000/- as fixed salary was paid from 04.01.2018 to 08.01.2021. However, the 1^st Respondent has claimed for further salary of Rs. 94,25,000/- as variable salary. The Learned Counsel for the Appellant stated that this variable salary was subject to meeting ‘Key Performance Indicators’ by the 1^st Respondent and was not payable. The Learned Counsel for the Appellant further mentioned about pre-existing dispute between the 1^st Respondent and the 2^nd Respondent.

The Learned Counsel for the Appellant therefore urged that the present appeal may be allowed and the ‘impugned order’ dated 27.04.2022 may be set aside.

The Learned Counsel for the 1^st Respondent denied all the averments made by the ‘Appellant’ and stated that due to his high standard of performance, he was appointed as ‘Chief Executive Officer’ at the salary of Rs. 60,00,000/- per annum and the 2^nd Respondent never expressed any concerns regarding performance of the 1^st Respondent. The Learned Counsel for the 1^st Respondent stated that Form MR1 was filed by the 2^nd Respondent with the ‘Registrar of Company’ which gives clear evidence that Rs. 60,00,000/- p.a was payable to him, however regretted that despite his best performance, the 2^nd Respondent failed to make payments due to the 1^st Respondent.

The Learned Counsel for the 1^st Respondent further stated that even the annual reports of the 2^nd Respondent Company clearly stated annual remuneration of the 1^st Respondent to be Rs. 60,00,000/-. The Learned Counsel for the 1^st Respondent stated that the total outstanding till 08.01.2021 was Rs. 1,01,15,000/-.

The Learned Counsel for the 1^st Respondent also denied to the allegation that he failed to meet the business projections made in business plans and stated these projections were made in ordinary course of business and were not relevant for his salary entitlement. The Learned Counsel for the 1^st Respondent further stated that he resigned due to harassment by the 2^nd Respondent and for non payment of his dues.

The Learned Counsel for the 1^st Respondent mentioned that during his term the Chief Executive Officer there was healthy ‘Earning Before Interest, Taxes, Depreciation and Amortization’ (“EBITDA”) of the 2^nd Respondent i.e. ‘Corporate Debtor’ was at 27%-31% during the 1^st Respondent tenure. The Learned Counsel for the 1^st Respondent further mentioned that in the Board Resolution for his appointment nowhere the condition of his pay linking to his performance was mentioned and alleged that the impression of variable pay linked to ‘Key Performance Indicators’ has been created only to deny his dues.

The Learned Counsel for the 1^st Respondent therefore urged this ‘Appellate Tribunal’ to dismiss the appeal and uphold the ‘impugned order’ which is logical, rational, legal and has been ordered after taking all facts and laws into consideration.

Heard Learned Counsel for the ‘Appellant’ and the ‘Respondents’ and also perused record made available to us.

From the ‘Balance Sheet’ as on 31.03.2018, this ‘Appellate Tribunal’ notes following entries regarding Key Managerial Personnel.

This ‘Appellate Tribunal’ further observes from the ‘Balance Sheet’ as on 31.03.2018 where the remuneration of the 1^st Respondent ‘Chief Executive Officer’ has been stated as Rs. 60,00,000/- with the clarification that ‘has approved by the Shareholders in EGM’.

From the ‘Demand Notice’ issued under Section 8 of the I & Code, 2016 dated 11.05.2021, this ‘Appellate Tribunal’ observe the break up provided of the outstanding of Rs. 1,01,15,000/- till 08.01.2021 as under :-

From the same ‘Demand Notice’ under Computation table, the 1^st Respondent has brought out that aggrieved payment from 04.01.2018 to 08.01.2021 was Rs. 1,81,00,000/- and he received only Rs. 86,00,000/- and thus the outstanding of Rs. 1,01,15,000/-.

This establishes that the debt due and payable meets the threshold limits of Rs. 1 crore.

This ‘Appellate Tribunal’ takes into consideration the certified true copy of Resolutions passed by the Board of Directors on 05.01.2018 appointing the 1^st Respondent as an ‘Additional Director’ and ‘Chief Executive Officer’:

From the above, this ‘Appellate Tribunal’, observed that remuneration of Rs. 60,00,000/- p.a. has been clearly mentioned and the `Resolutions’ further mentioned that this ‘shall be the minimum remuneration payable to him in any financial year during his tenure where the company has no profits or its profits are inadequate’, makes the position abundantly clear that the `2^nd Respondent / Company’, intended to pay Rs. 60,00,000/- p.a., to the `1<sup>st</sup> Respondent’, `without any conditionality’, and was `minimum payment per annum’, even when the `Company did not earn any Profit during the year’. These `Resolutions’ are, therefore, crystal clear and leave `no ambiguity’, in establishing the fact, that the Appellant’s contention that, it was only `50% of the salary payment fixed to be paid’, and the `remaining 50% of the salary, as `variable salary’ linked to his performance’, is untenable and this fact is also corroborated from `Form MR1’, filed with `RoC’, where also Rs.60,00,000/-, has been indicated as `minimum remuneration’, payable to the `1<sup>st</sup> Respondent’, in any Financial Year, during the tenure even when the `2^nd Respondent / Company’, does not have any profit.

This ‘Appellate Tribunal’ also observed that proper demand notice under Section 8 of the I & B Code, 2016 was issued dated 11.05.2021 with all facts and figures including amount due and not paid which was not replied admittedly by the 2^nd Respondent within 10 days. The ‘Reply’ indeed was sent much later on 10.06.2021. Issue regarding pre-existing disputes was not established.

Based on all above facts, documents filed with RoC, Board Resolution of the Appointment of the 1^st Respondent, evidence from the Balance Sheet, issue of the ‘Demand Notice’ not replied within 10 days, this ‘Appellate Tribunal’ do not find any `error’, in the ‘impugned order’ dated 27.04.2022. passed in C.P. (IB) No. 215/9/HDB/2021 by the ‘Adjudicating Authority’ (`National Company Law Tribunal’, Hyderabad Bench). Looking at from that angle, the instant `Company Appeal’, is devoid of merits and it fails.

In fine, the instant Comp. App (AT) (CH) (INS.) No. 180 of 2022 is dismissed. No costs. The connected pending `Interlocutory Applications’, if any, are Closed.