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Judgment
22.05.2025: Heard counsel for the appellant.
This appeal has been filed against an order dated 03.03.2025 by which Section 9 application has been rejected by the adjudicating authority.
Learned counsel for the appellant submits that adjudicating authority committed error in observing that non-payment of wages and benefits cannot be termed as operational debt, whereas, it is fully covered within the definition of operational debt. Counsel for the appellant further submits that dispute which was raised by the employer were moonshine dispute and they were only raised for the purpose of denying the salary to the appellant and fixed salary.
We have considered the submissions of the counsel for the appellant and perused the records.
The appellant himself has filed legal notice dated 21.02.2024 which the appellant has given to the employer narrating the facts and praying for payment of salary, which legal notice was replied by employer on 04.03.2024. In the reply to legal notice, employer denied the claim and has observed that under the investigation, fraudulent transaction amounting to Rs.88,93,772/-has taken place and to action of the appellant has brought financial loss and damage to the employer, the claim was refuted. Appellant thereafter issued further notices and issued demand notice on 12.08.2024 claiming of amounting of Rs. 1,01,94,119/- which demand notice was again refuted by the employer and employer in its reply has denied the claim and amounts were referred to a disputed amount and it was claimed by the employer there are no outstanding debt. In paragraphs 1 to 3 of the reply to the demand notice, following has been stated:
“1. No Outstanding Debt:
Upon a meticulous examination of our accounts, it is unequivocally clear that there is no outstanding debt payable to you by the company. All due payments have been fully settled in strict accordance with the terms agreed upon, and there is absolutely no balance owed as falsely alleged in your notice. On the contrary, it is you who owes us INR 88.93,772/-, owing to your deliberate embezzlement of funds from the company-a matter that we have already taken seriously by filing a formal complaint with the DCP Office in Noida on 11.01.2024 (OBN:30/24). (A copy of the complaint is attached herewith as Annexure A).
2. Incorrect and Incomplete Accounting:
The amount claimed in your demand notice is grossly inflated and appears to be based on incorrect or incomplete accounting records. We strongly urge you to conduct a thorough review of your financial records, as they do not accurately reflect the transactions between you and the Company.
As per Point 1.10(1) of your Demand Notice, you have calculated an amount of INR 1,53,89,519/- from 08 October 2021 to 30 June 2024. However, you have admitted and confirmed that INR 82,88,400/- has already been received in your bank account. Additionally, you have acknowledged the receipt of INR 30,93,000/-. Therefore, by your own calculations, the amount due is INR 40,08,119/-, which does not meet the threshold required to invoke a Section 8 Demand Notice under the Insolvency and Bankruptcy Code (IBC).
Regarding the remaining amount of INR 40,08,119/-, you are fully aware that, pursuant to the Hold of Service Letter dated November 23, 2023 (a copy of which is attached as Annexure B), your services were suspended due to significant discrepancies and misappropriation of Company funds and assets. This suspension was in accordance with Clause 18 of your appointment letter dated October 08, 2021, which states: "The Company may terminate/withhold the contract if you are found guilty of any misconduct or negligence in the duty assigned affecting the business of the company." Furthermore, of your alleged remaining claim of INR 40.08,119/-, an amount of INR 28,00,000/- is not payable for the following reasons:
1.You have been employed by another company, namely Eastman Infra (109-112. A Wing, FF. Kashiram Jamunadas Building, 5 Pdmelo Road. Mumbai), for the past four months (March. April. May, June 2024. This employment renders your claim of INR 14,00.000/- invalid and fraudulent. Your calculation of dues is grossly inflated, incorrect, and is hereby declared null and void.
2.Since your services were suspended on November 23, 2023, and Clause 18 of the Appointment Letter was invoked due to misconduct involving the embezzlement of Company funds amounting to INR 88.93.772/-, your claim for salary of INR 14,00,000/- from November 2023 to February 2024 is without merit, baseless, and null and void. Despite this, you have erroneously claimed salary from October 08, 2021. until June 30, 2024. even though your services were suspended as of November 23. 2023 due to serious misappropriation of funds on your part. This necessitated an investigation, following which a Response cum Counter Allegation Legal Notice dated March 04, 2024, was served upon you, and a formal police complaint was filed at the DCP Office in Noida on January 11, 2024. You were summoned by the police, and the investigation is ongoing. Therefore. your claim for salary until June 30, 2024, is entirely without merit.
It is important to note that all due salaries up to September 2023 have been fully paid. (A copy of the bank statements reflecting payment of salaries is attached herewith as Annexure C).
In any case, this demand notice is null and void as it does not fall under the purview of the IBC as it does not meet the threshold required to invoke a Section 8 Demand Notice under IBC.
Additionally, attached is a summary copy of the Company Accounts (Annexure D). which includes a detailed summary along with bank account statements indicating that you have been fully paid from October 2021 to September 2023 in the six bank accounts you provided to the Company. The total amount paid to you is INR 1,32,64,200/-evidenced by the deduction of 10% TDS amounting to INR 13,26,420, which further substantiates the payment of the above-mentioned amount (Annexure E).
3. Disputed Amounts:
Thus, the amounts claimed in your demand notice are not admitted by us, as we do not owe you anything. On the contrary. you owe us INR 88,93.772/- due to your embezzlement of funds, for which a formal complaint has been filed with the DCP Office in Noida, and an investigation is currently underway. Consequently, the invocation of IBC provisions in this context is both premature and inappropriate. This disputed amount, along with your criminal conduct against the company, has been communicated to you on multiple occasions, including through the Hold of Services Notice dated November 23, 2023, our Response cum Counter Allegations through. our advocates dated March 04, 2024 (Annexure F), and the police complaint dated January 11, 2024. You even sent your response to the police station for investigation in connection with this matter. Therefore, you are fully aware that it is not us who owe you any money: rather, it is you who are indebted to us.”
The submission of the counsel for the appellant as noted above that payment of wages amounts to operational debt have substance, operational debt include the any debt relating to employment, however, when we look into the facts of the present case and relevant materials brought on the record there is a pre-existing dispute between the employer and the employee and the said dispute is going on between both employer and employee much prior to issue of demand notice and when notice of dispute was issued after demand notice, the said is notice of dispute within meaning of Section 9 of the IBC and when notice of dispute has been given, adjudicating authority could not proceed to admit.
The submission of the counsel for the appellant that defence raised appears clearly is a moonshine defence does not commend us. We have already noticed the reply to demand notice where the claim is disputed and employer claim loss and damages. The issues between the employer and employee cannot be determined under Section 9 proceeding. Appellant if advised may take appropriate remedy in accordance with law.
Learned counsel for the appellant further submitted that allegations made against the appellant are unsubstantiated. Be that as it may, in the proceeding under Section 9, Court has not to enter into and record any findings. The only thing has to be looked into as to whether defence is moonshine defence or not. In the facts of the present case, we do not find defence to be moonshine. The order dismissing Section 9 application is upheld for the reasons given in this judgment.
Appeal dismissed.