Employees as Operational Creditor

The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “Code”) considers all employees and workmen as operational creditors.

Operational Creditor is defined under Section 5 (20) of the IB Code as: 

"Operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;”

Operational Debt is defined under Section 5 (21) of the Code which states that: 

"Operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.” 

The definition clarifies that if there is any due arising in the course of employment, then that will be considered as an operational debt and the person to whom such operational debt is owed shall be treated as the Operational Creditor. Therefore, employees shall be treated as Operational Creditor of the Corporate Debtor. 

Application by Operational Creditor

Application can be filed by the Operational Creditor in the NCLT if there is a debt.

However, prior to filling the application before NCLT, an employee has to comply with the procedure of sending the demand notice to the Corporate Debtor, which is a statutory requirement under the Code that every operational debtor needs to follow before filling an application. 

If the Corporate Debtor has not paid the amount of debt even after sending the demand notice, then the Operational Creditor can initiate Corporate Insolvency Resolution Process under section 9 of the Code.

Who is an Employee?

As per the general interpretation, an employee is a person who has been hired by the employer to perform a particular job or specific labour of the employer. The essential criteria that are being looked upon here could be:

  •  There is a specific wage or salary. 
  • The work being done is under control of the employer or being regulated by him. 
  • There is an existing implied or written contract in relation to this work being carried out and the employer and the employee have consented to the same. 

As per the general interpretation, an employee is a person who has been hired by the employer to perform a particular job or specific labour of the employer. The essential criteria that are being looked upon here could be: 

  • There is a specific wage or salary. 
  • The work being done is under control of the employer or being regulated by him. 
  • There is an existing implied or written contract in relation to this work being carried out and the employer and the employee have consented to the same. 

PRE REQUISITES FOR APPROACHING

Before filing any petition before NCLT for recovery of unpaid salaries, the employee must ensure beforehand that- 

  • The person must be an employee of the company against which his payment is pending. 
  • He must owe an operational debt against the defaulter company. 
  • The minimum amount of salary due to the person must be Rs 1 lakh.

INITIATION OF CORPORATE INSOLVENCY PROCEEDINGS

FIRST: : The operational creditor is required to serve a demand notice to the corporate debtor mentioning that his payment is pending in lieu of the work done or the services provided.

After waiting for 10 days, if he does not receive either his payment or notice of pendency of any suit, he can file an application before NCLT for initiating a Corporate Insolvency Resolution Process against the Corporate Debtor. 

DOCUMENTS REQUIRED

The documents required to be attached along with the application for initiating the Process are: 

  • A copy of pay in slips, Bank Statement, Offer letter and other documents which help in identifying that there is an undisputed debt. 
  • An affidavit stating that there is no notice given by the debtors in respect of any dispute related to unpaid amount. 
  • A copy of the bank certificate (now it is not compulsory). 

TIME LIMIT

It is mandated upon NCLT that an order regarding acceptance or rejection of this application is to be passed within 14 days of receipt of the application from the Operational Creditor.

It is also provided that the Corporate Resolution Insolvency Process needs to be completed within 180 days from the date of the admission of the application, but on receiving the application of the Resolution Professional, NCLT is empowered to extend the period beyond 180 days.

Recently, another time limit has been prescribed through an amendment, under which it is prescribed that within 105 days resolution applicant has to be identified by Resolution Professional. 

EXCEPTION TO ADMISSION

There are various exceptions in the admission of an application out of which there are 2 major exceptions in the case of Operation Creditor’s application such as:

If there is any suit pending in another court, then the application cannot be filed before NCLT.

OR

If the amount of operational debt is disputed, then also the application cannot be admitted. 

CONCLUSION

It is to be noted here that the IB Code, 2016 is a weapon in the hands of the employees against corporate debtors to recover its legitimate debts but such weapon is subject to the passing of the acid test of undisputed debt.

This Code gives the existing as well as ex-employees and workmen of the company a great opportunity with an easy and fast procedure to recover their dues by approaching NCLT against the debtor.