Dismissal of CIRP Petition for Salary Default; Emphasis on Pre-Insolvency Remedies; Solvency Consideration; Amicable Settlement

The Adjudicating Authority dismissed the Corporate Insolvency Resolution Process (CIRP) initiation against the Corporate Debtor for defaulting on salary and bonus payments. The Authority emphasized exhausting alternative remedies before invoking the Insolvency and Bankruptcy Code, requiring undisputed debt and default for CIRP initiation. Considering the Respondent's solvency, the Authority directed amicable settlement and potential arbitration, preserving both parties' rights without costs.

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Issues:
Initiation of Corporate Insolvency Resolution Process under Section 9 of the IBC, 2016 based on default in payment of salary and bonus by the Corporate Debtor.

Detailed Analysis:
1. Initiation of CIRP: The Applicant/Operational Creditor filed C.P.(IB) No. 67/BB/2020 seeking to initiate Corporate Insolvency Resolution Process against the Respondent/Corporate Debtor for defaulting on a total amount of Rs. 5,46,631 as of November 2018. The Operational Creditor was an employee of the Corporate Debtor and had not been paid his salary and bonus since November 2018, leading to financial distress. Despite repeated attempts to resolve the issue, the Corporate Debtor failed to make payments, causing significant hardship to the Operational Creditor.

2. Legal Position: The Adjudicating Authority noted that the purpose of the Insolvency and Bankruptcy Code (IBC) is not solely to recover alleged dues but to initiate CIRP on justified grounds. The Employment Agreement between the parties governed by Indian laws indicated that alternative remedies should be exhausted before approaching the Adjudicating Authority. The Code cannot be invoked to settle disputes or recover outstanding amounts unless the debt and default are undisputed and proven to the satisfaction of the Authority.

3. Financial Status of the Respondent: The Adjudicating Authority considered the financial status of the Respondent Company based on the Annual Returns for the Financial Year 2017-18. The Company's turnover and net worth indicated solvency, suggesting that the issue of outstanding amounts could be resolved amicably without invoking the Code.

4. Decision and Directions: In light of similar cases disposed of by the Authority, the instant Company Petition was also disposed of with specific directions. The Respondent was directed to settle the issue amicably, with the Petitioner having the liberty to invoke arbitration if needed. The Respondent was required to participate in the arbitration process as per law. The Petitioner was granted the liberty to seek appropriate remedies if aggrieved by the arbitration proceedings, with no order as to costs.

In conclusion, the judgment emphasized the importance of exhausting alternative remedies before resorting to the Adjudicating Authority under the IBC. It highlighted the need for undisputed debt and default for invoking the Code and considered the financial status of the Respondent in determining the course of action. The decision aimed at facilitating an amicable resolution while preserving the rights of both parties under the law.

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