Supreme Court rejects insolvency application due to time-barred salary claim

The Supreme Court set aside the order admitting the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, finding the claim of arrears of salary since 1998 lacked adequate explanation and was time-barred. The Court emphasized the necessity of a pre-existing dispute to initiate insolvency proceedings, rendering the application unsustainable due to the unexplained delay in raising the claim. The Corporate Debtor was released from insolvency proceedings, and the Adjudicating Authority was tasked with determining the Resolution Professional's fees, to be borne by the Corporate Debtor.

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Issues:
Admission of application under Section 9 of the Insolvency and Bankruptcy Code, 2016; Existence of dispute regarding arrears of salary; Delay in raising claim of arrears; Legal validity of the application under Section 9.

Analysis:
The appeal was filed by 'M/s. Subasri Realty Private Limited,' a shareholder of 'M/s. Aruna Hotels Limited' against the order passed by the Adjudicating Authority, where the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was admitted, and an 'Interim Resolution Professional' was appointed. The Appellant contended that there was an 'existence of dispute' and the claim was time-barred, making the application not maintainable. On the other hand, the Respondent argued that there was no dispute and the application was rightly admitted considering the debt and default. The Respondent, an employee of the 'Corporate Debtor,' claimed arrears in salary from 1998 until retirement in 2013, amounting to Rs. 1,87,75,631. The 'Corporate Debtor' responded to the demand notice stating that all dues were settled except for gratuity. The Respondent's claim was also questioned due to lack of documentation supporting the alleged salary arrears.

The Respondent's claim of salary arrears since 1998 was not adequately explained, and the settlement of claims by other entities raised doubts on the credibility of the claim. The Hon'ble Supreme Court's observations on Section 9 of the Code highlighted the importance of a pre-existing dispute to avoid insolvency proceedings. In this case, the existence of a dispute regarding the arrears of salary and the unexplained delay in raising the claim for almost 18 years rendered the application under Section 9 unsustainable. Consequently, the impugned order was set aside, and all related actions, including the appointment of the Resolution Professional and the moratorium, were declared illegal. The 'Corporate Debtor' was released from the insolvency proceedings, allowing it to function independently.

The Adjudicating Authority was directed to determine the fees of the Resolution Professional, with the 'Corporate Debtor' responsible for paying the Interim Resolution Professional's fees for the period served. The appeal was allowed with no costs awarded. This comprehensive analysis of the judgment highlights the key legal issues, arguments presented by both parties, and the final decision of the Appellate Tribunal, providing a detailed understanding of the case.

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