Dispute over salary renders insolvency application not maintainable; Tribunal dismisses, allows Corporate Debtor to operate

The National Company Law Appellate Tribunal found in the case that there was a pre-existing dispute over salary between the parties, rendering the application under section 9 of the Insolvency & Bankruptcy Code not maintainable. The Tribunal set aside the impugned order, dismissed the application, and allowed the Corporate Debtor to operate independently. Actions taken based on the impugned order were declared illegal, and the Adjudicating Authority was directed to close the proceedings and determine costs to be paid by the Corporate Debtor.

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Issues:
1. Maintainability of application under section 9 of the Insolvency & Bankruptcy Code, 2016 due to pre-existing dispute.

Analysis:
The judgment by the National Company Law Appellate Tribunal, New Delhi, involved a dispute where the 1st Respondent filed an application under section 9 of the Insolvency & Bankruptcy Code, 2016 against a Corporate Debtor. The Appellant contended that there was a pre-existing dispute, rendering the application under section 9 not maintainable. On the other hand, the learned counsel for the 1st Respondent argued that there was no pre-existing dispute, leading to conflicting claims.

In the case, the Corporate Debtor responded by denying the claim made by the 1st Respondent for unpaid salary, stating that the 1st Respondent had voluntarily resigned from the position of CEO and Managing Director. The Corporate Debtor disputed the entitlement of the 1st Respondent to the claimed salary, highlighting a key point of contention in the legal proceedings.

The Tribunal noted that a Company Petition under Sections 241 and 242 of the Companies Act, 2013, filed by the 1st Respondent was pending before the National Company Law Tribunal. Despite the pending petition and the ongoing dispute over the salary claim, the 1st Respondent issued a Demand Notice under section 8(1) of the Insolvency & Bankruptcy Code, which was contested by the Corporate Debtor.

Ultimately, the Tribunal found that there was indeed a pre-existing dispute regarding the salary payable to the 1st Respondent, and since the matter was already pending before the National Company Law Tribunal, the application under section 9 of the Insolvency & Bankruptcy Code filed by the 1st Respondent was deemed not maintainable. Consequently, the impugned order was set aside, and the application was dismissed, allowing the Corporate Debtor to function independently through its Board of Directors.

Furthermore, the Tribunal declared all actions taken pursuant to the impugned order, such as appointing an Interim Resolution Professional and declaring a moratorium, as illegal and set them aside. The Adjudicating Authority was directed to close the proceedings, releasing the Corporate Debtor from the legal constraints. The Tribunal also instructed the Adjudicating Authority to determine the fees of the Interim Resolution Professional and the costs incurred, to be paid by the Corporate Debtor within a specified period.

In conclusion, the appeal was allowed based on the finding of a pre-existing dispute, leading to the dismissal of the application under section 9 of the Insolvency & Bankruptcy Code, and subsequent directions were issued regarding the proceedings and costs incurred.

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