Tribunal rules on leave encashment & loss compensation in Corporate Insolvency Resolution Process

The Tribunal upheld the decision to treat leave encashment as part of the Corporate Insolvency Resolution Process (CIRP) cost. The claim for compensation for loss of office was denied due to non-alignment with the agreement terms and financial defaults of the Corporate Debtor. The termination of the Appellant was found to be in compliance with the agreement terms and legal requirements. The Tribunal ruled out the applicability of Section 202 of the Companies Act, 2013, for compensation. The Appellant, classified as a related party, was subject to CoC approval for payments. The appeal was dismissed, with no costs awarded.

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Issues Involved:
1. Entitlement to leave encashment as part of CIRP cost.
2. Claim for compensation for loss of office.
3. Allegations of arbitrary and unfair termination.
4. Applicability of Section 202 of the Companies Act, 2013.
5. Treatment of the Appellant as a related party.
6. Compliance with the agreement terms and statutory provisions.

Detailed Analysis:

1. Entitlement to Leave Encashment as Part of CIRP Cost:
The Appellant, who served as the Executive Director (Works) of the Corporate Debtor, claimed leave encashment amounting to Rs. 5,67,100/-. The Resolution Professional (RP) acknowledged this amount as due and payable per the Corporate Debtor's policy. The Adjudicating Authority directed that this amount be treated as part of the Corporate Insolvency Resolution Process (CIRP) cost. The Tribunal upheld this decision, noting that the leave encashment will be considered once the Resolution Plan is approved by the Adjudicating Authority.

2. Claim for Compensation for Loss of Office:
The Appellant sought compensation of Rs. 25,68,000/- for loss of office, citing Section 202 of the Companies Act, 2013. However, the Tribunal found that the compensation claim was not payable under the terms of the agreement dated 13.02.2019. Additionally, the Tribunal referred to sub-rule (3) of Rule 17 of the Companies (Meetings of Board and its Powers) Rules, 2014, which precludes such payments if the company is in default of certain financial obligations. Given the Corporate Debtor's significant financial defaults, the Tribunal ruled out the payment of the claimed compensation.

3. Allegations of Arbitrary and Unfair Termination:
The Appellant contended that his termination was arbitrary and unfair. The RP terminated the Appellant's services following instances of mismanagement at the Corporate Debtor's Jajpur plant. The termination was executed in accordance with the terms of the agreement dated 13.02.2019, which included a one-month notice period. The Tribunal found that the termination process complied with the agreement and legal requirements.

4. Applicability of Section 202 of the Companies Act, 2013:
The Appellant argued for compensation under Section 202 of the Companies Act, 2013. The Tribunal noted that this provision was not raised before the Adjudicating Authority. Moreover, the Tribunal emphasized that the Insolvency and Bankruptcy Code (IBC) is a comprehensive code with overriding effect, making Section 202 inapplicable in this context. The Tribunal also highlighted that Section 202 is an enabling provision, not mandating compensation under all circumstances.

5. Treatment of the Appellant as a Related Party:
The RP and Respondent No. 2 argued that the Appellant, as a Director of the Corporate Debtor, was a related party. Consequently, all payments, including salary, required the approval of the Committee of Creditors (CoC). The Tribunal agreed with this classification and noted that the leave encashment amount was treated as part of CIRP cost, which would be paid in priority once the Resolution Plan is approved.

6. Compliance with the Agreement Terms and Statutory Provisions:
The Tribunal found that the termination of the Appellant's employment complied with the agreement terms, including the one-month notice period. The salary payment for April 2020 was made following CoC approval. The Tribunal also noted that the gratuity amount of Rs. 8,02,500/- had been paid. Given the compliance with legal and contractual obligations, the Tribunal ruled out any further interest payments.

Conclusion:
The Tribunal dismissed the appeal, finding no merit in the Appellant's claims. The leave encashment was to be treated as part of CIRP cost, and the compensation claim was denied based on the agreement terms and statutory provisions. The termination process was deemed fair and compliant with legal requirements. No order as to costs was made.

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