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2025 (5) TMI 266 - AT - IBCAdmission of section 9 application - payment of gratuity claimed by the operational creditor - operational debt or not - existence of pre-existing dispute or not - Section 9 Application filed by JK Jute Mazdoor Morcha shall operate res judicata against R-1 Devi Prasad or not in view of the affidavit filed by Devi Prasad in said company appeal praying that claim of Devi Prasad be also considered in the said proceeding - doctrine of merger. Whether the payment of gratuity claim by operational creditor constitute an operational debt within meaning of the IBC? - HELD THAT - All sums due to any workmen from the gratuity fund or any other fund for the welfare of the workmen is maintained by the company is specifically included in workman dues. Learned counsel for the appellant has relied on the judgment of this Tribunal in Kishore K. Lonkar Vs. Hindustan Antibiotics Ltd. 2022 (5) TMI 493 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH NEW DELHI to submit that this Tribunal held that welfare dues do not constitute and cannot be treated to be service benefits due and payable - The claim which was pressed before this Tribunal was on the ground of LTC and Earned Leave and Encashment. This Tribunal held that for seeking to initiate CIRP on the ground of LTC and EL Encashment has not been paid which fall within the ambit of welfare benefit cannot be said to be the intent and objective of the code . Thus this Tribunal noticing the fact that gratuity amount was paid and question of interest could not be gone into in Section 9 proceeding has affirmed the order of the adjudicating authority rejecting Section 9 application. The above judgment is clearly distinguishable from the facts of the present case. The claim of gratuity with interest was fully included in operational debt and application under Section 9 was fully maintainable. Whether Section 9 application deserves rejection by the adjudicating authority on ground of pre-existing dispute on the absence of Suit No. 500/2017 (filed on 19.05.2017) and Suit No. 2506/2017 (filed on 15.12.2017)? - HELD THAT - Suit No. 500/2017 was filed on May 2017. The said suit cannot be said to be raising any dispute regarding the claim of the workmen. The prayer was with regard to compromise proposal by the corporate debtor which was claimed that should not be treated any admission of the claim against the company or management. The said suit cannot constitute any pre-existing dispute with regard to claim of the workmen. The next suit which has been relied by the appellant is Suit No. 2506/2017. The date of filing of the said suit is relevant which is 15.12.2017 why the said date is relevant is noticed hereinafter. Thus on 06.12.2017 the counsel for the company (corporate debtor) categorically submitted before the Delhi High Court that workmen can invoke their jurisdiction under Sections 8 9 and the Suit No. 2506/2017 was filed on 15.12.2017 immediately thereafter when the High Court has permitted with the consent of the company/corporate debtor to initiate proceeding under Sections 8 9. The filing of suit on 15.12.2017 cannot be said to be bona fide nor that can be treated to be pre-existing dispute with regard to the claim of workmen - Along with the suit a list of retired workmen was annexed in which the R-1 Devi Prasad was also mentioned as serial number 425. When the company before the Delhi High Court agreed that workers can file their claim under Sections 8 9 and 06.12.2017 on which stand the Writ Petition was disposed of filing of suit of 15.12.2017 restraining the workmen regarding their dues is mala fide on part of the company/corporate debtor and cannot be termed to be raising a dispute regarding the claim. There is one more reason due to which the plea of pre-existing dispute raised by the appellant has to be rejected. The notice under Section 8 regarding claims of all 3000 workmen was given on 14.03.2017 on basis of which the Section 9 application was filed by workmen on 20.03.2017 which came to be dismissed on 28.04.2017 by the NCLT. Even Suit No. 500/2017 was filed much after the said date i.e. on 19.05.2017. Notice on behalf of the claim of workmen on behalf of the by JK Jute Mazdoor Morcha was given much before filing of the Suit Nos. 500/2017 and 2506/2017. The plea of the appellant that there was pre-existing dispute with respect to claim of the workmen deserves to be rejected. The plea raised is wholly frivolous and moonshine defense. Whether order passed in Section 9 Application filed by JK Jute Mazdoor Morcha shall operate res judicata against R-1 Devi Prasad in view of the affidavit filed by Devi Prasad in said company appeal praying that claim of Devi Prasad be also considered in the said proceeding? - HELD THAT - What was stated by R-1 that his claim may also be adjudicated in the appeal and he authorises JK Jute Mazdoor Morcha to represent his case. It is noticed the judgment of this Tribunal in JK Jute Mazdoor Morcha. Judgment of this Tribunal dated 17.03.2023 where this Tribunal dismissed the appeal filed by JK Jute Mazdoor Morcha holding that application filed under Section 9 by JK Jute Mazdoor Morcha was premature since it was filed within 10 days from delivery of demand notice. Date of delivery was held on 21.03.2017 and petition was filed on 28.03.2017 hence it was held as premature. The order passed by the adjudicating authority rejecting Section 9 application by JK Jute Mazdoor Morcha shall be merged with order dated 17.03.2023 of this Tribunal where the only finding returned was that the application was premature - The said order was also affirmed by the Hon ble Supreme Court in JK JUTE MILL MAZDOOR MORCHA VERSUS JUGGILAL KAMLAPAT JUTE MILLS COMPANY LTD. 2023 (5) TMI 1439 - SC ORDER . In the appeal no such issue was decided on basis of which the appellant can contend that claim of R-1 is barred by res judicata - the submission of the appellant that claim of the R 1 was barred by res judicata is rejected. Conclusion - i) The gratuity claim with interest awarded by the Labour Commissioner constitutes an operational debt under Section 5(21) of the IBC. ii) There was no pre-existing dispute that barred the application as the suits filed by the corporate debtor did not contest the gratuity claim and were filed after the demand notice. iii) The dismissal of the prior Section 9 application by the trade union on prematurity grounds does not operate as res judicata against the present claim. Appeal dismissed.
The core legal questions considered in this judgment revolve around the admission of a Section 9 application under the Insolvency and Bankruptcy Code, 2016 ("IBC") filed by an operational creditor against a corporate debtor. The issues addressed include:
i. Whether the payment of gratuity claimed by the operational creditor constitutes an operational debt within the meaning of the IBC; ii. Whether there existed any pre-existing dispute prior to the issuance of the demand notice that would bar the admission of the Section 9 application; iii. Whether the order passed in a prior Section 9 application filed by a trade union, in which the present operational creditor had also participated by affidavit, operates as res judicata against the present claim. Regarding the first issue, the legal framework centers on the definition of "operational debt" under Section 5(21) of the IBC, which includes claims in respect of the provision of goods or services including employment, or debts arising under any law payable to the government or local authorities. The Court also referenced Section 326 of the Companies Act, 2013, which defines "workmen's dues" to include sums due from gratuity funds maintained by the company. The operational creditor's claim for gratuity was based on an award dated 26.02.2014 by the Assistant Labour Commissioner, which had become final and was not challenged by the corporate debtor. The adjudicating authority found that the decretal amount of Rs. 1,23,725 (including interest) exceeded the threshold limit prescribed under Section 4 of the IBC, thus qualifying as a "debt" and specifically as an operational debt. The appellant relied on a prior judgment where this Tribunal held that welfare dues such as LTC and Earned Leave Encashment do not constitute operational debt if the principal gratuity amount has already been paid. However, the Court distinguished that case on facts, noting that in the present matter the gratuity amount itself remained unpaid and was crystallized by a final award. Therefore, the Court concluded that the payment of gratuity claim with interest indeed constitutes operational debt, making the Section 9 application maintainable. On the second issue concerning pre-existing dispute, the appellant contended that two suits filed by the corporate debtor (Suit No. 500/2017 and Suit No. 2506/2017) prior to the Section 9 application evidenced a dispute that barred the insolvency petition. Suit No. 500/2017 sought declarations that draft rehabilitation schemes and financial statements should not be construed as admissions of debt, and injunctions against creditors raising claims based on those documents. Suit No. 2506/2017 sought injunctions restraining retired workers from representing their dues in various forums and declared certain documents null and void. The Court analyzed these suits and found that they did not raise any substantive dispute regarding the gratuity claim or other dues of the workmen. Instead, the suits aimed to protect the corporate debtor's position in relation to rehabilitation schemes and financial disclosures. Further, the Court noted that the suits were filed after the issuance of the demand notice under Section 8 of the IBC by the trade union on 14.03.2017, which preceded the suits by several months. The trade union's Section 9 application was dismissed as premature, but the demand notice and claim were valid and prior to the suits. Additionally, the Delhi High Court had earlier acknowledged the right of the workmen to invoke the jurisdiction of the NCLT under Sections 6, 8, and 9 of the IBC. The corporate debtor's counsel had agreed to this position in the Writ Petition that was disposed of on 06.12.2017. The Court found that the suits filed after this date to restrain workmen from claiming dues were mala fide and could not be treated as raising a pre-existing dispute. Hence, the plea of pre-existing dispute was rejected as frivolous and a mere obfuscation. The third issue concerned whether the dismissal of the Section 9 application filed by the trade union (JK Jute Mazdoor Morcha) and the affidavit filed by the present operational creditor in that proceeding barred the present claim by res judicata. The Court examined the affidavit filed by the operational creditor, which authorized the trade union to represent his claim and requested the Tribunal to consider his claim in that appeal. However, the Tribunal's dismissal of the trade union's Section 9 application was solely on the ground of prematurity, i.e., the application was filed before the expiry of 10 days from delivery of the demand notice, as mandated by Section 9. No decision was taken on the merits of the claim or the existence of debt or default. The Supreme Court also dismissed the subsequent civil appeal without addressing the merits. Therefore, the Court held that the prior order did not constitute res judicata against the present claim. The principle of res judicata requires a final determination on the merits, which was absent here. Consequently, the present Section 9 application was not barred by the prior dismissal. In its reasoning, the Court also took note of the prolonged history of the corporate debtor being a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) until its repeal in 2016, the failure of rehabilitation schemes, and the winding-up directions by BIFR. The corporate debtor had been non-operational and closed since March 2014. The workmen's dues had accumulated, and the insolvency resolution process was deemed the only viable route for revival and realization of dues. The Court highlighted the Supreme Court's earlier ruling that trade unions can be operational creditors under the IBC and can file joint applications on behalf of workmen. The Court also noted that multiple Section 9 applications filed by different workmen were disposed of following the admission of the present application, consolidating claims. The Court rejected the appellant's contention that intervention applications filed by other workmen were not maintainable or that the operational creditor's claim lacked strength because of alleged manipulation by previous management. The Court emphasized that the application must stand on its own merits but also recognized the practical consolidation of claims for efficient resolution. In conclusion, the Court upheld the adjudicating authority's order admitting the Section 9 application. It held that: - The gratuity claim with interest awarded by the Labour Commissioner constitutes an operational debt under Section 5(21) of the IBC; - There was no pre-existing dispute that barred the application, as the suits filed by the corporate debtor did not contest the gratuity claim and were filed after the demand notice; - The dismissal of the prior Section 9 application by the trade union on prematurity grounds does not operate as res judicata against the present claim; - The application was within the limitation period; - The initiation of Corporate Insolvency Resolution Process (CIRP) was justified given the corporate debtor's prolonged closure and financial distress. The Court dismissed the appeal, vacated the interim order, and excluded the period from 02.02.2024 till the date of the order from the CIRP timeline. Costs were left to the parties. Significant holdings include the following verbatim excerpt from paragraph 22 of the adjudicating authority's order, affirmed by the Court: "The decretal amount is adjudicated by the Labour Court as a legally payable claim crystallized and payable in law, the same would constitute a 'debt' which remained unpaid by the Corporate Debtor. The decretal amount awarded by the Civil Court, Kanpur Nagar in respect of gratuity along with 8% till the date of filing of Petition which constitutes a sum of Rs. 1,23,725 is above the threshold limit of Rs. 1.0 Lakh as specified under Section 4 of the IBC,2016." Core principles established include: - Gratuity claims crystallized by final awards and remaining unpaid qualify as operational debt under the IBC; - Filing of suits by the corporate debtor that do not contest the debt but seek to restrain claims based on other grounds do not constitute pre-existing disputes barring Section 9 applications; - Prematurity of a Section 9 application (filing before expiry of 10 days from demand notice) is a valid ground for dismissal, but such dismissal does not bar fresh claims filed after the period; - Trade unions represent operational creditors and can file joint applications under the IBC; - Insolvency proceedings are appropriate for resolution of long-standing dues of workmen where the corporate debtor is non-operational. The final determination was that the Section 9 application filed by the operational creditor was maintainable, no pre-existing dispute barred its admission, and the prior dismissal of a related application did not operate as res judicata. The appeal was dismissed accordingly.
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