Supreme Court Upholds Employee’s Claim: N. Subramanian vs. M/S Aruna Hotels Ltd. (2021)

Date of the Judgment: March 03, 2021

Citation: Not Available in the source document

Judges: Rohinton Fali Nariman, J., B.R. Gavai, J., Hrishikesh Roy, J.

Can a company deny its liability to pay the dues of its employee when there are acknowledgements of liability? The Supreme Court addressed this question in a recent case involving an employee seeking arrears of salary from his former employer under the Insolvency and Bankruptcy Code, 2016. The core issue was whether the employee’s claim was time-barred despite acknowledgments of the debt by the company. The Supreme Court bench comprising Justices Rohinton Fali Nariman, B.R. Gavai, and Hrishikesh Roy delivered the judgment, with Justice Nariman authoring the opinion.

Case Background

The appellant, N. Subramanian, was an employee of the respondent company, M/S Aruna Hotels Ltd. He joined the company as a Personal Assistant on January 1, 1983, and was promoted to Public Relations Manager before leaving service in 2013. After his retirement, he claimed that the company owed him Rs. 1.87 Crores in arrears of salary from 1998 to 2013. The employee relied on several acknowledgments of liability from the company, the last of which was dated September 30, 2014, from the company’s Managing Director. The company denied the liability, arguing that the claim was time-barred. The National Company Law Tribunal (NCLT) initially admitted the employee’s claim, but the National Company Law Appellate Tribunal (NCLAT) overturned the decision, stating that there was a dispute and the claim was time-barred. The employee then appealed to the Supreme Court.

The employee had filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) on 21.07.2017. The company had filed a civil suit on 06.07.2017, one week after the notice under Section 8 of the IBC was issued by the Appellant. The suit sought to declare the acknowledgements of liability as null and void.

Timeline

Course of Proceedings

The National Company Law Tribunal (NCLT) initially admitted the application under Section 9 of the IBC filed by the Appellant, noting that the company had acknowledged a principal amount of Rs. 1.06 Crores as due. The NCLT dismissed the company’s claim that a payment voucher settled all dues, stating that the voucher was for a different payment and did not cover the total arrears claimed. The NCLT also noted that the civil suit filed by the company was a desperate attempt to avoid liability. The National Company Law Appellate Tribunal (NCLAT) overturned the NCLT’s decision, stating that there was a dispute regarding the arrears and that the employee had failed to explain the delay in making the claim. The NCLAT also referred to a letter by the Employees Provident Fund Organisation dated 13.04.2016, stating that the Appellant’s claim has been settled as a result of that letter.

Legal Framework

The case primarily revolves around Section 9 of the Insolvency and Bankruptcy Code, 2016 [“IBC”]. Section 9 of the IBC allows an operational creditor to initiate the Corporate Insolvency Resolution Process (CIRP) against a corporate debtor if a debt is due and payable. The key issue is whether the claim was within the limitation period and whether there was a pre-existing dispute. The Supreme Court also considered the principle of acknowledgment of debt under the Limitation Act, 1963, which extends the limitation period when a debt is acknowledged in writing.

Arguments

Appellant’s Arguments:

• The Appellant argued that there were multiple acknowledgments of liability by the company, including letters dated 30.09.2006, 30.06.2013, and 30.09.2014. The last acknowledgment, dated 30.09.2014, specifically listed the exact amount due from 1998 until retirement, totaling approximately Rs. 1.06 Crores.
• These acknowledgments, according to the Appellant, prove that the amounts due were not time-barred.
• The Appellant contended that the Employees Provident Fund letter was irrelevant to the arrears of salary owed.
• The Appellant argued that the admitted principal amount of Rs. 1.06 Crores was clearly due, and there was no dispute.

Respondent’s Arguments:

• The Respondent argued that a new management had taken over the company in 2015.
• The amounts due to the Appellant were not reflected in the company’s annual reports or in a Due Diligence Report dated 27.07.2015.
• The Respondent claimed that the Appellant’s name was absent from the annexures listing employees owed money, indicating no amount was owed to him.
• The Respondent contended that the claim was time-barred and that the NCLAT had correctly appreciated the facts.
• As an alternative argument, the Respondent requested that if the Court set aside the NCLAT judgment, the matter should be remitted for a hearing on the merits of the NCLT’s decision.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in the judgment. However, the core issue was whether the NCLAT was correct in setting aside the NCLT order, which had admitted the application under Section 9 of the IBC. The sub-issues involved whether the claim was time-barred and whether there was a pre-existing dispute.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court did not explicitly cite any cases or books in its judgment. However, it considered the following legal provisions:

• Section 9 of the Insolvency and Bankruptcy Code, 2016 [“IBC”]: This section allows an operational creditor to initiate the Corporate Insolvency Resolution Process (CIRP) against a corporate debtor if a debt is due and payable.
• Limitation Act, 1963: The Court considered the principle of acknowledgment of debt under the Limitation Act, 1963, which extends the limitation period when a debt is acknowledged in writing.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court considered Section 9 of the Insolvency and Bankruptcy Code, 2016 and stated that the NCLT was correct in admitting the Section 9 application by the Appellant.
• The Court considered the principle of acknowledgment of debt under the Limitation Act, 1963 and stated that the last acknowledgment on 30.09.2014 made the claim within the limitation period.

What weighed in the mind of the Court?

The Supreme Court was primarily influenced by the fact that the company had repeatedly acknowledged its debt to the employee. The acknowledgments, particularly the one dated 30.09.2014, clearly stated the amount owed and extended the limitation period. The Court also noted that the Employees Provident Fund letter was irrelevant to the arrears of salary. The Court emphasized that the NCLT had correctly appreciated the facts and that the NCLAT had erred in overturning the NCLT’s decision.

The Court’s reasoning was primarily based on the principle of acknowledgment of debt and the limitation period. The Court held that the acknowledgments of liability by the company extended the limitation period, making the claim valid. The Court also found that there was no real dispute regarding the debt, as the company had repeatedly acknowledged it. The Court rejected the respondent’s arguments, stating that the new management’s lack of awareness of the debt was not a valid defense, given the explicit acknowledgments of liability.

The Court stated: “what becomes clear is the fact that from the date of the last acknowledgement i.e. 30.09.2014 till the date on which the petition before the NCLT was filed i.e. 27.07.2017, three years have not elapsed.”

The Court also stated: “It is clear that there is an acknowledgement of liability, which therefore shows that there is no “dispute” as to amounts owed to the Appellant.”

Further, the Court said: “The impugned NCLAT judgment is accordingly set aside. Consequently, the NCLT judgment is restored to the file.”

Key Takeaways

• An acknowledgment of debt in writing extends the limitation period for filing a claim.
• The Insolvency and Bankruptcy Code, 2016, allows an operational creditor to initiate CIRP if a debt is due and payable, and there is no pre-existing dispute.
• A company cannot deny its liability if it has acknowledged the debt, even if there is a change in management.
• The Employees Provident Fund letter was not relevant to the arrears of salary.

Directions

The Supreme Court set aside the NCLAT judgment and restored the NCLT judgment, which had admitted the application under Section 9 of the IBC. The Court did not give any other specific directions.

Development of Law

The ratio decidendi of this case is that an acknowledgment of debt extends the limitation period for filing a claim under Section 9 of the Insolvency and Bankruptcy Code, 2016. This case reinforces the principle that a company cannot deny its liability if it has acknowledged the debt, even if there is a change in management. There is no change in the previous position of law.

Conclusion

The Supreme Court allowed the appeal filed by the employee, N. Subramanian, and set aside the NCLAT order. The Court held that the employee’s claim for arrears of salary was not time-barred due to the company’s acknowledgments of liability. The Court restored the NCLT order, which had admitted the employee’s application under Section 9 of the IBC. This judgment underscores the importance of acknowledging debts and the legal implications of such acknowledgments.