SC allows section 9 application in light of acknowledgement of liability by the corporate debtor

A Full Bench of the Hon’ble Supreme Court in the matter of N. Subramanian v. M/s Aruna Hotels Ltd. & Another, REED 2021 SC 03547 owing to the acknowledgement of liability by the Corporate Debtor, dismissed allegations made by it regarding ‘existence of dispute’, and accordingly, upheld the National Company Law Tribunal’s (NCLT) verdict admitting application filed by the Operational Creditor under Section 9 of Insolvency and Bankruptcy Code, 2016 (IBC). 

The Appellant was the erstwhile employee of the Corporate Debtor who retired from the service as a Public Relations Manager in 2013. This appeal before the SC arose from an application dated July 21 2017 made by the Appellant under Section 9 of the IBC before NCLT for initiation of Corporate Insolvency Resolution process in relation to Corporate Debtor. In this application, the Appellant averred that a sum of Rs.1.87 Crores was owed to him, being the arrears of salary from the year 1998 till 2013 when he retired from service and that several acknowledgements of liability have been given of the arrears payable, the last of which was by a letter dated September 30, 2014, by the erstwhile Managing Director of the Corporate Debtor. 

The NCLT, relying on the acknowledgement of liability, by its judgment dated November 11 2017 rejected Corporate Debtor’s plea that the application was time-barred and admitted the application filed by the Appellant. In the appeal filed by a shareholder of the Corporate Debtor, the National Company Law Appellate Tribunal (NCLAT) referred to a letter by the Employees Provident Fund Organization and stated that the Appellant’s claim has been settled as a result of that letter. Aggrieved by this NCLAT’s order, the Appellant approached the Supreme Court.

Before the SC, the Appellant emphasized that the letter of acknowledgement clearly divulged the amounts due and payable to him and hence, the application filed within three years could not be said to be barred by limitation. Further, according to the Appellant, the Employees Fund Organization letter was only a red-herring and had nothing to do with the facts of this case, and it was clear that given the acknowledgements of liability, there was no question of any ‘dispute’ under Section 8 of IBC. 

The Supreme Court noted that from the date of the last acknowledgement i.e. September 30 2014 till the date on which the petition before the NCLT was filed i.e. 27 July 2017, three years had not elapsed. Therefore, at least to the extent of an acknowledgement made by the then Managing Director of the Corporate Debtor, the arrears of salary due for a period of at least 3 years prior to 30 September 2014 would certainly be within limitation, and accordingly, payable to the Appellant. 

The Supreme Court also agreed with the Appellant’s submission that the Employees Provident Fund was only a red-herring, and had nothing to do with the arrears of salary which had to be paid. Moreover, the acknowledgement of liability showed that there was no ‘dispute’ as to amounts owed to the Appellant. In light of the foregoing, the impugned judgment of NCLAT was accordingly set aside. Consequently, the Supreme Court concluded that NCLT judgment was correct in admitting the Section 9 application by the Appellant.