The NCLAT held that a Resolution Professional had limited power to reject a claim without the approval of the Adjudicating Authority.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed an appeal and observed that the resolution professional could not unilaterally reject a claim under Section 18 of the Limitation Act without the approval of the Adjudicating Authority, and any such rejection must align with the procedural and substantive principles under the Insolvency and Bankruptcy Code, 2016.
The appeal, challenging the order dated 18.01.2024 by the NCLT Mumbai Bench in M.A. No. 1847 of 2019, arose from the rejection of claims made by the appellants—authorized representatives of 271 workmen—during the liquidation process of Biotor Industries Ltd. Initiated under Section 7 of the IBC, the CIRP for the corporate debtor began on 01.01.2018. Subsequently, an order for liquidation was passed on 31.12.2018. The liquidator, after publishing an invitation for claims, sought evidence from the appellants substantiating their claims of employment within two years prior to liquidation commencement. The liquidator rejected these claims due to insufficient proof, as communicated on 02.03.2019. The appellants, aggrieved by this rejection, moved M.A. No. 1847 of 2019, which was ultimately dismissed by the NCLT.
The appellants argued that the factory closure since June 2010 was not in compliance with Section 25-O of the Industrial Disputes Act, 1947, as no state liquidation Regulations, relying instead on outdated pay slips and identity cards from 2010. The liquidator noted that the appellants themselves acknowledged ceasing work by April 2012 and argued that no claims or disputes were raised by the workmen before competent labour forums in the intervening years.
The NCLT observed that the appellants had failed to assert their rights under labour laws such as the Industrial Disputes Act, 1947, or approach labour courts in a timely manner. It relied on the principle of vigilantibus non dormientibus jura subveniunt (laws assist the vigilant, not those who sleep over their rights). Further, the NCLT emphasized that the appellants’ reliance on outdated documents did not substantiate claims of employment during the relevant period. It also ruled that questions concerning factory closure, allegedly violating labour laws, fell outside its jurisdiction and should have been raised before labour courts.
On appeal, the NCLAT upheld the NCLT’s findings, stating that the adjudicating authority, within its role under the IBC, could not adjudicate on factory closure issues. Referring to the precedent in Era Labourer Union of Sidcul, Pant Nagar, through its Secretary v. Apex Buildsys Limited, REEDLAW 2024 NCLAT Del 09563, the NCLAT reaffirmed that such matters fell under the purview of labour tribunals. It concluded that the appellants' failure to pursue remedies under labour laws for years undermined their claims in the liquidation process. Consequently, the NCLAT dismissed the appeal, emphasizing the jurisdictional limits of the insolvency framework in addressing labour disputes predating CIRP. Government approval was obtained. They contended that, in the absence of legal closure, workmen were entitled to wages and benefits as if operations continued. The appellants also asserted that the liquidator erred in restricting the claims' look-back period to two years and emphasized that salary slips were unnecessary to establish their claims. However, the liquidator countered that the appellants had failed to provide evidence of employment as required under the IBBI
Mr. Bishwajit Dubey, Mr. Anuj Tiwari, Mr. Kaustaubh Rai, Mr. Karan Khetani, Mr. Vinay Patil, Mr. Girijapati Kaushal. Ms. Aroshi Pal and Ms. Monika, Advocates represented the Appellant.
Ms. Yahya Batatawala, Advocate appeared for Respondent No. 1.
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