Whether an Employee can file an Insolvency petition to NCLT for not paying his dues against his employer?

Whether an Employee can file an Insolvency petition to NCLT for not paying his dues against his employer?

NITIN GUPTA – MANAGER OF APPLIED ELECTRO-MAGNETIC PRIVATE LTD

Vs

APPLIED ELECTRO-MAGNETIC PRIVATE LTD

DECIDED BY THE DELHI BENCH OF NATIONAL COMPANY LAW TRIBUNAL

FACTS

APPLIED ELECTRO-MAGNETIC PRIVATE LTD has failed to pay Nitin Gupta’s dues on time. Nitin Gupta , claiming himself as an operational creditor , filed a plea under the Insolvency and Bankruptcy Code. Nitin Gupta claimed that Company failed to pay his salary to the tune of Rs 45 Lacs.

ISSUE

There are two types of creditors who can make a claim against a debtor for their dues.

Financial Creditors	Banks and financial institution
Operational Creditors	Employees and Vendors

Companies have to distinguish that the insolvency code gets activated on default and not on an inability to pay debt or erosion of net worth.

Decision

The National Company Law Tribunal admitted an insolvency petition against a company for its failure to pay an employee’s dues on time in one of the first such cases under the new law.

Thus, this case pave the way for the estranged employees to get the unpaid amount from their erstwhile employees.

With employees being able to trigger the intricate, complex and time-consuming insolvency process which would result in suspension of powers of directors, companies have to exercise caution to ensure timely payments to employees and workmen as per the agreements.