NCLAT Dismisses Insolvency Appeal Against Larsen & Toubro Over Dues Claimed By Former Employee

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has recently dismissed an insolvency appeal filed against Larsen & Toubro Ltd by a former senior employee over alleged unpaid salary and service benefits.

A Bench of Judicial Member Justice Mohd. Faiz Alam Khan and Technical Member Naresh Salecha upheld an order of the National Company Law Tribunal, Mumbai, which had rejected the employee's CIRP plea.

The Appellate Tribunal held that disputes arising from employment contracts, involving contested questions of resignation, suspension, and entitlement to benefits, cannot be decided in summary proceedings under the Insolvency and Bankruptcy Code in such cases.

“We also notice that a complex question of disputed facts more so when it is related to the employment agreement, payment of dues, which has been disputed by the employer may not be adjudicated by the Adjudicating Authority under the scheme of the Code"

Manoj Seth joined Larsen & Toubro in 2013 as a Senior Manager. In 2017, he was brought under the company's ESOPs Cash-Out Allowance and retention pay scheme, which provided additional payments to select employees. In April 2018, after a series of incidents at a project site, Seth sent in his resignation.

L&T provisionally accepted the resignation, later placed him under suspension, and then lifted the suspension on June 23, 2018. The company said Seth did not return to work even after the suspension was revoked and instead sought to be relieved. Seth later claimed unpaid salary for June 2018, along with ECAL and retention pay, raising a demand of about Rs 7.04 lakh.

L&T opposed the insolvency plea by pointing to a pre-existing dispute. It relied on the ECAL Scheme and the employment contract, which stated that employees who had resigned or were serving a notice period were not entitled to future ECAL or retention payments. The company said Seth's resignation disentitled him from these benefits. It also pointed out that the amounts claimed by Seth varied across emails, legal notices, and pleadings, showing that the alleged debt was not crystallised.

The Appellate Tribunal accepted these submissions. It noted that L&T had consistently denied liability for ECAL and retention pay in its correspondence with Seth well before the statutory demand notice was issued. It held that the dispute over entitlement was genuine and could not be termed a moonshine defence.

“These conflicting issues requires opportunity to the parties to tender their oral and documentary evidence and therefore must better be left for the adjudication of appropriate forum.”

The bench also observed that Seth had not withdrawn his resignation and had not resumed duties even after the suspension was revoked. It said that deciding whether the resignation was voluntary or under pressure would require a detailed examination of evidence, which is not permissible in insolvency proceedings.

The tribunal concluded that once the disputed ECAL and retention amounts were excluded, the remaining claim fell below the ₹1 lakh threshold then applicable to maintain a Section 9 petition. The appeal was dismissed

For Appellant: Advocates Gursat Singh Vaccher & Pranam Jain.

For Respondent: Advocates Rajat Malhotra & Madhu K Singh