NCLAT Upholds Rejection Of CIRP Plea Against National Textile Corporation Over Pre-Existing Wage Dispute

The National Company Law Appellate Tribunal (NCLAT) at Delhi has recently upheld the rejection of an insolvency plea filed by Rashtriya Mill Mazdoor Sangh against National Textile Corporation Ltd., finding that disputes over wage dues were already pending, indicating a pre-existing dispute between the parties.

A Bench of Justice Ashok Bhushan and Technical Member Barun Mitra observed, “The scope of Section 9 of IBC cannot be bent to use it as an instrument for debt recovery as the focus of IBC is on ensuring the revival and continuation of the corporate debtor rather than facilitating recovery of the debt owed by the corporate debtor to its creditors"

The NCLT Delhi bench had earlier rejected the plea. It found that payments had been partly made and that disagreements over the remaining amount were under dispute.

The union represents workers of three mills run by NTC. It claimed Rs 66.88 crore towards unpaid wages, gratuity and other dues. Around Rs 20 crore had been paid. The balance claim of Rs 44.96 crore was cited as default.

A demand notice was issued on July 31, 2023. There was no reply. RMMS then approached the tribunal seeking insolvency proceedings against NTC.

Before the appellate tribunal, RMMS argued that the dues were admitted and crossed the minimum threshold required under law. It said partial payments do not wipe out default. It also argued that the labour court cases dealt with different issues and could not be treated as a dispute under insolvency law.

NTC contested the claim. It said most dues had already been cleared and only about Rs 4.25 crore remained, which needed reconciliation. It pointed to ongoing proceedings before the Industrial Court in Mumbai and the Bombay High Court on wage-related issues.

The tribunal noted that a company can raise a dispute even if it did not reply to the demand notice, as long as the dispute existed earlier. It referred to earlier rulings to support this view.

It found differences between the parties on wage calculations and payments. It also noted that the same wage issues were already being examined by labour forums before the insolvency notice was issued.

Since those proceedings were still pending, the dispute had not been resolved. The tribunal held that this showed a genuine pre-existing dispute.

Referring to Supreme Court rulings, the tribunal reiterated that insolvency proceedings are meant to resolve financial distress and not to recover disputed dues.

With this finding, the NCLAT dismissed the appeal.