Breach of Terms of The Settlement Agreement Does Not Come Under The Purview Of Operational Debt: NCLT Delhi

 

The National Company Law Tribunal (NCLT), Delhi Bench comprising of Shri Dharminder Singh (Judicial Member) and Shri L.N. Gupta (Technical Member) while deciding upon an Application (IA 3247 of 2022) under Rule 11 of the NCLT Rules, 2016 filed in the matter Bajaj Rubber Company Pvt. Ltd. v Saraswati Timber Pvt. Ltd. Company Petition No. (IB) 1441(ND)/2018 decided upon the issue whether breach of Settlement Agreement is a ground to trigger Corporate Insolvency Resolution Process (CIRP).

Facts

Bajaj Rubber Company Pvt. Ltd., (the Applicant/Operational Creditor) had previously filed an application under Section 9 of Insolvency and Bankruptcy Code 2016 (IBC 2016) for initiation of Corporate Insolvency Resolution Process against the Corporate Debtor. However, on 21.01.2019 the said Application was withdrawn by the Operational Creditor on the ground that the parties have arrived a settlement.  Subsequently, a Compromise/Settlement Deed dated 17.01.2019 was entered into between the parties and post-dated cheques were also issued to the Applicant by the Corporate Debtor. The Tribunal vide an order dated 21.01.2019 had disposed off the petition recording that the petition is being withdrawn in light of a compromise entered between the Parties and liberty was granted to the Operational Creditor to revive the petition in the event of default in the terms of the settlement agreement.

Later the Corporate Debtor did not adhere to the terms of the Settlement Agreement and the post-dated cheques issued got dishonoured. Due to which the Applicant/Operational Creditor filed the present Application seeking revival of the earlier Application under Section 9 of IBC 2016 on the ground of breach of terms and conditions of the Settlement Agreement.

Held

The Bench while deciding the Application for revival of the earlier Application for initiation of CIRP relied upon the judgment of NCLT New Delhi in M/s Alhuwalia Contracts (India) Ltd. v M/s Logix Infratech Pvt. Ltd., IB 882/ND/2022 wherein it was held that the default of payment of settlement agreement do not come under the definition of Operational Debt and failure or breach of settlement agreement cannot be a ground to trigger CIRP under the provisions of IBC 2016 and remedy may be elsewhere not necessarily before the Adjudicating Authority. In M/s Alhuwalia Contracts (India) Ltd. v M/s Logix Infratech Pvt. Ltd., IB 882/ND/2022, the Tribunal had referred decision of NCLT Allahabad Bench in M/s Delhi Control Devices(P) Ltd v. M/s Fedders Electric and Engineering Ltd Company Petition (IB) No. 343/ALD/2018 dated 14.05.2019 and decision of NCLT Delhi Bench in Nitin Gupta v International Land Developers Pvt. Ltd., IB 507/ND/2020.

The bench also observed that even though vide Order dated 21.02.2019, liberty was granted to the Applicant to revive the Application for initiation of CIRP in case of breach of Settlement Agreement the said liberty cannot be granted as after passing of that Order the Tribunal in catena of judgments held that breach of terms of the settlement agreement does not come under the purview of operational debt as defined under the IBC, 2016 and cannot be a ground to trigger CIRP against the Corporate Debtor.

In light of the above, the Application filed by the Applicant was dismissed.

This Article has been Compiled by Ayushi Misra (Senior Associate) and Arun Gupta (Partner). 

  You can direct your queries or comments to the author at info@factumlegal.com

  Disclaimer-

  The contents of this article should not be construed as legal opinion. This article is             intended to provide a general guide to the subject matter. Specialist advice should be     sought about your specific circumstances. We expressly disclaim any financial or other   responsibility arising due to any action taken by any person on the basis of this article.

 

 

Moonlighting – Legal or Illegal?

 

Moonlighting – Legal or Illegal?

Recently, Moonlightling became a buzzword and a topic of controversy when Rishad Premji, Wipro chairman, tweeted that moonlighting in the tech industry is cheating. This invited different opinions on the issue where Monhandas Pai, former director of Infosys disagreed with Premji on the issue. Mohandas Pai stated that employment is a contract between employers who pay employees for working for them for ‘n’ number of hours per day. After the ‘n’ hours, the employees have freedom and can do what they want. 

Major IT companies like TCS, Infosys and Wipro stated that they would delay or reduce the variable payout to employees for FY 2023 first quarter due to weaker margins, leading to the rise in moonlighting. While in August, Swiggy, a food delivery platform, announced an industry-first ‘Moonlighting policy’ and allowed its employees to work on other projects under certain conditions after working hours. Days after Swiggy’s announcement, Rishad Premji, Wipro chairman, termed the concept of moonlighting as cheating.

This brings to us issue as to what is moonlighting, its legality or illegality thereof and how the employers can protect themselves.

What is moonlighting?

Moonlighting means working for one organisation while taking extra jobs, usually without the employer’s knowledge. Moonlighting is side employment taken up at night or on the weekends. The phrase moonlighting became popular when Americans started looking for a second job in addition to their 9-to-5 jobs to supplement their income.

The Legality of Moonlighting in India

Below are the laws that put restrictions on dual employment in India.

• Section 60 of the Factories Act, 1948, states that a worker is not allowed to work in two factories simultaneously. However, the definition of a worker under the Factories Act does not cover an IT professional or any employee working in an administrative or supervisory position.
• The Industrial Employment (Standing Orders) Central Rules, 1946, states that a workman should not work against the interest of the industrial establishment and should not take any additional employment which may adversely affect the employer’s interest.

However, all the above laws are for workmen and do not apply to employees working as professionals or in supervisory or administrative positions. Thus, there is no overreaching law prohibiting dual employment or moonlighting in the IT sector. However, when employees work in similar jobs, there may be a confidentiality or Intellectual Property Rights violation as employers include such restrictions in the employment agreements.

The legality of moonlighting per se would depend upon the employment contracts. If the employment contract contains non-compete clause and single employment clauses, then moonlighting would be illegal and in violation of the employment contract. The Courts in India have ruled restrictive trade covenants like non-compete, single employment clauses during the course of employment to be legal and reasonable. However, if an employment contract doesn’t contain any non-compete or single employment clauses, then moonlighting won’t be prima facie illegal as there hasn’t been an express violation of any contract. However, issues like sharing of confidential information or intellectual property rights intentionally or inadvertently could come up if the employee is engaged in working for a competing company. The legality of moonlighting in that case would then have to be adjudicated by the proper judicial authority as per the facts and circumstances of the case.

Since, moonlighting has become has major issue during the WFH model and will continue to do so, both employers and employees have to be careful during the contract negotiations and insertion or omission of certain clauses as the legality or illegality of Moonlighting would depend upon the stipulations in the contract.

This Article has been Compiled by Aditya Raj (Legal Associate) and Arun Gupta (Partner). 

  You can direct your queries or comments to the author at info@factumlegal.com

  Disclaimer-

  The contents of this article should not be construed as legal opinion. This article is             intended to provide a general guide to the subject matter. Specialist advice should be     sought about your specific circumstances. We expressly disclaim any financial or other   responsibility arising due to any action taken by any person on the basis of this article.

NCLAT View on eligibility of CFO

 

Eligibility of CFO - appointed in Private Limited Company in accordance with any provisions in its Articles of Association shall be established on the criteria as provided in Section 203 of the Companies Act, 2013: NCLAT

The National Company Law Appellate Tribunal (NCLAT) principal bench comprising of Justice Anant Bijay Singh, Dr. Alok Srivastava and Mr. Barun Mitra in the matter of Hamlin Trust & Ors. Vs. LSFIO Rose Investments S.A.R.L & Ors. (Company Appeal (AT) No. 77 of 2022) vide Order dated 07.09.2022 ruled on the issue that in case of a Private Limited Company where Article of Association of the Company contains any provisions for nomination and appointment of CFO in the Company, but is silent on the eligibility criterion for such appointment, the provisions of section 203 of the Companies Act, 2013 shall be binding for establishing such eligibility.

Background of the Case

An appeal was filed by the Hamlin Trust (approx. 50% shareholder of Rattan India Finance Private Limited {RFPL}) against the impugned order of the National Company Law Tribunal (NCLT) Principal Bench in CA No. 19 of 2022 regarding the appointment of Chief Financial Officer (CFO) in M/s Rattan India Finance Private Limited (RFPL), where such appointment was made in compliance of Article 140 of Article of Association of RFPL.

Contention of the Appellants

The Appellants contended that while passing the impugned order the NCLT has wrongly established that the provisions of Article of Association are absolute and no contention on the basis of eligibility as established under Section 203 of the Companies Act, 2013 can be made a ground for rejection where such rejection forms a part of the provisions of Article of Association of the Company, for the appointment of CFO. Basically, the appellants referred to Section 6 of the Companies Act, 2013 and claim that provisions of AOA cannot override the provisions of the Companies Act, 2013 whenever, the provisions of Articles of Association is silent it is perfectly logical and rational that reference be made to the Act and rules made thereunder to consider the eligibility criteria of CFO.

Held

It was held that impugned order failed to interpret the import of provisions of Article 140 of AoA in its true letter and spirit and does not contemplate that a person’s nomination can be considered to be valid or invalid for any particular reason where not provided in the subject Article. The NCLAT established that nomination of ineligible candidate as CFO shall not act as Hobson’s choice for the Appellants. The NCLAT also held that where the AoA of the Company is silent on any specific condition of eligibility for nomination of CFO, a logical recourse has to be taken to the relevant provisions in the Act and in this case provisions of the section 203 of the Companies Act, 2013.

Kindly access the full judgement at:-

https://efiling.nclat.gov.in/nclat/order_view.php?path=L05DTEFUX0RvY3VtZW50cy9DSVNfRG9jdW1lbnRzL2Nhc2Vkb2Mvb3JkZXJzL0RFTEhJLzIwMjItMDktMDcvY291cnRzLzMvZGFpbHkvMTY2MjU0MTg5MzM4NDYyOTgyNjYzMTg2MDQ1OWU0NmYucGRm

This Article has been Compiled by Akash Gupta (Principal Associate) and Arun Gupta (Partner). 

  You can direct your queries or comments to the author at info@factumlegal.com

  Disclaimer-

  The contents of this article should not be construed as legal opinion. This article is             intended to provide a general guide to the subject matter. Specialist advice should be     sought about your specific circumstances. We expressly disclaim any financial or other   responsibility arising due to any action taken by any person on the basis of this article.