Peter Johnson John vs Kec International Ltd

[Arising out of order dated 20th December, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench in CP/2912/I&BP/NCLT/MAH/2018]

IN THE MATTER OF:

Peter Johnson John (Employee), S/o. N. John, Assistant Manager - Coordination, No.2, 6th Cross, Tagore Nagar, Lawspet, Puducherry - 605 008.

....Appellant

Vs

M/s KEC International Limited, RPG House, 463, Dr. Annie Besant Road, Worli, Mumbai - 400 030 Maharashtra.

....Respondent

Present:

For Appellant: Mr. K. S. Ilangovan and Mr. P. Jegan, Advocates.

For Respondent: Mr. K. Datta, Mr. Shakunt Saumitra and Ms. Pallavi Srivastava, Advocates. -2-

BANSI LAL BHAT, J.

The Appellant is aggrieved of rejection of his application under Section

9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as

'I&B Code') in terms of impugned order dated 20th December, 2018 passed

by the Adjudicating Authority (National Company Law Tribunal), Mumbai

Bench on the ground that a dispute was existing between the parties

regarding the debt and the application was not maintainable. The

impugned order is assailed primarily on the ground that there was a default

in discharging the debt qua the services rendered by the Appellant to the

Respondent - 'M/s KEC International Ltd.' (Corporate Debtor) having its

registered office at Worli, Mumbai, independent of the foreign decree passed

in favour of the Appellant and the suit filed by the Appellant (Operational

Creditor) for realization of decreed amount as per foreign judgment (Labour

Court of Kinshasa at DR Congo) dated 11th April, 2013 could not be termed

as a dispute to decline initiation of Corporate Insolvency Resolution Process.

2. The factual matrix leading to filing of application under Section 9 of

I&B Code by the Appellant before the Adjudicating Authority need to be

briefly adverted to. Appellant was appointed by the Corporate Debtor as

Assistant Manager - Coordination Foreign Overseas Engagement vide

Company Appeal (AT) (Insolvency) No. 188 of 2019 -3-

appointment letter dated 9th November, 2011. The Appellant was asked to

lead a technical project but he declined to carry out the assignment as he

lacked technical qualification. Allegedly, the Appellant was pressurized to

resign but he declined. He was not assigned any work and no salary was

paid to him. He was also not terminated from service. It was in utter

desperation that the Appellant sought legal help in terms of Clause 9 of his

appointment letter and filed a suit in the Labour Court of DR Congo. The

suit was decreed. The Labour Court directed the Corporate Debtor to pay

compensation of USD 37,500/- towards abusive termination and

USD 13,997/- towards final liquidation. Besides repatriation costs of

USD 1690/- in addition to arrears of salary computed at USD 80,000/-

admissible from September, 2012 till date of order viz. 7th April, 2015 +

interest was also awarded in favour of the Appellant. The Corporate Debtor

did not comply with the judgment. Instead it wound up its operations and

project in Congo. This forced the Appellant to seek shelter with the Indian

Embassy in Congo and return to India. The Appellant filed suit no. 526 of

2017 under Section 13 of the Code of Civil Procedure 1908 before the

Bombay High Court. The Appellant claimed unpaid Operational Debt

calculated at INR 1,59,09,181/- from Corporate Debtor as according to the

Appellant he continued to be on the roll of Corporate Debtor. Appellant

issued demand notice under Section 8(1) of I&B Code which was served

upon the Corporate Debtor on 12th June, 2018. Since the demand notice

did not invoke any response from the Corporate Debtor within the

prescribed period, but a delayed reply was received by the Appellant wherein

Company Appeal (AT) (Insolvency) No. 188 of 2019 -4-

the Corporate Debtor raised the plea of dispute in regard to the Operational

Debt in the form of suit commenced by the Appellant in Bombay High Court

after issuance of demand notice. On consideration of the pleadings and

documents relied upon and arguments advanced on behalf of the parties,

the Adjudicating Authority declined to admit the application filed by

Appellant under Section 9 of the I&B Code.

3. The Adjudicating Authority noticed that the Appellant sought

initiation of Corporate Insolvency Resolution Process on the basis of claim

on account of salary dues adjudicated by the Labour Court of Kinshasa and

a civil suit is pending regarding the same before Bombay High Court seeking

declaration in regard to executability of the decree passed by the foreign

court in India. It noticed that since there was no reciprocating treaty with

Democratic Republic of Congo whereby a decree passed by Labour Court of

Kinshasa, Congo could be executed in India, Section 44A of CPC

whereunder a foreign decree could be directly executed in India was not

applicable. Such foreign decree was required to be adjudicated upon by a

Court in India in view of Section 13 of CPC. It also noticed that the

Appellant had already approached the Hon'ble High Court of Judicature at

Bombay for declaration in regard to executability of the Kinshasa Labour

Court Decree in India and that suit is still pending adjudication. The

Adjudicating Authority was of the view that since application under Section

9 of I&B Code was filed by Appellant during the pendency of the aforesaid

suit and the Appellant's claim was based on the foreign decree, it

Company Appeal (AT) (Insolvency) No. 188 of 2019 -5-

constituted an existing dispute between the parties on the date of filing of

application under Section 9 of I&B Code before the Adjudicating Authority.

4. Learned counsel for the Appellant submitted that in the instant case

the Operational Debt being a claim for services rendered during employment

and non-payment resulting in accumulation of arrears of salary constituted

default. It is further submitted that the Corporate Debtor has admitted

contract of employment and no record has been produced to show that the

services of Appellant have been terminated in terms of the contract of

employment. He also submits that the Respondent has not produced any

record to show that the salary was paid to the Appellant from the date it fell

due. It is submitted that the Respondent also did not take any steps for

setting aside of the foreign decree. Thus, default in payment of salary

constituted a legally enforceable debt and the salary not being paid being an

Operational Debt, the Appellant was justified in invoking jurisdiction of

Adjudicating Authority under Section 9 of the I&B Code. It is lastly

submitted that Corporate Insolvency Resolution Process could be invoked by

the Appellant irrespective of the foreign judgment. According to learned

counsel for Appellant, the foreign decree is only a record supporting

Appellant's claim for debt in respect whereof default has been committed by

the Corporate Debtor and there being no pre-existing dispute between the

parties, the impugned order cannot be sustained.

Company Appeal (AT) (Insolvency) No. 188 of 2019 -6-

5. Per contra learned counsel for Respondent submits that the alleged

debt as claimed by the Appellant is not due and payable by the Respondent

as the alleged debt is not crystallized by a court of competent jurisdiction. It

is submitted that the foreign decree relied upon by the Appellant being an

ex-parte decree passed by a court in a non-reciprocating territory is not an

enforceable decree in India unless held to be conclusive and executable in

India under Section 13 of CPC. The alleged debt till then would not be a

debt payable in law as on the date of filing of insolvency application suit

filed by the Appellant was pending adjudication before the Hon'ble High

Court of Bombay and the foreign decree was yet to be held conclusive and

executable.

6. Heard learned counsel for the parties and perused the record. The

only issue requiring determination is whether in absence of adjudication of

the foreign decree passed by a court in a non-reciprocating, territory, which

is relied upon by the Appellant, the Appellant was legally justified in seeking

initiation of Corporate Insolvency Resolution Process under Section 9 of the

I&B Code against the Corporate Debtor. It is not in controversy that the

claim upon which default of Operational Debt is founded arises out of a

contract of employment. The fact that the Appellant was engaged as

Assistant Manager - Coordination by the Corporate Debtor for an Overseas

Project in terms of Appointment Letter dated 9th November, 2011 and that

the Appellant was entitled to salary in terms of contract of employment for

the services rendered to Corporate Debtor bringing the salary dues accruing

Company Appeal (AT) (Insolvency) No. 188 of 2019 -7-

as per the specified mode of payment within the fold of Operational Debt is

not disputed. It is also not in dispute that the Appellant, upon denial of his

salary dues, filed a suit before Labour Court of Kinshasa in Democratic

Republic of Congo where he was posted by the Corporate Debtor for

rendering services in terms of contract of employment as in terms of Clause

9 of the contract such disputes were to be resolved as per local legal

framework. Admittedly, the suit was decreed in ex-parte which has not

been appealed against by the Respondent - Corporate Debtor. It is also not

in controversy that there is no reciprocal arrangement between India and

Congo. Therefore, Section 44A of Civil Procedure Code providing for

execution of a foreign decree by filing of a certified copy of such decree

passed by a superior court in a reciprocating territory in a District Court has

no application and the observations of the Adjudicating Authority in this

regard cannot be termed as unwarranted.

7. It is well settled that foreign decree either of reciprocating or non-

reciprocating territory not passed on merits or not satisfying the

requirements of Section 13 of CPC cannot be the basis of winding up

petition. An ex-parte decree based on default summary judgment for non-

appearance before a foreign court cannot be relied upon for seeking winding

up of a company. Such decree cannot be held conclusive as it has not been

given on merits of the case. Reference may profitably be made to law laid

down by Hon'ble High Court of Delhi in "Rajkumar Gupta Vs. Barnes

Investments Ltd. & Ors.", reported in 2007 (99) DRJ 629 and Hon'ble

Company Appeal (AT) (Insolvency) No. 188 of 2019 -8-

High Court of Bombay in "Marine Geotechnics LLC Vs. Costal Marine

Construction and Engineering Ltd.", reported in (2014) 183 CompCas

438 (BOM). It cannot be disputed that the concept of winding up under the

Companies Act, 2013 tantamount to liquidation under the I&B Code and

viewed in perspective of legislative change it has to be accepted that the

liquidation being culmination of the process under I&B Code as a sequel to

failure of Insolvency Resolution, a foreign decree passed in ex-parte for

default in appearance of the Corporate Debtor and not on merit could not be

the basis for initiation of Corporate Insolvency Resolution Process.

8. Learned counsel for Appellant tried in vain to persuade us that the

requirement of filing of a suit on the foreign decree in keeping with the

mandate of Section 13 of CPC would not preclude the Appellant -

Operational Creditor from triggering Corporate Insolvency Resolution

Process. This argument, on the face of it, is sound neither in technique nor

in substance. One wonders as to how can an Operational Creditor seek

initiation of Corporate Insolvency Resolution Process without the debt

having crystallized and being payable in law or in fact. Admittedly, under

the terms of contract (service conditions governing the engagement of

Appellant) during the period of Appellant's posting at the foreign location he

would be governed by the local rules and regulations of the country of

posting. Since, the dispute arose in regard to his engagement, performance

of duties, salary and emoluments, the Appellant chose to approach the

Labour Court at Kinshasa, Democratic Republic of Congo, where the suit

Company Appeal (AT) (Insolvency) No. 188 of 2019 -9-

was decreed in his favour in ex-parte, albeit on account of non-appearance

of the Respondent - Corporate Debtor. It is not disputed that such ex-parte

decree of a foreign court would not be executable in India until adjudicated

upon by a Civil Court in India within the ambit of Section 13 of CPC and

having regard for the same, the Appellant has chosen to file suit before

Hon'ble High Court of Bombay, which is still subjudice. Unless the decretal

amount is adjudicated upon by the Hon'ble High Court of Bombay as a

legally payable claim, the same would not constitute a "Debt" in the hands

of Appellant - Operational Creditor and unless the debt is crystallized and

payable in law, the issue of default would not be attracted. Admittedly,

Appellant is pursuing the litigation before the Bombay High Court in regard

to the foreign decree and claim payable thereunder. He cannot be permitted

to circumvent the appropriate legal remedy, already pursued, by invoking

provisions of Section 9 of I&B Code, thereby defeating the fundamental

provisions of law governing execution of a foreign decree obtained in ex-

parte from a court located in a non-reciprocating territory. Such course is

neither legally permissible nor warranted as admittedly the matter is not

covered under Section 44A of CPC. The argument advanced warrants

outright rejection and is accordingly rejected.

9. For what has been discussed hereinabove, we are of the considered

opinion that the adjudication initiated by the Appellant before Bombay High

Court wherein adjudication is sought in regard to foreign decree obtained

ex-parte falls within the purview of a pre-existing dispute placing an

Company Appeal (AT) (Insolvency) No. 188 of 2019 -10-

embargo on the powers of Adjudicating Authority to initiate Corporate

Insolvency Resolution Process at the instance of a Corporate Debtor. This is

apart from the fact that until such adjudication fructifying in a decree

favouring the Appellant, the claim of Appellant cannot be held to have

crystallized into a "Debt payable in law". We find no scope for interference

with the impugned order. The appeal being devoid of merit stands

dismissed.

[Justice Bansi Lal Bhat] Member (Judicial)

[Mr. Balvinder Singh] Member (Judicial)

NEW DELHI 3rd July, 2019

AM

Company Appeal (AT) (Insolvency) No. 188 of 2019