Is Your Company Not Paying Your Salary? Here’s Your New Legal Remedy!

BSNL has been suffering from financial difficulties for a while now. As a result, it has failed to pay salaries to its employees. Since BSNL is a government company, government intervention is quick. The government had previously assured that it would ensure the payment and treat it on a priority basis.

BSNL has failed to pay salaries to its employees for January.

It is not unprecedented for employers in the private sector to fail to pay salaries. In usual cases, the financial situation of the companies is the primary reason behind this. Nevertheless, it is a disaster for salaried employees.

The situation gets dreadful and out of control in cases where big companies with a vast number of employees fail to make payments. 

In the latest, BSNL has failed to pay salaries to its employees for January and is expected to pay it by March. BSNL is still a public sector company with a good reputation. The situation in the private sector is even worse.

What Is The Problem?

The labour laws make provisions for settlement through the labour commissioner where the salary in question is up to ₹18,000.

Until recently, for people earning more than that, the only option available was through filing a case in a civil court. We all are aware of how courts function and that there is no guarantee for a timely hearing. 

Employees are mostly unaware that they have a very distinct remedy available under the Insolvency & Bankruptcy Code 2016 (IBC). An employee under the code is eligible to initiate a time-bound proceeding against the company. How exactly? Here’s how:

What Solution Does IBC Provide?

The IBC provides for the resolution of state of insolvency of the businesses. Too technical? Stay with me a little longer. Insolvency is a state where the liabilities of business outweighs the value of assets the company owns. Technically, it’s a situation where the business cannot pay towards its obligations even if it sells all of its assets.

IBC provides a remedy for such a situation where professionals are brought in to get rid of the business of this state of insolvency. The objective is to discharge the obligations and prevent the company from going bankrupt. If there is no resolution of this insolvency, the last resort is the liquidation of assets and paying towards as much of obligations.

How Can Employees Benefit From It?

Under Section 6 of the Code, the following persons can initiate an insolvency resolution process:

  1. Financial creditor
  2. Operational creditor
  3. Corporate creditor

The employees are covered under the definition of an operational creditor. Who is an operational creditor? Section 5 (20) defines an “operational creditor” as a person to whom an operational debt is owed. Operational debt is further explained in section 5 (21) as a claim in respect of the provision of goods or services, including employment.

Simplifying it, the code expands the meaning of the word ‘debt’ to include the pending payment concerning provisions of goods and services. Thus, the operational creditor could be a contractor supplying a company with raw material, or any services. The new meaning of debtor also includes employees who provide their services to the company and their salary remains due.

Thus, the employees whose salaries are not being paid by a company for a substantial amount of time have a new remedy. The benefit of taking the IBC path is that the code lays down a strict time limit for completion of the process, i.e. 180 days. 

When Does IBC Kick In?

Technically, the creditors become eligible to kickstart the process of insolvency resolution on the very first day the company fails to make the payment. Of course, you will need to take reasonable care before jumping into it. 

How To Start?

Step I: For the operational creditors, the first step is to serve a Demand Notice to the company. The company is obliged to make payment within ten days of receiving the notice. If the company still fails to make payment accordingly or does not reply to the demand notice at all, the insolvency resolution process could be started.

Step II: The next step is to make an application to the Insolvency & Bankruptcy Board of India (IBBI). IBBI is the regulatory authority set up under the code. The board may or may not admit the application. If the application is accepted, the law will take its due course. 

The process of insolvency resolution includes all the stakeholders, although the operational creditors have little power to exercise once it has begun. It is also one of the disadvantages of the process that operational creditors might feel that they have no control over the process. 

Therefore, it is advisable that one should undertake the process under IBBI cautiously. There can be various pros and cons of choosing this process, but the truth is that there is no other time-bound method available. 

If you find yourself in a situation where the company has not paid your salary in a long time or does not seem to be in a position to pay, the insolvency resolution process can come to your rescue.

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