Ex-CEO’s insolvency petition against eSmart Energy Solutions gets rejected

In an intriguing case, the former CEO of a company files an insolvency petition against the company citing non-payment of salaries.  The applicant – Sudhir Chauhan – had moved NCLT as an operational creditor seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Esmart Energy Solutions Limited by invoking the provisions of Section 9 Insolvency and Bankruptcy Code.

The case of the Petitioner is that he was appointed as Executive Director/CEO with effect from 1 June 2017. On 23 October 2018, he tendered his resignation from the office of the Director of the Company, which was accepted by Esmart Energy Solutions. He argued that he was appointed as Director as well as CEO, and while he resigned only as Director, he is entitled to his dues as CEO as he never tendered his resignation as CEO.

The counsel of Esmart Energy Solutions on the other hand submitted that the appointment of the petitioner was as Executive Director cum CEO meaning thereby that he was holding collective charge/ responsibility. The dual nomenclature in the appointment letter cannot by any stretch of imagination grant him the liberty of holding two independent posts and also the liberty to tender his resignation from one post and to continue on the other.

While referring to the appointment letter, it was emphasized that the terms of appointment nowhere separately defined the set of responsibilities as Executive Director and/or as CEO. The counsel further submitted that no separate salary was reflected in the appointment letter for the alleged two different posts.

The contention of the corporate debtor is that in view of the fact that the terms of the employment clearly enumerated that there is a lock-in period of 3 years before terminating his services. But the Operational Creditor resigned out of his own free will unilaterally. Thus, the operational creditor does not deserve any relief, least of all the relief prayed for.

While rejecting the insolvency application, the Mumbai bench of the NCLT said that it is unable to agree to the contention of the Petitioner stating that he resigned from the post of Executive Director and not from CEO post and thus deserves to be paid the salary of CEO.

“It is more so because the Petitioner/ Operational Creditor has failed to draw our attention to any document or submission so as to buttress his argument to the effect that he continued to discharge his responsibility as CEO even after submitting his resignation on 23 October 2018,” said the NCLT in its order.

The NCLT consented with the argument of the counsel for the Corporate Debtor that the services of operational creditor were terminated with immediate effect in view of the resignation having been tendered by the Operational Creditor.

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