Unpaid Salary of Whole-Time Director Constitutes Operational Debt, Can trigger CIRP: NCLT, Chennai

The National Company Law Tribunal (NCLT) at Chennai recently held that the unpaid salary dues of a whole-time director qualify as an operational debt, allowing a plea by a director seeking recovery of his unpaid salary of Rs 10.50 lakh.

In an order passed on October 10, 2025, a bench comprising Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy held that being a director does not automatically bar him from filing an insolvency application as long as debt and default is established.

"The Tribunal notes that being a director does not ipso facto bar a director from claiming a legally enforceable debt (salary) that had accrued to him. Further, the law under the IBC does not provide that a director's initiation of a Section 9 demand is per se invalid; the test remains whether the claim is real, undisputed and within limitation", it said. 

"It is settled that an operational creditor can also be an employee or director if a legally enforceable debt exists. There is no express bar under the IBC prohibiting a director from issuing a notice for unpaid remuneration that qualifies as “operational debt” under Section 5(21). The fiduciary obligations under Section 166(4) of the Companies Act, 2013, cannot override a statutory remedy available under the IBC in respect of unpaid dues, particularly when the employment relationship has effectively ceased", it added. 

The application was filed by Arul Prasad Senniappan against Viprah Technologies Limited, relating to salary dues for services rendered as Whole-Time Director from January 2016 to March 2017. The tribunal noted that the corporate debtor had acknowledged the debt in the Minutes of Meeting dated December 15, 2018, which the bench considered sufficient to extend the limitation period under the Limitation Act, 1963.

Rejecting the corporate debtor's defenses of alleged misconduct, breach of fiduciary duties, and competition through another firm, the tribunal observed that “allegation of misconduct, without contemporaneous initiation of formal action to recover damages/ forfeiture or a specific written repudiation of the salary claim prior to the demand, does not amount to a bona fide pre-existing dispute that will defeat an otherwise established claim."

It also observed that the company has neither denied the existence of an employment relationship nor produced any documents showing the payment of the salary to Senniappan during the period. Relying on the minutes of company meetings, the tribunal observed that "even informal written communication" constitutes valid acknowledgment under law.  

Consequently, the NCLT admitted the insolvency application and appointed CA S Prabhu as the Interim Resolution Professional (IRP). It also directed the Senniappan to pay Rs 2 lakh towards CIRP expenses. A moratorium under Section 14 of the IBC was imposed immediately, superseding the powers of the corporate debtor's board of directors and restricting any recovery actions against the company during the insolvency resolution period.

Click Here To Read/Download The Order