Retention allowance must be established as a financial liability under applicable rules to be considered part of salary; mere proposals do not confer entitlement.

JUDGMENT

(Hybrid Mode) [Per: Justice Sharad Kumar Sharma, Member (Judicial)]

The instant company appeal, engages consideration of a very short question, as to, whether the members of the Appellant Association, which is a registered body in the name of M/s. Lanco Infratech Employees Welfare Association, who are 212 in number, are entitled to be paid with the “retention allowance” or not. They had raised a claim for, payment of the retention allowance, along with payment of salary for the month of June 2017, which they contend, that since they being an Operational Creditor, in the capacity of Operational Creditor were entitled to be paid with the salary for the month of June 2017, and the retention allowance too. It is not in controversy, and rather admitted too, that the salary for the month of June 2017 had been paid to the members of the Appellant Association. The only controversy which is now confined to be considered by this Appellate Tribunal is the payment and the entitlement for the payment of the remittance of the retention allowance.

2. In the company appeal in question, the challenge, which has been given, by the Appellant is, to the Impugned Order of 11.03.2024, which was passed by the NCLT Hyderabad bench, where it has rejected the IA No. 251/2022, as preferred in CP (IB) No. 111/7/HDB/2017, wherein the appellant in the representative capacity has sought for the following relief: -

(a) To direct the liquidator to pay the applicant's salary for the month of June 2017. (b) To direct the liquidator to pay the retention allowance which was committed by the Erstwhile Management of the Corporate Debtor (CD), being an incentive for the employees to continue with the employment of the Corporate Debtor.

3. The said claim of the payment of the retention allowance has been rejected, by the Ld. Adjudicating Authority, on the ground, that the internal note made by the officials of the Corporate Debtor, approving the payment of retention allowance cannot be taken as to be the basis, for the payment of the retention allowance, as retention allowance does not constitute or form part of the salary.

4. The Ld. Counsel for the Appellant has submitted, that the Ld. NCLT, has observed that merely a noting made by the Managing Director on an internal note, does not in itself confer a statutory right, to be paid with the retention allowance, and we find it to be logical too because any emolument, which is likely to be paid to the employee of an organization, since it would be having a financial implication on the employer , it has to be backed by a legal sanction, meaning it has to be an allowance or a wage or a salary, which is payable under the applicable rules, policies or standing orders of the employer Company. Since the Appellant, who on behalf of the employees was claiming for payment of the retention allowance, then it became all the more necessary, on part of the Appellant to establish, by law and by evidence, to sustain the said claim for grant of such claim. In fact, the Tribunal has observed that, there was nothing on the record, brought by the Appellant, to show that the retention allowance is part of salary which alone is payable during the CIRP period, for the reason being, that until and unless the said fact is established, under the law regarding its payability, the retention allowance cannot be treated as to be a salary or a part of the salary. The aforesaid contention finds support, from the fact that, the salary in its literal connotation, would mean a total monthly emolument and which is in exclusion of the allowances declared, exempted from attachment to the salary under the provisions of law.

5. The salary, under Law Lexicon of P. Ramanatha Aiyar 6 th Edition, has been described as, pay allowances or bonus or commission payable monthly or otherwise, or any legally sustainable monetary payment. What is relevant herein is, that an allowance will become a part of the salary only when, its entitlement falls due every mon