Proceedings u/s 9 of IBC cannot be Initiated Against Performance Pay as it Does Not Amounts to Operational Debt: NCLAT

The NCLAT ruled that performance pay does not constitute operational debt, and therefore, proceedings under section 9 of the Insolvency and Bankruptcy Code (IBC) cannot be initiated for non-payment of such dues. The case involved a dispute over whether performance-related pay for employees could be classified as an operational debt, which is typically eligible for IBC proceedings. The NCLAT clarified that since performance pay is linked to employee performance rather than a contractual or operational liability, it does not meet the definition of operational debt under the IBC. This decision limits the scope of IBC actions and highlights the need for clear distinctions between types of liabilities.