Sakunjay Vyas
Published on: April 20, 2022 at 15:10 IST
The Two Judge Bench of Justice MR Shah and Justice Aniruddha Bose of the Supreme Court overturned the impugned judgment passed by the National Company Law Appellate Tribunal, New Delhi Bench, in which the NCLA tribunal had dismissed the appeal preferred by the appellants herein, working at Dahej and Mumbai, which was filed against the order passed by the National Company Law Tribunal, Ahmedabad Bench, Ahmedabad, not granting any relief to them with regard to their claim relating to salary, which they claimed for the period involving ‘Corporate Insolvency Resolution Process’ and the prior period.
The Supreme Court recently ruled that CIRP costs will include only wages/salaries of those employees who worked during CIRP.
The Two Judge Bench of Justice MR Shah and Justice Aniruddha Bose was hearing an appeal against the impugned judgment passed by the National Company Law Appellate Tribunal, New Delhi Bench in which the Apex Court stated that issue before this Court is with respect to wages/salaries of the workmen/employees during the CIRP period and the amount due and payable to the respective workmen/employees towards Pension Fund, Gratuity Fund and Provident Fund.
The Apex Court stated the laws to be considered while deciding the matter in hand, those are:
- Section 5(13) of the IB Code, “insolvency resolution process costs” shall include any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern.
- Section 20, the interim resolution professional/resolution professional is to manage the operations of the corporate debtor as a going concern and in case during the CIRP the corporate debtor was a going concern.
- Such workmen/employees who actually worked when the corporate debtor was a going concern during the CIRP, being a part of the CIRP costs, are entitled to have the first priority and they have to be paid in full first as per Section 53(1)(a) of the IB Code.
The appellant submitted the following contentions:
- That for the entire period of 20 months and 25 days when the workmen/employees were working, they were on the payrolls of the Corporate Debtor.
- That the RP did not terminate the employment contracts or retrench or layoff the workmen and regular attendance were asked from the workmen.
- That the Corporate Debtor was managed as a going concern in accordance with Section 21 of the IB Code.
- The appellants contended that the salaries/wages and the dues payable to the employees/workmen during the CIRP period will be qualified as CIRP costs under Section 5(13) of the IB Code and are liable to be disbursed even prior to the amount distributed under Section 53 of the IB Code.
- It was further submitted that the provident fund, gratuity and pension fund amounts remain outside the liquidation under Section 36(4) of the IB Code.
The respondent vehemently opposed the above-stated contention by stating:
- That the wages and salaries claimed by the appellants who have done no work during the CIRP period and have not assisted the RP/Liquidator during the CIRP, would not fall within the parameters of CIRP costs within the definition of Section 5(13)(c) of the IB Code.
- That only 8 employees were working in providing services required under the CIRP process the remaining employees and workmen including the appellants herein were not required to and did not perform any services to run the Corporate Debtor during the CIRP period.
- That as such there is no evidence to suggest that the respective workmen/employees deployed at Dahej Yard and Mumbai Head Office have actually worked during the CIRP period
The Apex Court after hearing both the parties stated that the issue here is shall the wages/salaries of those workers/employees who did not work at all during the CIRP period be treated and/or included in the CIRP costs?
The Apex Court stated that the wages/salaries of only those workmen who actually worked during CIRP will be included in CIRP costs as per Section 53(1)(a) of the IB Code and any other dues towards wages and salaries of the employees/workmen of the corporate debtor shall have to be governed by Section 53(1)(b) and Section 53(1) (c) of the IB Code.
“ The wages and salaries of all other workmen/employees of the Corporate Debtor during the CIRP who actually have not worked and/or performed their duties when the Corporate Debtor was a going concern, shall not be included automatically in the CIRP costs.”
Only with respect to those workmen/employees who actually worked during CIRP when the Corporate Debtor was a going concern, their wages/salaries are to be included in the CIRP costs and they shall have the first priority over all other dues as per Section 53(1)(a) of the IB Code.“ the Court said.
That the Apex Court further stated that even if in any event it is established that the Corporate Debtor was not a going concern during the CIRP despite efforts by the resolution professional, it cannot be assumed that the Corporate Debtor was still a going concern at the time.
That depending on the circumstances and facts of each case, the corporate debtor may be a going concern and in some cases, it may not be.
“Even if it is found that the Corporate Debtor was not a going concern during the CIRP despite best efforts by the resolution professional, it cannot be presumed that still the Corporate Debtor was a going concern during the CIRP period.”
“It depends on the facts of each case. In a given case, the Corporate Debtor may be a going concern and in a given case, the corporate debtor might not be a going concern.” the Court said.
As a result, the Apex Court overturned the impugned judgment passed by the National Company Law Appellate Tribunal, New Delhi Bench by stating that the workmen who actually worked during CIRP period will be shall be paid treating it and/or considering it as part of CIRP costs and the same shall be payable in full first as per Section 53(1)(a) of the IB Code.
According to Section 36(4) of the IB code, the share of the employees’ dues shall be kept out of the liquidation process and paid out of the provident fund, gratuity fund, and pension fund, if available.
