SUNIL KUMAR JAIN AND OTHERS versus SUNDARESH BHATT AND OTHERS

SUNIL KUMAR JAIN AND OTHERS versus SUNDARESH BHATT AND OTHERS

Only wages/salaries of those workmen/employees who actually worked during the CIRP while the interim/resolution professional managed the corporate debtor as a going concern can be included as insolvency resolution process costs under Section 5(13)(c) and, if so included, such amounts are payable with first priority under Section 53(1)(a). All other pre-CIRP and non-CIRP-period wages/salaries are to be governed by the priorities in Section 53(1)(b) and (c). Sums due from provident fund, gratuity fund and pension fund are excluded from the liquidation estate under Section 36(4) and must be paid to entitled workmen/employees out of those funds; the Liquidator has no claim over such funds.

Parties
Appellants Workmen/employees of M/s ABG Shipyard Limited: Sunil Kumar Jain and Others; Respondents Liquidator of the Corporate Debtor and Others: Sundaresh Bhatt and Others
Jurisdiction
India
Judgment Date
19 April 2022
Procedural Posture
Civil Appeal (against NCLAT Order) / Final Judgment on Appeal
Outcome
Appeal partly allowed
Legal Topics
Corporate Insolvency Resolution Process (cirp) Costs, Workmen's Dues and Priority Waterfall, Liquidation Estate Exclusion (provident/gratuity/pension), Management as Going Concern
Insolvency and Bankruptcy Company Law Labour/employment Law Corporate Insolvency Resolution Process (cirp) Costs Workmen's Dues and Priority Waterfall Liquidation Estate Exclusion (provident/gratuity/pension) Management as Going Concern

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Parties

Sunil Kumar Jain and Others

Appellants Workmen/employees of M/s ABG Shipyard Limited

Sundaresh Bhatt and Others

Respondents Liquidator of the Corporate Debtor and Others

Procedural Posture

Civil Appeal (against NCLAT Order) / Final Judgment on Appeal

Legal Issues

  1. 1 Whether wages/salaries of workmen/employees for the CIRP period are to be included as insolvency resolution process costs under Section 5(13) of the IBC when charged to running the business as a going concern
  2. 2 Whether sums due to workmen/employees from provident fund, pension fund and gratuity fund are part of the liquidation estate or excluded under Section 36(4) of the IBC
  3. 3 Whether the RP's statutory duty to ‘make every endeavour’ to manage the corporate debtor as a going concern gives rise to a presumption that the corporate debtor was operated as a going concern during CIRP for the purpose of classifying wages as CIRP costs

Ratio Decidendi

Only wages/salaries of those workmen/employees who actually worked during the CIRP while the interim/resolution professional managed the corporate debtor as a going concern can be included as insolvency resolution process costs under Section 5(13)(c) and, if so included, such amounts are payable with first priority under Section 53(1)(a). All other pre-CIRP and non-CIRP-period wages/salaries are to be governed by the priorities in Section 53(1)(b) and (c). Sums due from provident fund, gratuity fund and pension fund are excluded from the liquidation estate under Section 36(4) and must be paid to entitled workmen/employees out of those funds; the Liquidator has no claim over such funds.

Court Disposition

Appeal partly allowed

Orders

  • Appellants to submit their individual claims before the Liquidator and prove that during CIRP the IRP/RP managed the corporate debtor as a going concern and that they actually worked during CIRP
  • Liquidator to adjudicate such claims independently and on their merits and on the basis of evidence, and to determine which wages/salaries qualify as CIRP costs under Section 5(13)