Judgments

SUNIL KUMAR JAIN VS. SUNDARESH BHATT : CASE SUMMARY

The Supreme Court in Sunil Kumar Jain Vs Sundaresh Bhatt (2022) SCC OnLine SC 467  held that workmen’s/employees’ wages earned during Corporate Insolvency Resolution Process  (CIRP) will be part of CIRP Cost. The Supreme Court also held that all sums due to any workman or employee from the Provident Fund, Pension Fund and Gratuity Fund will be outside the ambit of Liquidation Estate under Section 36 (4) of the Insolvency and Bankruptcy Code, 2016.

FACTS OF THE CASE

The Corporate Debtor was ship building yard having manufacturing facility at Surat Yard and Dahej Yard in Gujarat. Prior to initiation of CIRP the Corporate Debtor has 562 workmen and 93 employees at Dahej ; and 291 workmen and 99 employees at Surat and 101 employees at Mumbai Head Office.

Corporate Insolvency Resolution Process was initiated in respect of the Corporate Debtor vide order dated 01.08.2017 passed by NCLT.  272 employees and workmen employed at Mumbai and Dahej filed application  before the NCLT seeking direction to the Resolution Professional to make payment to the employees and the workmen. The NCLT directed the Resolution Professional to deposit Rs. 2,75,00,000/- subject to outcome of the Application.

CIRP was not successful as such Liquidation Order was passed. The NCLT also disposed the Application seeking direction to pay the workmen/employees without giving any relief. Appeal was filed before the NCLAT which refused to interfere in the order  passed by NCLT but directed the workmen/employees to file their claims.

FINDINGS OF THE SUPREME COURT

The Supreme Court observed that protection to the dues of workmen/employees have been given under Companies Act, 1956 as well as Companies Act, 2013.

Under IBC also Workmen’s dues have been protected and Section 36 (4) excludes Provident Fund, Gratuity Fund and Pension Fund from Liquidation Estate.

Section 5 (13) provides that Insolvency Resolution Process Costs includes cost incurred by the Resolution Professional in running the business of the Corporate Debtor as a going concern. Section 20 imposes duty on the Resolution Professional to run the Corporate Debtor as going concern. Wages and salaries of workmen/employee who worked during Corporate Insolvency Resolution Process  will be part of the CIRP Cost and in case of Liquidation payable at first priority under Section 53 (1) (a) of the Code.  Wages and salaries of only those workmen/employees who actually   worked during CIRP can be included in the CIRP Cost. All other dues of Workmen/employees will be governed by Section 53 (1) (b) and Section 53 (1) (c).

The Supreme Court observed that in the instant case the Liquidator has to firstly determine whether the Corporate Debtor was a going concern and secondly whether a workman/employee has worked during Corporate Insolvency Resolution Process.

The Supreme Court observed that Section 36 (4) (iii) excludes all sums due to any workman or employee from the Provident Fund, Pension Fund and Gratuity Fund from the ambit of Liquidation Estate assets. Section 53 (1) will not be applicable to such assets.  The Liquidator will have no claim over such assets. Workmen/employees will be entitled to such funds. They are not to be used for recovery.

The Supreme Court directed the appellants to file claims proving that Corporate Debtor was a going concern and  they had worked during Corporate Insolvency Resolution Process. The Supreme Court also directed the Liquidator to adjudicate such claims in accordance with law. If it is found that IRP/RP managed the Corporate Debtor as going concern and the concerned workman/employee has worked during CIRP, their wages and salary will be included in CIRP cost and paid in priority under Section 53 (1) (a) of the Insolvency and Bankruptcy Code, 2016.  

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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Mukesh Kumar Suman

Mukesh Kumar Suman

Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

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