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TMI Blog2022 (4) TMI 888X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the wages/salaries of such workmen/employees who actually worked, shall be included in the CIRP costs and in case of liquidation of the corporate debtor, dues towards the wages and salaries of 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. While considering the claims of the concerned workmen/employees towards the wages/salaries payable during CIRP, first of all it has to be established and proved that during CIRP, the corporate debtor was a going concern and that the concerned workmen/employees actually worked while the corporate debtor was a going concern during the CIRP. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate assets and the Liquidator shall have no claim over such dues - the concerned workmen/employees shall be entitled to provident fund, gratuity fund and pension fund from such funds which are specifically kept out of liquidation estate assets and as per Section 36(4) of the IB Code, they are not to be used for recovery in the liquidation. There are disputed questions, whether in fact the IRP/RP managed the operations of the corporate debtor as a going concern during the CIRP and there is a serious dispute whether Dahej Yard was operational during the CIRP or not and there is a serious dispute that the concerned workmen/employees of the Dahej Yard and the concerned employees of the Mumbai Head Office actually worked during the CIRP or not and therefore it is directed that let the appellants submit their claims before the Liquidator and establish and prove that during CIRP, IRP/RP managed the operations of the corporate debtor as a going concern and that they actually worked during the CIRP and the Liquidator is directed to adjudicate such claims in accordance with law and on its own merits - If it is found that in fact the IRP/RP managed the operations of the corporate debtor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor. None of the 201 employees and workmen at Surat Yard are the appellants herein. 3. Vide its order dated 1.8.2017, the Adjudicating Authority admitted an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the IBC Code ) and the CIRP was initiated. The Adjudicating Authority also appointed the Interim Resolution Professional of the Corporate Debtor who was thereafter confirmed as the Resolution Professional (for short, RP ) by the Committee of Creditors (for short, COC ) of the Corporate Debtor on 7.9.2017. First meeting of the COC was held on 4.9.2017. 3.1 On 23.10.2017, Company Application No. 348 of 2017 was filed before the Adjudicating Authority, praying inter alia to direct the Resolution Professional to make payment to the employees and the workmen. On 9.3.2018, the appellants herein filed Company Application No. 78 of 2018 in Company Application No. 348/2017 before the Adjudicating Authority, praying inter alia to direct the RP to utilize the amount of ₹ 9,75,33,236/- to be received from the Indian Coast Guard solely for employees/workmen. 3.2 Vide order dated 25.04.2018 passed in Company Application No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving CIRP and prior period, the appellantsworkmen/employees working at Dahej Yard and Mumbai Head Office preferred Company Appeal No. 605/2019 before the Appellate Tribunal. By the impugned order, the Appellate Tribunal has disposed of the said appeal declining to interfere with the order passed by the Adjudicating Authority, however, allowed the appellants 272 workmen/employees to file their individual claims before the Liquidator, who after going through the record and taking into consideration the pleadings made by the workmen/employees will determine the claim. The Appellate Tribunal has also further observed that if claim of one or other workmen/employee is rejected, it will be open to them to move before the Adjudicating Authority, which may decide the same in accordance with law. The Appellate Tribunal has also observed that so far as the Gratuity and Provident Funds are concerned, the same cannot be treated to be the asset of the Corporate Debtor and they are to be disbursed amongst the employees/workmen who are entitled for the same. 5. Feeling aggrieved and dissatisfied with the impugned order passed by the Appellate Tribunal, the appellants-workmen/employees of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the employees of Mumbai office had regularly attended the office; recorded their attendance with the Attendance Reader installed at the Mumbai office. Learned counsel appearing on behalf of the appellants has relied upon some documents from the paper book as well as rejoinder affidavit in respect of proof of work done by the respective employees/workmen during the CIRP period. 6.3 It is submitted that all claims filed by the employees/workmen in Form-E with the Liquidator have been verified. It is submitted that the verified and admitted claims of the employees and workmen of the Corporate Debtor for CIRP period on the basis of the records available including the attendance register have been uploaded by the RP/Liquidator on 24.12.2020 on the official website of the Corporate Debtor as per regulations. It is submitted that therefore further verification in respect of the claims of the appellants based on their actual attendance is vexatious. 6.4 Learned counsel appearing on behalf of the appellants has taken us to the relevant provisions of the IB Code in support of her submission that the workmen/employees of the Dahej Yard and Mumbai Head Office are at least entitled to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts remain outside the liquidation under Section 36(4) of the IB Code. It is submitted that the obligation to pay the provident fund, gratuity fund amount would arise as soon as the employees and workmen are deemed to have been discharged under Section 33(7) of the IB Code. It is submitted that even the workmen/employees are required to be paid the wages/salaries for the pre-CIRP period as per the priorities mentioned in Section 53 of the IB Code. 6.9 It is further submitted by the learned counsel appearing on behalf of the appellants that the salaries and wages payable to the workmen/employees for the CIRP period are a component of the resolution professional costs and therefore the CIRP period salaries and wages payable to the respective workmen/employees are to be first paid and are not to be paid pari passu in terms of Section 53(1)(b) and (c) of the IB Code. It is submitted that even the Workmen s Dues is explained in Explanation (ii) to Section 53 of the Code as the term having the same meaning as assigned to it in Section 326 of the Companies Act, 2013. It is submitted that Section 327 of the Companies Act provides for preferential payments upon winding up of a compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellants herein were not required to and did not perform any services to run the Corporate Debtor during the CIRP period. It is submitted that therefore the COC of the Corporate Debtor rightly did not approve any payments to the appellants as part of the CIRP costs. It is submitted that the wages and salaries of the appellants workmen/employees of the Corporate Debtor would fall under Sections 53(1)(b) and 53(1)(c) of the IB Code. 7.3 It is submitted that as per Section 5(13)(c) of the IB Code r/w Regulations 31 and 33 of the CIRP Regulations, cost incurred by the RP in running the business of the Corporate Debtor is required to be ratified by the COC for it to be classified as CIRP costs. It is submitted that only the costs for those employees who have assisted the RP during the CIRP period, have been approved by the COC in the first COC meeting, held on 4.9.2017. It is submitted that therefore no other costs can be classified as CIRP costs, except unless it is ratified by the COC. It is submitted that the remaining dues of the workmen will form part of the dues falling under Section 53(1)(b) of the IB Code. 7.4 It is submitted that in the meetings of the COC held peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther submitted that the costs incurred during the CIRP period by the Corporate Debtor/RP will qualify as CIRP costs only with respect to costs incurred by the RP running the company as a going concern under Section 5(13) (c) of the IB Code and in a case where the same has been approved by the COC under Regulations 31 and 33 of the CIRP Regulations. It is submitted that in the present case the Corporate Debtor is neither a going concern nor the RP has incurred any costs. It is submitted that therefore the wages/salaries of the workmen/employees at the Dahej Yard cannot be included in the CIRP costs. 7.9 It is further submitted that after the commencement of the CIRP, workmen and employee s dues which are outstanding as on the date of CIRP, are treated as operational creditors in terms of Section 5(20) and 5(21) of the IB Code. It is submitted that in terms of Section 30(2)(b) of the IB Code, the amount payable to operational creditors by a prospective resolution applicant shall not be less than the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under Section 53; OR the amount that would have been paid to such creditors, if the amount t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terfall mechanism mentioned in Section 53(1)(b) (c) of the IB Code. 7.14 It is submitted that therefore the respective workmen employed at Dahej Yard and some of the employees employed at Mumbai Head Office were required to submit their individual claims and they have to establish before the RP/Liquidator that in fact they actually worked during the CIRP period, the Appellate Tribunal has rightly observed that the respective workmen/employees have to submit their claims before the RP/Liquidator, who is required to verify whether the Corporate Debtor was a going concern during the CIRP period and whether in fact the concerned workmen/employees actually worked during the CIRP period or not. It is submitted that therefore no interference of this Court is called for. 8. We have heard the learned counsel for the respective parties at length. The 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. 8.1 While considering the aforesaid claims, the legislative history and the relevant provisions of the IB C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority to access the electronic records of corporate debtor from information utility having financial information of the corporate debtor; (d) have the authority to access the books of account, records and other relevant documents of corporate debtor available with government authorities, statutory auditors, accountants and such other persons as [may be specified; and] [(e) be responsible for complying with the requirements under any law for the time being in force on behalf of the corporate debtor.] Section 20 20. Management of operations of corporate debtor as going concern. - (1) The interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. (2) For the purposes of sub-section (1), the interim resolution professional shall have the authority- (a) to appoint accountants, legal or other professionals as may be necessary; (b) to enter into contracts on behalf of the corporate debtor or to amend or modify the contracts or transactions which were entered into before the commencement of corporate i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) 33(7). The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator. Section 36(4) Section 36 (4) Liquidation Estate (4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation: - (a) assets owned by a third party which are in possession of the corporate debtor, including- (i) assets held in trust for any third party; (ii) bailment contracts; (iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund; (iv) other contractual arrangements which do not stipulate transfer of title but only use of the assets; and (v) such other assets as may be notified by the Central Government in consultation with any financial sector regulator; (b) assets in security collateral held by financial services providers and are subject to netting and set-off in multi-lateral trading or clearing transactions; (c) personal assets of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction. Explanation . -For the purpose of this section- (i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients, if the proceeds are insufficient to meet the debts in full; and (ii) the term workmen's dues shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013 (18 of 2013). Legislative History with respect to workmen/employee s dues towards the wages/salaries including the amount due and payable towards provident fund, gratuity and pension fund: 8.2 Under the Companies Act, 1956 (hereinafter referred to as 1956 Act ), Section 59A provided that workmen s dues and debts due to secured creditors in terms of Section 529A(1)(c) of the 1956 Act shall be paid in priority to other debts. Further, it provided that in case of insolvent company, winding up should be undertaken in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny insolvency, in a winding up of a company under Section 326 and 327 of the Companies Act, the workmen dues are to be paid as under: - workmen s portion in the security shall be paid in priority to all other debts. however, workmen s dues (given in (b)(i) and (ii) payable for the period of 24 months, shall be paid in priority to all other debts (including debts due to secured creditors). This means that wages/salary for the period of 24 months is over and above every other claim/debts (including debts due to secured creditors). workmen s dues include Provident Fund, Pension Fund and Gratuity Fund or any other Fund for the welfare of the workmen maintained by the Company. 8.2.4 Under the IB Code, the workmen dues have been duly protected and the provident fund, gratuity and pension fund have been excluded from the liquidation estate assets (Section 36(4) of the IB Code). Furthermore, as per Section 53 of the IB Code, the workmen dues are given the top priority in the waterfall mechanism. 8.2.5 The issue of giving priority to the workmen dues have been considered time and again in the various Committee s Reports: In the Bankruptcy Law Reforms Committee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIRP are required to be considered. 9. It cannot be disputed that as per 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. It is also true that Section 20 of the IB Code mandates that 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, the wages/salaries of such workmen/employees who actually worked, shall be included in the CIRP costs and in case of liquidation of the corporate debtor, dues towards the wages and salaries of 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. Therefore, while considering the claims of the concerned workmen/employees towards the wages/salaries payable during CIRP, first of all it has to be established and proved that during CIRP, the corporate debtor wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor was a going concern during the CIRP; (ii) how many workmen/employees actually worked during the CIRP while the Corporate Debtor was a going concern. If on adjudication of the claims made by the respective workmen/employees, if it is established and proved that during CIRP, the Corporate Debtor was a going concern and the concerned workmen/employees actually worked during the CIRP when the Corporate Debtor was a going concern, the wages and salaries of such workmen/employees to be included in the CIRP costs as defined under Section 5(13) of the IB Code and they will have to be paid such wages/salaries as per Section 53(1)(a) of the IB Code as part of the CIRP costs in full before making any payment as per priorities mentioned in Section 53(1) of the IB code. 12. Now so far as the submission on behalf of the appellants that as per Section 20 of the IB Code and even as per the decisions of this Court in the cases of Swiss Ribbons Pvt. Ltd. (supra) and Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta (supra), the RP is under mandate to manage the operations of the Corporate Debtor as a going concern and therefore it is to be believed that during CIRP, the Corporate Debtor was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned workmen/employees shall be entitled to provident fund, gratuity fund and pension fund from such funds which are specifically kept out of liquidation estate assets and as per Section 36(4) of the IB Code, they are not to be used for recovery in the liquidation. 14. In view of the above and for the reasons stated above, it is held as under: i) that the wages/salaries of the workmen/employees of the Corporate Debtor for the period during CIRP can be included in the CIRP costs provided it is established and proved that the Interim Resolution Professional/Resolution Professional managed the operations of the corporate debtor as a going concern during the CIRP and that the concerned workmen/employees of the corporate debtor actually worked during the CIRP and in such an eventuality, the wages/salaries of those workmen/employees who actually worked during the CIRP period when the resolution professional managed the operations of the corporate debtor as a going concern, 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; ii) considering Section 36(4) of the IB code and whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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