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TMI Blog2023 (5) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Act, 2013. However, in view of the introduction of new regime under the IBC, in case of liquidation under IBC, distribution is to be made as per Section 53 of IBC. At this stage, it is required to be noted that IBC has been enacted w.e.f. 28.05.2016 and as per Section 53 of the IBC, the distribution of assets in case of liquidation under the IBC is required to be made - In view of the enactment of IBC and Section 53 of the IBC, it necessitated to amend the Act, 2013. As per Sub-Section (7) of Section 327, Sections 326 and 327 shall not be applicable in the event of liquidation under the IBC. The object and purpose of amending the Act, 2013 and to exclude Sections 326 and 327 in the event of liquidation under the IBC seems to be that there may not be two different provisions with respect to winding up/liquidation of a company. Therefore, in view of the enactment of IBC, it necessitated to exclude the applicability of Sections 326 and 327 of the Act, 2013 which cannot be said to be arbitrary as contended on behalf of the petitioner. Merely because under the earlier regime and in case of winding up of a company under the Act, 1956/2013, the dues of the workmen may have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iority to all other debts. These include the workmen debts, and dues of the secured creditor where the secured creditor has realised the secured asset but could not realise the entire amount, or the amount of workmen s portion in his security payable under the law, whichever is less, pari passu with the workmen s dues - the aggregate amount due towards workmen s dues and the amount of debts due to the secured creditors is Rs. 4 lakhs. In this background, when the value of the security of the secured creditors is Rs. 1 lakh, one-fourth of the value of the security, i.e. Rs.25,000/- would be the workmen s portion. To this extent, there is no difficulty or dispute. As noticed below there is hardly any difference in the said hierarchy and the waterfall mechanism under the Code. What is clear from the provision is that the proviso applies in case of winding up of a company to the sums referred to in sub-clauses (i) and (ii) of clause (b) of the Explanation to Section 326 of the Companies Act, 2013 which are payable for a period of two years preceding the winding up order or such other period as may be prescribed - this period of two years is with reference to the date of the winding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislations based on practical experiences and other problems seen by the law-makers. In a challenge to such legislation, the Court does not adopt a doctrinaire approach. Some sacrifices have to be always made for the greater good, and unless such sacrifices are prima facie apparent and ex facie harsh and unequitable as to classify as manifestly arbitrary, these would be interfered with by the court. As sub-section (7) of Section 327 of the Act, 2013 provides that Sections 326 and 327 of the Act, 2013 shall not be applicable in the event of liquidation under the IBC, which has been necessitated in view of the enactment of IBC and it applies with respect to the liquidation of a company under the IBC, Section 327(7) of the Act, 2013 cannot be said to be arbitrary and/or violative of Article 21 of the Constitution of India. In case of the liquidation of a company under the IBC, the distribution of the assets shall have to be made as per Section 53 of the IBC subject to Section 36(4) of the IBC, in case of liquidation of company under IBC. The writ petition(s) lack merits and the same deserve to be dismissed and are accordingly dismissed. - WRIT PETITION (C) NO. 421 OF 2019 WRI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of India, the respective writ petitioners have prayed that Clause 19(a) of the Eleventh Schedule of the IBC pursuant Section 255 of the IBC, be declared as unreasonable and violative of Article 14 of the Constitution of India as Clause 19(a) of the Eleventh Schedule of the IBC inserts sub-section (7) in Section 327 of the Companies Act, 2013, which puts statutory bar on the application of Sections 326 and 327 of the Companies Act, 2013, to the liquidation proceedings under the IBC. It is further prayed that sub-section (7) of Section 327 of the Companies Act, 2013, be declared as unreasonable and violative of Article 14 of the Constitution of India as sub-section (7) of Section 327 of the Companies Act, 2013, which was inserted in Section 327 of the Companies Act, 2013 pursuant to Section 255 and the Eleventh Schedule of the Insolvency and Bankruptcy Code, 2016, Act 31 of 2016, creates unreasonable classification for the distribution of legitimate dues of workmen in the event of liquidation of the Company under the IBC and liquidation of Company under the provisions of the Companies Act, 2013. It is also prayed that distribution of the workmen's due as envisaged under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opts to realise his security, so much of the debt due to such secured creditor as could not be realised by him by virtue of the proviso or the amount of workmen s portion in his security, whichever is less, will rank pari passu with the workmen s dues. Thirdly, the workmen s dues and debts of secured creditor as described in Section 529(1) Proviso (c) get overriding preferential payment and rank pari passu. These debts are payable in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. 3.4 It is submitted that Section 530, when it provides for Preferential Payments , restricts Government dues to a period of 12 months and wages or salary of an employee to a period not exceeding 4 months within 12 months next before the relevant date, subject to limit in sub-section (2) of Section 530(1)(b). 3.5 It is submitted that prior to enactment of the Companies Act, 2013, there were several Committees that were set-up in order to consider the proposals for reformation of the Companies Act, 1956. It is submitted that two of these Committees and their proposals are indicative of the issues that were sought to be addressed through a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up. It is submitted that resultantly, the Companies Act, 2013, as enacted, while mostly retaining the structure of Section 529 and 529-A of the Companies Act, 1956, introduced the proviso to Section 326(1) and also modified Section 326(2). 3.8 It is submitted that the consequence of this change was that while workmen s dues and dues owed to secured creditors as per Section 325(1) Proviso (c) ranked pari passu, the wages and salaries due to workmen for a period of 2 years preceding winding up order, shall be paid in priority to all other debts, within a period of 30 days of sale of assets and shall be subject to such charge over the security of secured creditors as may be prescribed. Importantly, the Government Dues and wages or salary owned to employees remained restricted to periods as they were in the Companies Act, 1956. It is submitted that another important aspect to be noted is that the definition of workmen s dues includes the Pension Fund, Gratuity Fund and the Provident Fund amounts and there was no exclusion of the said amounts in the case of liquidation. It is submitted that therefore, the position of law regarding overriding preferential payments and prefere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in the new Code. 3.10 It is submitted that thus, the BLRC Report recommended a waterfall mechanism that was different from the Companies Act, 1956 and the Companies Act, 2013, with due cognizance of the position of law as it existed then. It is submitted that having reviewed the position of law and in view of the objects sought to be achieved through the IBC, the BLRC Report recommended that workmen s dues will be capped at 3 months and will have pari passu priority with secured creditors and thereafter, the remaining dues will rank along with unsecured creditors. 3.11 It is submitted that the IBC was introduced as a Bill in 2015. It is submitted that Section 36, as introduced in the Bill, provided for formation of the liquidation estate. Section 36(4)(a)(iii), as introduced in the Bill, stated that the contributions in respect of employee pensions alone would be excluded from the liquidation estate assets and would not be used for recovery in liquidation. Section 53, as introduced in the Bill, provided for the waterfall mechanism for payout in case of liquidation. Section 53(1) (b)(i) and (ii) ranked debts owed to secured creditors in the event of them relinquishing sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years and below that of the unsecured creditors. It is submitted that the result, therefore, is that the position and waterfall mechanism as provided for in the Companies Act, 1956 and the Companies Act, 2013 has now been altered after application of mind and resultantly, the workmen s dues have been capped at 24 months preceding the liquidation commencement date. The changes introduced from the erstwhile regime have been so done on the basis of an organic evolution of law and consultative process, after due consideration of the requirements of a new Code governing liquidation. 3.12 It is submitted that Section 53 Explanation (ii) of IBC states that the term workmen s dues shall have the same meaning as assigned to it in Section 326 of the Companies Act, 2013. It is submitted that thereafter, the Eleventh Schedule to the IBC proposes Amendments to be made to Companies Act, 2013. It is submitted that importantly, Clause 18 of the Schedule omits erstwhile Section 325 of the Companies Act, 2013. It is submitted that Clause 19 of the Schedule amends Section 326 of Companies Act, 2013. Thereafter, Clause 20 of the Schedule inserts Section 327(7) to the Companies Act, 2013 which st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of the BLRC Report, the focus has been on defined payout prioritisation and organically, the workmen s dues have increased from 3 months to 12 months and now to 24 months to rank pari passu with secured creditors who relinquish their security. It is submitted that this evolution of the IBC has been as a result of a consultative process, the position of workmen s dues has been reviewed at multiple occasions and the legislature, in its wisdom, has opted to cap it to a period of 24 months prior to liquidation commencement date. It is further submitted that the Pension Fund, Gratuity Fund and Provident Fund are left out of the liquidation estate, in a bid to protect the social safety net of the workmen. Therefore, the changes made through the IBC, to the existing scheme under the Companies Act, 2013 would not be unconstitutional. 3.15 Shri K.V. Viswanathan, learned Senior Advocate and Amicus Curiae has further submitted that this Hon ble Court in a catena of judgments has considered the principle of judicial hands-off when it comes to economic legislations. It is submitted that in economic matters, a wider latitude is given to the law-maker and the Court allows for experiment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational creditors was not ultra vires Article 14. 3.18 He has also further submitted that in the case of Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited, (2021) 9 SCC 657, this Court was concerned with whether the approved resolution plan was binding on the Government, whether before or after the Amendment made to Section 31 of IBC by Amendment Act, 2019. It is submitted that this Court categorically held that the amendment was clarificatory in nature and that the approved resolution plan would be binding on the Government. While holding so, this Court noted the legislative intent in making the plan binding on all stake holders, to create a clean slate and to ensure that no surprise claims come up after the resolution process has begun. 3.19 On interpretation of workmen s portion under Section 529 and 529-A of the Companies Act, reliance is placed on the decision of this Court in the case of Allahabad Bank Vs. Canara Bank and Anr., (2000) 4 SCC 406 as well as Andhra Bank Vs. Official Liquidator and Anr., (2005) 5 SCC 75. 3.20 Making above submissions, it is prayed to allow the present writ petitions and grant the reliefs as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iority in the waterfall mechanism. 4.5 It is submitted that the liquidation process is covered under Chapter III of the IBC, which comprises from Sections 33 to 54. Section 36 of the IBC provides for liquidation estate and Section 36(4) of the IBC specifies certain payouts not to be included in the liquidation estate assets. Therefore, as per the said provision, all these debts due are not to be included in the liquidation estate assets. It is submitted that as per the said provision, all payments due to any workmen or employee from Provident Fund, Pension Fund and The Gratuity Fund shall not be included in the list of assets under liquidation estate. 4.6 It is submitted that with respect to Section 53 of the IBC, sale of liquidation assets shall be distributed in certain order of priority. It is submitted that as per Section 53, the payment of insolvency resolution process costs and liquidation costs is paramount and the same shall be paid in full. The liquidation cost includes the salary and wages paid to workmen during the period of liquidation process to maintain the Company as going concern. Thereafter, the payment of workmen dues for a period of 24 months are to be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in unlocking value for all its stakeholders including financial institutions in the case of Innoventive Industries Limited Vs. ICICI Bank and Anr., (2018) 1 SCC 407, followed in Arcelormittal India Private Limited Vs. Satish Kumar Gupta and Ors., (2019) 2 SCC 1; Arun Kumar Jagatramka Vs. Jindal Steel and Power Limited and Anr., (2021) 7 SCC 474 and Sesh Nath Singh and Anr. Vs. Baidyabati Sheoraphuli Cooperative Bank Limited and Anr., (2021) 7 SCC 313. 4.10 It is submitted that as per the objectives of the IBC, it is clear that corporate death of a Corporate Debtor is inevitable. However, every effort should be made to resuscitate the Corporate debtor in the larger public interest, which includes not only the workmen of the corporate debtor, but also its creditors and the goods it produces in the larger interest of the economy of the country. 4.11 It is submitted that in the Bankruptcy Law Reforms Committee (Volume 1) (November, 2015), it was agreed that the assets held in by the entity in trust (such as employee pensions), assets held as collateral to certain financial market institutions and assets held as part of operational transactions where the entity has right over the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board. It is submitted that with respect to the liquidation process, the Board has notified the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. It is submitted that Regulation 2(ea) talks about liquidation cost which under Section 5(16) of the IBC includes the costs incurred by the liquidator in carrying on the business of the Corporate Debtor as a going concern. That, therefore, the salary and wages of the workmen in case of going concern liquidation are protected under the liquidation costs. It is further submitted that under the Liquidation Regulations 2016, a mechanism is created wherein Regulation 19 provides for claim by workmen and employee and Regulation 31A has been inserted to bring in stakeholders Consultation Committee, where participation to workmen/ employees is given. 4.15 It is submitted that the issue with respect to the workmen and secured creditor being kept at equal footing under Section 53 of the IBC is only in the case wherein the secured creditor has relinquished its security and the same is the part of the liquidation pool. It is submitted that Section 52 of the IBC specifically states about the secured creditor in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and workmen are being compensated on equitable basis in a just and proper manner as per Section 53 of the IBC. It is submitted that therefore, it is unfair to say that ranking them with workmen is arbitrary, lest manifestly arbitrary to declare Section 53 as unconstitutional. 4.19 It is submitted that from examination of waterfall mechanism as provided under Section 53 of the IBC, it is clear that other stakeholders including the Central Government have seriously compromises their position in connection with the recovery of statutory dues so as to enable value maximization and reviving unhealthy companies on going concern basis. It is submitted that therefore, to say that workmen are in any way adversely affected to the tune of arbitrariness or inequity contemplated under Article 14 is erroneous. 4.20 It is further submitted by Shri Balbir Singh, learned ASG appearing on behalf of the respondent Union of India that the IBC being a law relating to economic activities as observed and held by this Court in the case of R.K. Garg Vs. Union of India and Ors., (1981) 4 SCC 675, the laws relating to economy should be viewed with greater latitude than the laws touching civil rights. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod of twenty-four months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in Section 52; (c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date; (d) financial debts owed to unsecured creditors; (e) the following dues shall rank equally between and among the following: (i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; (f) any remaining debts and dues; (g) preference shareholders, if any; and (h) equity shareholders or partners, as the case may be. (2) Any contractual arrangements between recipients under sub-section (1) with equal ranking, if disrupting the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as Section 53 of the IBC is concerned, it provides for distribution of the assets in case of liquidation of a company under IBC. As per Section 53(1)(b) the workmen s dues for the period of twenty-four months preceding the liquidation commencement date shall rank equally between the workmen and the secured creditor in the event such secured creditor has relinquished security in the manner set out in Section 52. Therefore, workmen s dues for the period of twenty-four months preceding the liquidation commencement date shall have pari passu with the dues of secured creditor. At this stage, it is required to be noted that as per Section 36(4) of IBC, all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund shall not be included in the liquidation estate assets and shall not be used for the recovery in the liquidation. Therefore, a conscious decision has been taken by the Parliament/Legislature in its wisdom to keep out of all sums due to any workman/employee from the provident fund, the pension fund and the gratuity fund from the liquidation estate assets [as per Section 36(4)] and that the workmen s dues for the period of twenty-four m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as never enforced till it was substituted by Act No. 31 of 2016 and the Eleventh Schedule in paragraph 10 of the Insolvency and Bankruptcy Code, 2016 For short, Code . , with effect from 15th November 2016. This coincided with the enactment and enforcement of the Code, also applicable with effect from 15th November 2016. Consequent to the substitution, Section 271 3 of the Companies Act 2013 now envisages only five grounds for winding up of the company under the Companies Act 2013. The first ground is where the company, by special resolution, has resolved to be wound up by the Tribunal. The other grounds are when the company has acted against the sovereignty and integrity of India, security of the State, friendly relations with foreign States, public order, decency or morality; if the Tribunal on an application made by the Registrar or any other person authorised by the Central Government by a notification is satisfied that the affairs of the company have been conducted in a fraudulent manner, or the company was formed for a fraudulent or unlawful purpose, or the persons concerned in the formation or management of its affairs have been found to be guilty of fraud, misfeasance or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing by alteration in the priority of payment of government dues, to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. The objective is to improve the ease of doing business and facilitate more investments, leading to higher economic growth and development. 8. We have earlier referred to, in detail, the divergent opinions expressed while enacting the Code on the status of the workmen's dues and the hierarchy in which they should be placed. The waterfall mechanism now prescribed in the Code with reference to the workmen s dues is a well-considered and thought-out decision. The waterfall mechanism and the hierarchy prescribed to the workmen s dues should be seen in the overall objective of the Code, which is to explore whether the corporate debtor can be revived so that jobs are not lost, the use of economic assets is maximised, and there is an effective legal framework which enhances the viability of credit in the hands of banks and financial institutions. The Code recognises the financial impact on secured creditors or financial institutions dealing with public money, as their economic health is equally important for the gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the Judges have been overruled by events self- limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. The Court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry ; that exact wisdom and nice adaption of remedy are not always possible and that judgment is largely a prophecy based on meagre and uninterpreted experience . Every legislation, particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t substitute their social and economic beliefs for the judgment of legislative bodies . The Court must defer to legislative judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary . The Court should constantly remind itself of what the Supreme Court of the United States said in Metropolis Theater Co. v. City of Chicago: 12. The problems of government are practical ones and may justify, if they do not require, rough accommodations, illogical it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not always discernible, the wisdom of any choice may be disputed or condemned. Mere error of Government are not subject to our judicial review. It is true that one or the other of the immunities or exemptions granted under the provisions of the Act may be taken advantage of by resourceful persons by adopting ingenious methods and devices with a view to avoiding or saving tax. But that cannot be helped because human ingenuity is so great when it comes to tax avoidance that it would be almost impossible to frame tax legislation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or glaringly unconstitutional, the courts must show judicial restraint in staying the applicability of the same. Merely because a statute comes up for examination and some arguable point is raised, which persuades the courts to consider the controversy, the legislative will should not normally be put under suspension pending such consideration. It is now well settled that there is always a presumption in favour of the constitutional validity of any legislation, unless the same is set aside after final hearing and, therefore, the tendency to grant stay of legislation relating to economic reform, at the interim stage, cannot be understood. The system of checks and balances has to be utilised in a balanced manner with the primary objective of accelerating economic growth rather than suspending its growth by doubting its constitutional efficacy at the threshold itself. (emphasis supplied) 23. In Directorate General of Foreign Trade v. Kanak Exports, (2016) 2 SCC 226, this Court has held : 109. Therefore, it cannot be denied that the Government has a right to amend, modify or even rescind a particular scheme. It is well settled that in complex economic matters ever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 at para 83, fn 3). **** Epilogue 120. The Insolvency Code is a legislation which deals with economic matters and, in the larger sense, deals with the economy of the country as a whole. Earlier experiments, as we have seen, in terms of legislations having failed, trial having led to repeated errors , ultimately led to the enactment of the Code. The experiment contained in the Code, judged by the generality of its provisions and not by so-called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster. To stay experimentation in things economic is a grave responsibility, and denial of the right to experiment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitution of India or whether the right to life under Article 21 Constitution of India was infringed, we must word by word examine the waterfall mechanism envisaged under the Companies Act, 2013, where the company is wound up in terms of grounds (a) to (e) of Section 271 of the Companies Act, 2013; and the rights of the workmen when the insolvent company is sought to be revived, rehabilitated or wound up under the Code. The grounds and situations in the context of the objective and purpose of the two enactments are entirely different. 10. We now turn to the difference in the waterfall mechanism provided in the Companies Act, 2013 and the Code. As per Section 324 6 of the Companies Act, 2013, all debts payable on a contingency, or all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, are admissible to proof against the company. A just estimate can be made so far as possible in respect of value of such debts or claims as may be subject to any contingency, damages, etc. and do not bear a certain value. Section 326 7 of the Companies Act, 2013 deals with overriding preferential payments which have to be paid in priorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, shall be paid in priority to all other debts, including debts due to secured creditors. This payment is to be made within a period of thirty days from the sale of assets and shall be subject to such charge over the security of the secured creditors. Sub-clause (i) to clause (b) of the Explanation to Section 326 of the Companies Act, 2013 refers to all wages or salary, including wages payable for time or piece work and salary earned wholly or in part, etc. under any provisions of the Industrial Disputes Act, 1947. Subclause (ii) to clause (b) of the Explanation to Section 326 of the Companies Act, 2013 deals with all accrued holiday remuneration payable to any workmen or, in the case of his death, to any other person in his right on termination of his employment, etc. Sub-clauses (iii) and (iv) of clause (b) of the Explanation to Section 326 of the Companies Act, 2013 are excluded from the proviso. These subclauses deal with liability of compensation under the Workmen s Compensation Act, 1923 in respect of death or disablement of the workmen or all sums due to any workman from the provident fund, the pension fund, the gratuity fund or any other fund of the welfare of the workmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, settle, compromise or deal with the secured asset in accordance with such law as applicable to the security interest being realised and to the secured creditor. The secured creditor is to accordingly apply the proceeds to recover the debts due to him. We need not refer to subsection (5) to Section 52 of the Code as it relates to the action which the secured creditor may take if he faces resistance from the corporate debtor or any other person connected therewith in taking possession of, selling or otherwise disposing off the security. Sub-section (6) to Section 52 of the Code applies when an adjudicating authority is in receipt of an application under sub-section (5) to Section 52 of the Code. Sub-section (7) to Section 52 of the Code, however, is important as it states that where on enforcement of the security interest, an amount by way of proceeds is in excess of the debts due to the secured creditor, the secured creditor shall account for and pay the excess/surplus amount to the liquidator from enforcement of such secured assets. The amount of insolvency resolution process costs, due from secured creditors who realise their security interests in the manner provided in the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee of Creditors to the adjudicating authority. Section 31 12 of the Code relates to approval of the resolution plan. The adjudicating authority is to satisfy that the resolution plan as approved by the Committee of Creditors under sub-section (4) of Section 30 of the Code, meets the requirements as referred to in sub-section (2) to Section 30 of the Code. Further, the resolution plan has provisions for its effective implementation. Sub-section (2) to Section 31 of the Code states that where the adjudicating authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1) to Section 31 of the Code, it may by an order reject the resolution plan. We need not refer to other sub-sections of Section 31 of the Code. 15. We now turn our attention to Section 53 of the Code which begins with a non-obstante clause and states that notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of liquidation assets shall be distributed in the order of priority, which is stipulated, and within such period and such manner as may be sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and unpaid dues owed to employees other than the workmen fall in clause (c), which is below clause (b) to sub-section (1) to Section 53 of the Code. They are to be paid wages and unpaid dues only for a period of twelve months preceding the liquidation commencement date, and that too only if surplus funds are available after making payment in terms of clause (a) and (b) of sub-section (1) to Section 53 of the Code. Clause (d) of sub-section (1) to Section 53 of the Code relates to financial debts owed to unsecured creditors. The amounts due to the Central Government and the State Government, etc., and the debts owed to a secured creditor for any amount that remains unpaid following the enforcement of security interest, have been clubbed together in clause (e) of subsection (1) to Section 53 of the Code, and have to be ranked equally between and among both of them. The remaining debts and dues fall in clause (f) of sub-section (1) to Section 53 of the Code. Preference shareholders fall under clause (g) of sub-section (1) to Section 53 of the Code, and equity shareholders or partners fall under clause (h) of sub-section (1) to Section 53 of the Code. Sub-section (2) to Section 53 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public has invested money, and also ensures that the economic activity and revival of a viable company is not hindered because it has suffered or fallen into a financial crisis. The Code focuses on bringing additional gains to both the economy and the exchequer through efficiency enhancement and consequent greater value capture. In economic matters, a wider latitude is given to the lawmaker and the Court allows for experimentation in such legislations based on practical experiences and other problems seen by the law-makers. In a challenge to such legislation, the Court does not adopt a doctrinaire approach. Some sacrifices have to be always made for the greater good, and unless such sacrifices are prima facie apparent and ex facie harsh and unequitable as to classify as manifestly arbitrary, these would be interfered with by the court. 18. In view of the above and for the reasons stated above and as sub-section (7) of Section 327 of the Act, 2013 provides that Sections 326 and 327 of the Act, 2013 shall not be applicable in the event of liquidation under the IBC, which has been necessitated in view of the enactment of IBC and it applies with respect to the liquidation of a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality; (c) if on an application made by the Registrar or any other person authorised by the Central Government by notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that is proper that the company be wound up; (d) if the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years; or (e) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up. 4 See The Report of High Level Committee on Law Relating to Insolvency and Winding Up of Companies, 2000, The Report of the Expert Committee on Company Law dated 31.05.2005, 57th Report of the Standing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , being workmen within the meaning of clause(s) of Section 2 of the Industrial Disputes Act, 1947; (b) workmen's dues , in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely (i) all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947; (ii) all accrued holiday remuneration becoming payable to any workman or, in the case of his death, to any other person in his right on the termination of his employment before or by the effect of the winding up order or resolution; (iii) unless the company is being wound up voluntarily merely for the purposes of reconstruction or amalgamation with another company or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in Section 14 of the Workmen's Compensation Act, 1923, rights capable of being transferred to and vested in the workmen, all amount d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estate or realise its security interest, as the case may be, in Form C or Form D of Schedule II: Provided that, where a secured creditor does not intimate its decision within thirty days from the liquidation commencement date, the assets covered under the security interest shall be presumed to be part of the liquidation estate. (2) Where a secured creditor proceeds to realise its security interest, it shall pay - (a) as much towards the amount payable under clause (a) and sub-clause (i) of clause (b) of sub-section (1) of section 53, as it would have shared in case it had relinquished the security interest, to the liquidator within ninety days from the liquidation commencement date; and (b) the excess of the realised value of the asset, which is subject to security interest, over the amount of his claims admitted, to the liquidator within one hundred and eighty days from the liquidation commencement date: Provided that where the amount payable under this sub-regulation is not certain by the date the amount is payable under this sub-regulation, the secured creditor shall pay the amount, as estimated by the liquidator: Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) where a resolution plan has not been approved or rejected by the Adjudicating Authority; (ii) where an appeal has been preferred under Section 61 or Section 62 or such an appeal is not time barred under any provision of law for the time being in force; or (iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan; (c) provides for the management of the affairs of the corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board. Explanation. For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law. **** 12 31. Approval of resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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