Supreme Court: Workmen's wages during insolvency process to be included in CIRP costs

The Supreme Court partially allowed the appeal, directing the Liquidator to adjudicate the claims of the workmen/employees. If proven that they worked during the Corporate Insolvency Resolution Process (CIRP), their wages/salaries are to be included in CIRP costs and paid accordingly. Provident fund, gratuity, and pension fund dues are to be paid from funds kept out of the liquidation estate.

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Issues Involved:
1. Entitlement of workmen/employees to wages/salaries during the Corporate Insolvency Resolution Process (CIRP).
2. Classification of wages/salaries during CIRP as Insolvency Resolution Process Costs (CIRP Costs).
3. Payment of provident fund, gratuity, and pension fund dues to workmen/employees.
4. Adjudication of claims by the Liquidator.

Detailed Analysis:

1. Entitlement of Workmen/Employees to Wages/Salaries During CIRP:
The appellants, workmen/employees of the Corporate Debtor, claimed wages/salaries for the period involving CIRP and the prior period. The Corporate Debtor was managed as a going concern during CIRP, and the employees were on the payrolls. The appellants argued that the RP did not terminate their employment and instructed them to report to him, thereby entitling them to wages/salaries during CIRP. The Liquidator contended that only a few employees assisted the RP during CIRP, and the remaining did not perform any services, thus not qualifying for CIRP costs.

2. Classification of Wages/Salaries During CIRP as CIRP Costs:
Section 5(13) of the IB Code defines "insolvency resolution process costs" to include costs incurred by the RP in running the business of the corporate debtor as a going concern. The judgment emphasized that only wages/salaries of those workmen/employees who actually worked during CIRP when the corporate debtor was a going concern should be included in CIRP costs. The rest of the claims should be governed by Sections 53(1)(b) and 53(1)(c) of the IB Code. The judgment clarified that the dues towards wages/salaries of workmen/employees who did not work during CIRP should not be included in CIRP costs.

3. Payment of Provident Fund, Gratuity, and Pension Fund Dues:
Section 36(4) of the IB Code excludes all sums due to any workman or employee from the provident fund, the pension fund, and the gratuity fund from the liquidation estate assets. These funds are to be kept outside the liquidation process, and the Liquidator has no claim over them. The judgment held that the concerned workmen/employees should be paid from these funds, which are specifically kept out of liquidation estate assets.

4. Adjudication of Claims by the Liquidator:
The judgment directed the appellants to submit their claims before the Liquidator and establish that the IRP/RP managed the operations of the corporate debtor as a going concern during CIRP and that they actually worked during this period. The Liquidator is to adjudicate these claims independently and, if established, include the wages/salaries in CIRP costs to be paid as per Section 53(1)(a) of the IB Code. The Liquidator is directed to complete this exercise within twelve weeks and keep aside the amount directed earlier for workmen/employee dues.

Conclusion:
The Supreme Court partially allowed the appeal, directing the Liquidator to adjudicate the claims of the workmen/employees and, if proven that they worked during CIRP, to include their wages/salaries in CIRP costs and pay them accordingly. The provident fund, gratuity, and pension fund dues are to be paid from funds kept out of the liquidation estate.

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