2022 (4) TMI 1257 - HC - Insolvency and Bankruptcy

Court upholds payment of minimum wages to former employees during liquidation proceedings under Insolvency and Bankruptcy Code.

The Liquidator of The Corporate Debtor, viz., M/s. Orieon Kuries and Loans Private Limited, Versus The State Of Kerala, The Assistant Labour Officer (First Circle)

The Court upheld the order directing the Corporate Debtor's Liquidator to pay minimum wages and compensation to former employees, despite the liquidation. ... Seeking payment of minimum wages and compensation payable to three erstwhile employees - company under liquidation - discharge of dues out of liquidation proceeds - priority of discharge of workmen's dues - Section 53 (1) (b) (i) of I&B Code - HELD THAT:- It is to be noted that Section 53(1) deals with distribution of assets and the order of priority of distribution of liquidation assets. Under Section 53 (1) (b) (i) of the Code, priority is given for workmen's dues for the period of twenty-four months preceding the liquidation commencement date. It does not mean that the workmen's dues for the period prior to the said period need not be paid. The same has to be paid in the order of priority. 53 (1) (f) of the Code deals with the distribution of “any remaining debts and dues”. Therefore, the Liquidator has to distribute the amount covered by Ext.P3 order in terms of the priority as provided under Section 53 (1) of the Code. There can be no doubt that in view of Section238 of the Code, the Code will override anything inconsistent contained in any enactment, including the Minimum Wages Act, 1948. The Code provides for distribution of workmen's due from the liquidation assets in the order of priority. The workmen's dues, as adjudicated by the Controlling Authority under the Minimum Wages Act, 1948, has to be distributed from the liquidation assets in the order of priority as provided under Section 53 of the Code. Ext.P3 order is not in breach of the provisions of the Code - The liquidation process and the distribution of assets are not over and there is no bar under Section 38 of the Code to receive the claim under Ext.P3. Section 38 does not curtail the power of the Liquidator to distribute the dues out of liquidation process till the distribution of assets. There are no reason to interfere with Ext.P3 order of the Controlling Authority under the Minimum Wages Act, 1948, except to the extent of directing the petitioner to deposit the amount ordered therein within 30 days of the order. The amount directed to be paid in Ext.P3 shall be paid by the petitioner in the order of priority as provided under Section 53 (1) (f) of the Code - petition disposed off. Issues:Challenge to order directing payment of minimum wages and compensation to former employees of a corporate debtor after liquidation.Analysis:1. The writ petition challenges an order (Ext.P3) by the Deputy Labour Commissioner directing the Corporate Debtor's Liquidator to pay minimum wages and compensation to former employees. The petitioner argued that no legal proceedings can be initiated against the Corporate Debtor post-liquidation as per Section 33(5) of the Insolvency and Bankruptcy Code, 2016 (the Code).2. The National Company Law Tribunal (NCLT) had ordered the liquidation of the Corporate Debtor, and the Liquidator was appointed to oversee the process. The petitioner contended that the Ext.P3 order by the Controlling Authority under the Minimum Wages Act, 1948, was without jurisdiction due to the overriding effect of the Code as per Section 238.3. The petitioner further argued that the distribution of dues to employees should comply with Section 53(1) of the Code, which prioritizes workmen's dues for the preceding twenty-four months. The Controlling Authority, however, contended that the claim under the Minimum Wages Act was filed before the initiation of liquidation proceedings, thus superseding the Code's provisions.4. The Court noted that post-liquidation, no fresh legal proceedings can be instituted against the Corporate Debtor under Section 33(5) of the Code. However, the prohibition does not extend to the continuation of pending suits or proceedings. As the claim petition under the Minimum Wages Act was filed before the liquidation proceedings, the Controlling Authority had the jurisdiction to pass the Ext.P3 order.5. Regarding the distribution of assets, the Court clarified that Section 53(1)(b)(i) of the Code prioritizes workmen's dues for the preceding twenty-four months but does not exclude dues from earlier periods. The Liquidator must distribute the amount as per the priority set out in Section 53(1) of the Code.6. The Court affirmed that the Code's provisions override any inconsistency with other laws, including the Minimum Wages Act, and workmen's dues must be distributed from the liquidation assets in accordance with the Code's priority order. The Liquidator was directed to pay the amount ordered in Ext.P3 within 30 days, following the priority set in Section 53(1)(f) of the Code.7. The Court disposed of the writ petition without costs, upholding the Ext.P3 order of the Controlling Authority under the Minimum Wages Act, 1948, with the direction for timely payment and adherence to the Code's distribution priority.