2025 (9) TMI 961 - AT - IBC

Layoff during CIRP bars post-layoff dues except as provided in an approved resolution plan; appeal dismissed

Unitech Machines Karamchari Sangh Versus Vivek Raheja Resolution Professional of M/s Unitech Machines Limited, Delhi

NCLAT held that the layoff notice issued by the resolution professional discontinuing services during CIRP did not entitle the workmen to dues after the ... Issuance of illegal layoff of notice by the resolution professional - power of Resolution Professional to issue a layoff notice discontinuing services of workmen during CIRP - HELD THAT:- The appellant workmen due to issuance of the layoff notice has not worked after issuance of this layoff notice and thus, in our considered opinion in view of the law mentioned therein before, they are/were not entitled for any dues, after the issuance of the layoff notice and except, what has been provided for them in the plan, if any, which has been approved by the CoC as well as by the adjudicating authority, they may not get anything. It is also to be recalled that resolution plan once approved is bound on all the stakeholders and the appellants have not challenged the resolution plan approved by the adjudicating authority in the present appeal and it is transpired that the application filed by the appellant before the tribunal raising certain objections vis a vis resolution plan has also been withdrawn by them may be because resolution plan at that point of time was already approved - Thus unless the resolution plan approved by the adjudicating authority is set aside by the adjudicating authority or any other superior forum the terms of the approved resolution plan are bound on all the stakeholders, including the appellant. It is evident that the adjudicating authority was not having any jurisdiction to entertain challenge to layoff notice of date 01.02.2020 and secondly, for the reasons and legal position mentioned herein before the workmen of the appellant having not worked after the issuance of layoff notice are not entitled for any dues beyond the date of layoff notice. However, they will get if any provision has been made for them, in the resolution plan. There are no illegality in the impugned order - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Resolution Professional had power under the Insolvency and Bankruptcy Code to issue a layoff notice discontinuing services of workmen during CIRP without following the procedure prescribed under the Industrial Disputes Act. 2. Whether the adjudicating authority (NCLT) has jurisdiction to adjudicate challenge to a layoff/closure notice or other disputes arising under the Industrial Disputes Act in the context of CIRP. 3. Whether workmen are entitled to wages/dues for the period after issuance of a layoff notice where no work was done and the corporate debtor ceased to operate as a going concern during CIRP. 4. Whether approval of a resolution plan by the Committee of Creditors and the Adjudicating Authority (and withdrawal of objections thereto) precludes subsequent challenges to matters that could affect implementation of the plan, applying the doctrine of 'clean slate'. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Power of the Resolution Professional to issue layoff notice Legal framework: Sections 17, 20, 25 and Section 5(13) (definition of 'insolvency resolution process costs') and Section 238 of the Insolvency and Bankruptcy Code (IBC) read with relevant provisions of the Industrial Disputes Act (ID Act) govern duties and powers of the Resolution Professional (RP) during CIRP and the interaction of the IBC with other laws. Precedent treatment: The Tribunal relied on authoritative principles in Sunil Kumar Jain v. Sundaresh Bhat (Supreme Court) interpreting Sections 5(13), 20 and 53 of the IBC regarding inclusion of wages in CIRP costs only for workmen who actually worked while the corporate debtor was a going concern. The Tribunal also cited its earlier decisions (e.g., Drish Shoes Worker Union; Era Labourer Union) applying IBC's overriding effect and limits on adjudicating authority's role vis-à-vis ID Act disputes. Interpretation and reasoning: The Court held that RP's statutory duties under Sections 17, 20 and 25 empower him to manage the corporate debtor and take steps to preserve assets and value, including measures taken when funds are insufficient to run the business as a going concern. The RP's circular/layoff notice was issued in the context of fund constraints and absence of work; the RP had paid wages up to March 2020 and informed stakeholders of the financial situation. Section 238 gives the IBC overriding effect over inconsistent provisions of other laws to the extent of inconsistency. Applying the Sunil Kumar Jain test, RP's act of issuing layoff when no work remained was consistent with his duty to preserve assets and manage operations; the entitlement to wages depends on whether the corporate debtor was a going concern and whether workmen actually worked. Ratio vs. Obiter: Ratio - RP may, in performance of statutory duties under IBC, take steps including discontinuation of services where the corporate debtor is no longer a going concern and funds are unavailable; entitlement to wages under IBC requires demonstration that the corporate debtor was a going concern and that workmen actually worked. Obiter - observations on the RP's oral advice from adjudicating authority as factual background. Conclusion: The RP was within powers conferred by the IBC to issue the layoff notice in the factual matrix where no work was available and funds were insufficient; the layoff was not illegal merely because ID Act procedures were not followed when the corporate debtor had ceased operations during CIRP. Issue 2 - Jurisdiction of the Adjudicating Authority to entertain challenges under the ID Act Legal framework: IBC's Section 238 (overriding effect) and the statutory remit of the Adjudicating Authority (NCLT) to decide matters arising under IBC; contrast with jurisdictional provisions of the ID Act and state industrial dispute fora. Precedent treatment: The Tribunal relied on its prior decisions (Era Labourer Union; Drish Shoes Worker Union) and Supreme Court precedents recognizing that issues arising exclusively under the ID Act (e.g., lockout/closure notices) are not ordinarily matters for the Adjudicating Authority and that the NCLT is not competent to adjudicate such disputes where they do not fall within IBC's esoteric jurisdiction. Interpretation and reasoning: The Tribunal observed that where a layoff/closure is antecedent or independent of CIRP, challenge to such notices arises under ID Act and fora competent under that Act; the Adjudicating Authority lacks jurisdiction to entertain such challenges unless they directly implicate IBC remedies or priorities. The Tribunal found that the impugned reliefs sought were essentially a challenge to layoff notice under ID Act and thus beyond the NCLT's competence in the circumstances. Ratio vs. Obiter: Ratio - Adjudicating Authority is not the appropriate forum to decide challenges that arise solely under the ID Act where the impugned act (e.g., layoff/closure) is not a matter of CIRP management requiring IBC adjudication. Obiter - interplay of Section 238 and factual nuances where IBC may subsume certain disputes. Conclusion: The Adjudicating Authority lacked jurisdiction to entertain the challenge to the layoff notice in the present facts; the Tribunal correctly concluded non-justiciability of that relief before the NCLT. Issue 3 - Entitlement to wages/dues after layoff where no work was done and corporate debtor ceased being a going concern Legal framework: Section 5(13) (insolvency resolution process costs), Section 20 (duties of IRP/RP), Section 53(1)(a)-(c) (priority of claims), and the Sunil Kumar Jain test requiring proof that (a) the corporate debtor was managed as a going concern during CIRP and (b) the workmen actually worked during that period for inclusion of wages in CIRP costs. Precedent treatment: The Tribunal applied Sunil Kumar Jain (Supreme Court) and its own precedents (Era; Drish Shoes) that hold wages during CIRP are included in CIRP costs only for those who actually worked while the corporate debtor was a going concern; otherwise claims fall under the priority scheme of Section 53(1)(b)/(c). Interpretation and reasoning: Applying the legal test, the Tribunal found that after issuance of the layoff notice no work was carried out at the factory, and the workmen did not attend duties; therefore wages for that post-layoff period cannot be included in CIRP costs. The Tribunal emphasized the burden on workmen to prove engagement after layoff if they claim wages for that period. The circular itself acknowledged cessation of work and RP's inability to pay due to fund crunch; wages had been paid only up to March 2020. Ratio vs. Obiter: Ratio - Workmen are not entitled to wages as CIRP costs for periods they did not actually work when the corporate debtor was not a going concern; entitlement depends on factual proof of continued work and going-concern status. Obiter - remarks on the circular's content as contextual evidence. Conclusion: The appellants were not entitled to wages/dues beyond the layoff date unless the approved resolution plan provided for such payment; absent proof of work after layoff or going-concern status, claims for post-layoff wages cannot be treated as CIRP costs. Issue 4 - Finality of approved resolution plan and the doctrine of clean slate Legal framework: Sections governing approval and binding effect of a resolution plan (including judicial approval), and the principle that an approved resolution plan binds stakeholders; doctrine of clean slate limiting reopening of settled distributions/arrangements post-approval. Precedent treatment: The Tribunal relied on the settled proposition that an approved resolution plan, once sanctioned by the Adjudicating Authority, becomes binding on all stakeholders and may not be reopened except through appropriate challenge to the plan itself; withdrawal of objections/IA by a stakeholder and subsequent approval by Adjudicating Authority render the plan final vis-à-vis that stakeholder. Interpretation and reasoning: The Tribunal noted that the appellants withdrew their IA challenging the resolution plan and did not challenge the approved plan in the present appeal; therefore they could not seek to upset consequences flowing from the plan by collateral attack on the layoff. The Tribunal observed that reopening rights after approval would undermine the stability and commercial certainty intended by IBC. Ratio vs. Obiter: Ratio - Approval of a resolution plan by CoC and Adjudicating Authority (with withdrawal of objections) produces finality and binds stakeholders; collateral challenges inconsistent with an approved plan are impermissible. Obiter - cautionary note on exceptions where plan itself is set aside by competent forum. Conclusion: The approved resolution plan has become final and binding; appellants cannot obtain relief contrary to the terms of the plan unless the plan is set aside by the competent authority. The appeal did not succeed in reopening the plan or its consequences. Overall Conclusion (cross-references): Applying Sunil Kumar Jain and Tribunal precedents (Era; Drish Shoes) and construing Sections 17, 20, 25 and 238 of the IBC, the Court concluded (a) RP acted within IBC powers in issuing the layoff in the factual matrix of no work and fund constraints, (b) adjudicating authority lacked jurisdiction to entertain the challenge under the ID Act in this context, (c) workmen are not entitled to wages for periods they did not work post-layoff unless covered by the approved resolution plan, and (d) the approved resolution plan is final and binding on stakeholders, including the appellants.