TaxTMI 
TaxTMI 
2022 (4) TMI 888
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....orporate Debtor'), working at Dahej and Mumbai, which was filed against the order passed by the National Company Law Tribunal, Ahmedabad Bench, Ahmedabad (hereinafter referred to as the 'Adjudicating Authority') dated 25.04.2019 not granting any relief to them with regard to their claim relating to salary, which they claimed for the period involving 'Corporate Insolvency Resolution Process' (hereinafter referred to as the 'CIRP') and the prior period, original applicants - workers/employees have preferred the present appeal. 2. That the Corporate Debtor was a private sector Ship Building Yard with its manufacturing activities at Dahej Yard and Surat Yard in Gujarat and having its corporate office at Mumbai. That prior to the initiation of CIRP, the Corporate Debtor had 562 workmen and 93 employees at Dahej; 291 workmen and 99 employees at Surat and 101 employees at its Mumbai Head Office. The appellants herein are the 272 employees and workmen employed at Mumbai Head Office and Dahej Yard of the Corporate 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 u....
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.... Debtor and appointed respondent no.1 herein as Liquidator of the Corporate Debtor. While passing the order of liquidation, the Adjudicating Authority also disposed of Company Application No. 348/2017 in view of the order passed in Company Application No. 78/2018 by which the Adjudicating Authority earlier directed to deposit Rs. 2.75 crores towards the dues of the appellants which as such was subject to the final outcome of Company Application No. 348/2017. Therefore, as such, the Adjudicating Authority while disposing of Company Application No. 348/2017 did not grant the relief claimed by the appellants - 272 workers/employees working at Dahej Yard and Mumbai Head Office for their claim relating to salary for the period involving CIRP and the prior period. 4. Feeling aggrieved and dissatisfied with the order passed by the Adjudicating Authority, not granting the relief to the appellants herein with regard to their claim relating to salary/wages, which they claimed for the period involving 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,....
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....h paid leave was rejected by the COC for lack of majority. It is submitted that therefore when the Corporate Debtor was managed as a going concern, which as such is mandatory under Section 19 of the IB Code and when the operations at Dahej Yard were not suspended, the workmen/employees at Dahej Yard are entitled to at least the wages/salaries during the CIRP period. It is submitted that irrespective of whether the wages/salaries for the period during CIRP are to be qualified as CIRP cost or not, provident fund, gratuity and pension fund are to be paid to the workmen and employees at Dahej Yard under Section 36(4) of the IB Code in priority over other dues, which are also not paid till date. 6.2 It is further submitted that in the present case, throughout the CIRP period, the employees and workmen of Dahej Yard were asked to assemble at ABG Enclave and sign the attendance register since transportation to the yard was discontinued by the RP. It is submitted that throughout the CIRP period, 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 ....
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.... IB Code defines "Insolvency Resolution Process Cost". It is submitted that as per Section 5(13) of the Code, "Insolvency Resolution Process Cost" means any costs incurred by the RP in running the business of the Corporate Debtor as a going concern and any other costs as may be specified by the IBBI - Liquidator. It is submitted that in the present case, vide Circular dated 12.06.2018, the Liquidator had clearly provided the costs on account of employees and workmen under the head "other services in a running business" in Forms I, II and III submitted by the RP with respect to CIRP costs incurred by him. It is submitted that therefore the salaries/wages and the dues payable to the employees/workmen during the CIRP period will be qualified as CIRP costs under Section 5(13) of the IB Code and are liable to be disbursed even prior to the amount distributed under Section 53 of the IB Code. 6.8 It is further submitted that even otherwise the provident fund, gratuity and pension fund amounts 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 work....
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.... Making the above submissions and relying upon the aforesaid decisions, it is prayed to allow the present appeal. 7. The present appeal is vehemently opposed by Shri Nakul Dewan, learned Senior Advocate appearing on behalf of respondent no.1 - Liquidator of Corporate Debtor. 7.1 Shri Nakul Dewan, learned senior counsel appearing on behalf of the Liquidator of Corporate Debtor has vehemently submitted that the wages and salaries claimed by the appellants who have done no work during the CIRP period and have not assisted the RP/Liquidator during the CIRP, would not fall within the parameters of CIRP costs within the definition of Section 5(13)(c) of the IB Code. 7.2 It is submitted that only 8 employees at the Mumbai location for eight months during the CIRP and workmen/employees from Surat (from August 2017 to October 2017) assisted the RP in providing services required under the CIRP process. It is submitted that the remaining employees and workmen including the 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....
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....nal has rightly not interfered with the order passed by the Adjudicating Authority in not passing any order in favour of the workmen/employees. 7.7 It is further submitted that Section 53 of the IB Code sets out the waterfall mechanism in terms of which the dues of the creditors are paid. It is submitted that even the operational creditors fall sixth in line after payment of CIRP dues, dues of Secured Creditors etc. It is submitted that even after the Corporate Debtor goes into liquidation in terms of Section 33 of the IB Code, the dues of the employees and workmen being operational creditors would be paid in last in terms of the waterfall mechanism of Section 53(1)(f) of the IB Code. It is therefore submitted that the respective appellants - workmen/employees are not entitled to any wages/salaries for the period during CIRP as CIRP costs, as claimed by them. 7.8 Shri Nakul Dewan, learned Senior Advocate appearing on behalf of respondent no.1 - RP/Liquidator has further 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....
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....men at Dahej Yard and employees at Mumbai Head Office, did not help to maintain the Corporate Debtor as a going concern, since (i) the Corporate Debtor was never a going concern and (ii) the Dahej Yard was not in operation since June, 2015 and (iii) Operations at the Surat Shipyard were completely shut from October, 2017. It is submitted that therefore the appellants who are the workmen of the Dahej Yard and employees of the Mumbai Head Office, cannot claim any amounts towards wages/salaries for the CIRP period, since no work/services were rendered by them, except for the critical Mumbai employees whose salaries were ratified by the COC during the first COC meeting. 7.13 Making the above submissions, it is submitted that the wages and salaries of the workmen/employees at Dahej Yard and the employees at Mumbai Head Office, except those who worked during the CIRP period, cannot be included and/or considered as CIRP costs and therefore they have to be paid as per the waterfall 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....
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....ers of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional; (c) the officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be required by the interim resolution professional; (d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional. (2) The interim resolution professional vested with the management of the corporate debtor shall- (a) act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other documents, if any; (b) take such actions, in the manner and subject to such restrictions, as may be specified by the Board; (c) have the authority to access the electronic records of corporate debtor from information utility having financial information of the corporate debtor; ....
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.... for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings; (c) raise interim finances subject to the approval of the committee of creditors under section 28; (d) appoint accountants, legal or other professionals in the manner as specified by Board; (e) maintain an updated list of claims; (f) convene and attend all meetings of the committee of creditors; (g) prepare the information memorandum in accordance with section 29; (h) invite prospective resolution applicants, who fulfil such criteria as maybe laid down by him with the approval of committee of the creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans. (i) present all resolution plans at the meetings of the committee of creditors; (j) file application for avoidance of transactions in accordance with Chapter-III, if any; and (k) such other actions as may be specified by the Board. Section 33(7) 33(7). The order for liquidation under this section....
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....ditor 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 order of priority under that subsection shall be disregarded by the liquidator. (3) The fees payable to th....
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....t kinds of debts. Subsequently, the Companies Bill, 2009 and 2011 were introduced wherein wages/salaries payable to workmen for a period of 2 years were protected in case of winding up of the Company. Thereafter, under the Companies Act, 2013 (hereinafter referred to as "2013 Act"), Section 326 and Section 327 i.e. "Overriding Preferential Payment" and "Preferential Payments" were introduced wherein a proviso to Section 326 of the 2013 Act was inserted. Initially the insolvency process in case of winding up of insolvent companies were provided under Section 325 of 2013 Act. However, Section 325 of the 2013 Act was omitted w.e.f. 15.11.2016 on the coming into force the IB Code. On enactment of the IB Code, the winding up proceedings in case of insolvency are to be governed by the provisions of the IB Code and the provisions of the IB code only shall be applicable to deal with the winding up proceedings as the IB Code is a complete Code in itself. That thereafter, an amendment w.e.f. 15.11.2016 has been brought in under Section 327 (7) of 2013 Act wherein it has been clarified that the provisions of Section 326 and Section 327 of the 2013 Act will not be applicable in the event of li....
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....yees and hence, need to be secured in the event of liquidation of a company or bankruptcy of partnership firm. The Committee observed that the workers are the nerve center of any company and in the event of any company becoming insolvent or bankrupt, the workmen get affected adversely and therefore, priority must be given to their outstanding dues. Therefore, all sums due to any workman or employee from the provident fund, gratuity fund or pension fund should not be included in the liquidation estate assets. Thus, to protect the interest of the workmen, the Committee decided that that the workmen dues for a period of 12 months as provided under Section 53 of the Code be increased to 24 months preceding liquidation commencement date. 6 In light of the same, the Section 36 of the Code has clearly given outright protection to workmen's dues under Provident Fund, Pension Fund and Gratuity Fund which is not treated as liquidation assets and liquidator has no claim over such funds. Therefore, this share of workmen's dues has consciously been taken outside the liquidation process. 8.2.6 In light of the above statutory provisions under the IB Code and the legislative history, t....
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....he wages/salaries of those workmen/employees who had not worked at all during CIRP shall have to be treated and/or included in the CIRP costs, which cannot be the intention of the legislature. 10. On a fair reading of Section 5(13) of the IB code which defines "insolvency resolution process costs", it is observed and held that the dues towards the wages/salaries of only those workmen/employees who actually worked during the CIRP are to be included in the CIRP costs. The rests of the claims towards the wages/salaries of the workmen/employees, as observed hereinabove, shall be governed by Sections 53(1)(b) & (c) of the IB Code. 11. In the present case, the RP/Liquidator has seriously disputed that during the CIRP, the Corporate Debtor was a going concern. It is seriously disputed that the respective appellants - workmen/employees employed at Dahej Yard and Mumbai Head Office actually worked during the CIRP. It is true that while submitting the claims towards CIRP costs, the RP has not submitted the claims towards the wages/salaries of the appellants, however, still the claims submitted/to be submitted by the appellants will have to be adjudicated upon and considered by the Liqu....
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.... concern and therefore the workmen/employees are entitled to their wages and salaries during the CIRP, as their wages/salaries to be included in the CIRP costs cannot be accepted. However, the wages and salaries of the workmen/employees of pre-CIRP period will have to be governed as per the priorities mentioned in Section 53(1) of the IB Code. Dues of the workmen/employees towards Provident Fund, Gratuity Fund and Pension Fund" 13. Now so far as the dues of the workmen/employees on account of provident fund, gratuity and pension are concerned, they shall be governed by Section 36(4) of the IB Code. Section 36(4)(iii) of the IB Code specifically excludes "all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund", from the ambit of "liquidation estate assets". Therefore, Section 53(1) of the IB Code shall not be applicable to such dues, which are to be treated outside the liquidation process and liquidation estate assets under the IB Code. Thus, Section 36(4) of the IB Code has clearly given outright protection to workmen's dues under provident fund, gratuity fund and pension fund which are not to be treated as liquidation estate a....