# SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT AND OTHERS

- **Citation:** [2022] 17 S.C.R. 318
- **Court:** Supreme Court of India
- **Decided:** 2022-04-19
- **Case number:** Civil Appeal No. 5910 of 2019
- **Bench:** M. R. Shah, Aniruddha Bose
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sunil-kumar-jain-and-others-v-sundaresh-bhatt-and-others-35490
- **Pages:** 26

## Headnote

Insolvency and Bankruptcy Code, 2016 - ss.5(13), 36(4),
53(1)(b) & (c) - Claim of the appellants-workmen/employees of
Corporate Debtor, working at Dahej Yard and Mumbai, relating to
wages/salary for the period involving Corporate Insolvency
Resolution Process (CIRP) and the amount due and payable to the
respective workmen/employees towards Pension Fund, Gratuity Fund
and Provident Fund - Held: On a fair reading of s.5(13) of the IB
code which defines "insolvency resolution process costs", 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 - Rest of the claims towards the wages/salaries of the workmen/
employees shall be governed by ss.53(1)(b) & (c) of the IB Code -
Further, considering s.36(4) of the IB code and when the provident
fund, gratuity fund and pension fund are kept out of the liquidation
estate assets, the share of the workmen dues shall be kept outside
the liquidation process and the concerned workmen/employees shall
have to be paid the same out of such provident fund, gratuity fund
and pension fund, if any, available and the Liquidator shall not
have any claim over such funds - In the present case, there are
disputed questions, whether in fact the IRP/RP managed the
operations of the corporate debtor as a going concern during the
CIRP and there is a serious dispute whether Dahej Yard was
operational during the CIRP or not and the concerned workmen/
employees of the Dahej Yard and the Mumbai Head Office actually
worked during the CIRP or not - Appellants to submit their claims
before the Liquidator and establish and prove that during CIRP,
IRP/RP managed the operations of the corporate debtor as a going
concern and that they actually worked during the CIRP - Liquidator
to adjudicate such claims in accordance with law and on its own
merits and on the basis of the evidence, independently.
[2022] 17 S.C.R. 318
318
A
B
C
D
E
F
G
H
319
Insolvency and Bankruptcy Code, 2016 - ss. 3 (36), 5 (13) &
(14), 17, 20, 25, 33 (7), 36 (4), 53(1)(a), (b) & (c) - Companies Act,
1956 - ss.59 A, 529A (1) (c), 530- Companies Act, 2013 - ss.326,
327 - Legislative History with respect to workmen/employee's dues
towards the wages/salaries including the amount due and payable
towards provident fund, gratuity and pension fund - Discussed.
Insolvency and Bankruptcy Code, 2016 - ss.36(4), 53 - Held:
Under the IB Code, the workmen dues have been duly protected
and the provident fund, gratuity and pension fund have been
excluded from the liquidation estate assets [s.36(4)] - Furthermore,
as per s.53 of the IB Code, the workmen dues are given the top
priority in the waterfall mechanism.
Insolvency and Bankruptcy Code, 2016 - ss.5(13), 20,
53(1)(a) - Held: It cannot be disputed that as per s.5(13), "insolvency
resolution process costs" shall include any costs incurred by the
resolution professional in running the business of the corporate
debtor as a going concern - It is also true that s.20 mandates that
the interim resolution professional/resolution professional is to
manage the operations of the corporate debtor as a going concern
and in case during the CIRP the corporate debtor was a going
concern, the wages/salaries of such workmen/employees who
actually worked, shall be included in the CIRP costs and in case of
liquidation of the corporate debtor, dues towards the wages and
salaries of such workmen/employees who actually worked when
the corporate debtor was a going concern during the CIRP, being
a part of the CIRP costs are entitled to have the first priority and
they have to be paid in full first as per s.53(1)(a)- Therefore, while
considering the claims of the concerned workmen/employees
towards the wages/salaries payable during CIRP, first of all it has
to be established and proved that during CIRP, the corporate debtor
was a going concern and that the concerned workmen/employees
actually worked while the corporate debtor was a going concern
during

## Text

_Characters 0–38,317 of 58,898. This is a partial read: ask again with offset=38317 for what follows._

A
B
C
D
E
F
G
H
318
SUPREME COURT REPORTS
[2022] 17 S.C.R.
SUNIL KUMAR JAIN AND OTHERS
v.
SUNDARESH BHATT AND OTHERS
(Civil Appeal No. 5910 of 2019)
APRIL 19, 2022
[M. R. SHAH AND ANIRUDDHA BOSE, JJ.]
Insolvency and Bankruptcy Code, 2016 - ss.5(13), 36(4),
53(1)(b) & (c) - Claim of the appellants-workmen/employees of
Corporate Debtor, working at Dahej Yard and Mumbai, relating to
wages/salary for the period involving Corporate Insolvency
Resolution Process (CIRP) and the amount due and payable to the
respective workmen/employees towards Pension Fund, Gratuity Fund
and Provident Fund - Held: On a fair reading of s.5(13) of the IB
code which defines "insolvency resolution process costs", 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 - Rest of the claims towards the wages/salaries of the workmen/
employees shall be governed by ss.53(1)(b) & (c) of the IB Code -
Further, considering s.36(4) of the IB code and when the provident
fund, gratuity fund and pension fund are kept out of the liquidation
estate assets, the share of the workmen dues shall be kept outside
the liquidation process and the concerned workmen/employees shall
have to be paid the same out of such provident fund, gratuity fund
and pension fund, if any, available and the Liquidator shall not
have any claim over such funds - In the present case, there are
disputed questions, whether in fact the IRP/RP managed the
operations of the corporate debtor as a going concern during the
CIRP and there is a serious dispute whether Dahej Yard was
operational during the CIRP or not and the concerned workmen/
employees of the Dahej Yard and the Mumbai Head Office actually
worked during the CIRP or not - Appellants to submit their claims
before the Liquidator and establish and prove that during CIRP,
IRP/RP managed the operations of the corporate debtor as a going
concern and that they actually worked during the CIRP - Liquidator
to adjudicate such claims in accordance with law and on its own
merits and on the basis of the evidence, independently.
[2022] 17 S.C.R. 318
318
A
B
C
D
E
F
G
H
319
Insolvency and Bankruptcy Code, 2016 - ss. 3 (36), 5 (13) &
(14), 17, 20, 25, 33 (7), 36 (4), 53(1)(a), (b) & (c) - Companies Act,
1956 - ss.59 A, 529A (1) (c), 530- Companies Act, 2013 - ss.326,
327 - Legislative History with respect to workmen/employee's dues
towards the wages/salaries including the amount due and payable
towards provident fund, gratuity and pension fund - Discussed.
Insolvency and Bankruptcy Code, 2016 - ss.36(4), 53 - Held:
Under the IB Code, the workmen dues have been duly protected
and the provident fund, gratuity and pension fund have been
excluded from the liquidation estate assets [s.36(4)] - Furthermore,
as per s.53 of the IB Code, the workmen dues are given the top
priority in the waterfall mechanism.
Insolvency and Bankruptcy Code, 2016 - ss.5(13), 20,
53(1)(a) - Held: It cannot be disputed that as per s.5(13), "insolvency
resolution process costs" shall include any costs incurred by the
resolution professional in running the business of the corporate
debtor as a going concern - It is also true that s.20 mandates that
the interim resolution professional/resolution professional is to
manage the operations of the corporate debtor as a going concern
and in case during the CIRP the corporate debtor was a going
concern, the wages/salaries of such workmen/employees who
actually worked, shall be included in the CIRP costs and in case of
liquidation of the corporate debtor, dues towards the wages and
salaries of such workmen/employees who actually worked when
the corporate debtor was a going concern during the CIRP, being
a part of the CIRP costs are entitled to have the first priority and
they have to be paid in full first as per s.53(1)(a)- Therefore, while
considering the claims of the concerned workmen/employees
towards the wages/salaries payable during CIRP, first of all it has
to be established and proved that during CIRP, the corporate debtor
was a going concern and that the concerned workmen/employees
actually worked while the corporate debtor was a going concern
during the CIRP - Plea of the appellants that as the RP is under
mandate to manage the operations of the corporate debtor as a
going concern u/s.20 and therefore it is to be presumed that the RP
managed the operations of the Corporate Debtor as a going
concern and thus, the workmen/employees are entitled to their wages
and salaries during the CIRP, as their wages/salaries to be included
SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT
AND OTHERS
A
B
C
D
E
F
G
H
320
SUPREME COURT REPORTS
[2022] 17 S.C.R.
in the CIRP costs, is not acceptable - However, the wages and
salaries of the workmen/employees of pre-CIRP period will have to
be governed as per the priorities mentioned in s.53(1).
Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC
17 : [2019] 3 SCR 535; Gujarat Urja Vikas Nigam
Limited v. Amit Gupta (2021) 7 SCC 209 - referred to.
Case Law Reference
[2019] 3 SCR 535
referred to
Para 6.5
(2021) 7 SCC 209
referred to
Para 6.5
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5910
of 2019.
From the Judgment and Order dated 31.05.2019 of the National
Company Law Appellate Tribunal at New Delhi in Company Appeal(AT)
(Insolvency) No. 605 of 2019.
Ms. Shobha Ramamoorthy, J. Thalapathy Sriram, Shilp Vinod,
Pushkin Rajkumar, Ms. Vincy George, Nawaz Sherif, Advs. for the
Appellants.
Nakul Dewan, Sr. Adv., Abhishek Sharma, Ashly Cherian,
Kamlendra Pratap Singh, Gautam Talukdar, Dinesh Tripathi, Pradeep
Kumar Jaiswal, Ms. Sundri, Parminder Singh Bhullar, Yogesh Pachouri,
Sanjay Kumar Tyagi, M/S. Cyril Amarchand Mangaldas, Advs. for the
Respondents.
The Judgment of the Court was delivered by
M. R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned order dated
31.05.2019 passed by the National Company Law Appellate Tribunal,
New Delhi (hereinafter referred to as the 'Appellate Tribunal') in
Company Appeal (AT) (Insolvency) No. 605 of 2019, by which the
Appellate Tribunal has dismissed the said appeal preferred by the
appellants herein - workmen/employees of M/s ABG Shipyard Limited
(hereinafter referred to as the 'Corporate 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
A
B
C
D
E
F
G
H
321
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 under Section 7 of the Insolvency and Bankruptcy
Code, 2016 (hereinafter referred to as the 'IBC Code') and the CIRP
was initiated. The Adjudicating Authority also appointed the Interim
Resolution Professional of the Corporate Debtor who was thereafter
confirmed as the Resolution Professional (for short, 'RP') by the
Committee of Creditors (for short, 'COC') of the Corporate Debtor on
7.9.2017. First meeting of the COC was held on 4.9.2017.
3.1 On 23.10.2017, Company Application No. 348 of 2017 was
filed before the Adjudicating Authority, praying inter alia to direct the
Resolution Professional to make payment to the employees and the
workmen. On 9.3.2018, the appellants herein filed Company Application
No. 78 of 2018 in Company Application No. 348/2017 before the
Adjudicating Authority, praying inter alia to direct the RP to utilize the
amount of Rs.9,75,33,236/- to be received from the Indian Coast Guard
solely for employees/workmen.
3.2 Vide order dated 25.04.2018 passed in Company Application
No. 78/2018, the Adjudicating Authority directed the RP to deposit
Rs.2,75,00,000/- in the Registry of the Adjudicating Authority, subject to
the outcome of Company Application No. 348/2017. In the meantime, in
the 4th meeting of the COC held on 08.12.2017, the issue with respect to
the payment of salaries/wages of the employees/workers respectively
was discussed in view of the directions passed by the Adjudicating
Authority vide its order dated 01.12.2017. However, the issue was not
resolved and thereafter the appellants herein filed the aforesaid IA No.
SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT
AND OTHERS [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
322
SUPREME COURT REPORTS
[2022] 17 S.C.R.
78/2018 in which the Adjudicating Authority directed to deposit Rs. 2.75
crores out of the total amount of Rs.9,75,33,236/- with the Registry of
the NCLT towards disbursement of the outstanding salaries/wages to
the appellants, subject to the final outcome of IA No. 348/2017 and the
Adjudicating Authority accordingly disposed of Company Application
No. 78/2018.
3.3 It appears that thereafter since no agreed resolution plan could
be adopted of the Corporate Debtor, the RP filed IA No. 113/2019 before
the Adjudicating Authority praying for an order of liquidation of Corporate
Debtor. The Adjudicating Authority by order dated 25.04.2019, after
deciding various other applications including the application of the
appellants being Company Application No. 348/2017 passed an order of
liquidation of the Corporate 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 appellants-workmen/
employees working at Dahej Yard and Mumbai Head Office preferred
Company Appeal No. 605/2019 before the Appellate Tribunal. By the
impugned order, the Appellate Tribunal has disposed of the said appeal
declining to interfere with the order passed by the Adjudicating Authority,
however, allowed the appellants - 272 workmen/employees to file their
individual claims before the Liquidator, who after going through the record
and taking into consideration the pleadings made by the workmen/
employees will determine the claim. The Appellate Tribunal has also
further observed that if claim of one or other workmen/employee is
rejected, it will be open to them to move before the Adjudicating Authority,
A
B
C
D
E
F
G
H
323
which may decide the same in accordance with law. The Appellate
Tribunal has also observed that so far as the Gratuity and Provident
Funds are concerned, the same cannot be treated to be the asset of the
Corporate Debtor and they are to be disbursed amongst the employees/
workmen who are entitled for the same.
5. Feeling aggrieved and dissatisfied with the impugned order
passed by the Appellate Tribunal, the appellants-workmen/employees of
the Corporate Debtor working at Dahej Yard and Mumbai Head Office
have preferred the present appeal.
6. Ms. Shobha Ramamoorthy, learned Advocate appearing on
behalf of the appellants has vehemently submitted that in the present
case the respective appellants are all the workmen and employees -
272 in number and were employed at Dahej Yard and Mumbai Head
Office of the Corporate Debtor. It is submitted that in the present case,
the CIRP period commenced from 01.08.2017 and ended on 25.04.2019
- commencement of liquidation. It is submitted that for this entire period
of 20 months and 25 days, the respective employees and workmen were
on the payrolls of the Corporate Debtor. It is submitted that the RP did
not terminate the employment contracts or retrench or layoff the workmen.
It is submitted that on the other hand, RP issued instructions dated
4.9.2017 to all the employees and workmen to report to him and follow
his instructions. It is submitted that on 15.11.2017, RP issued an email to
HR Department of Corporate Debtor instructing strictly not to relieve or
permit resignation of any employee/workmen, without written approval.
6.1 It is further submitted that in the present case, the Corporate
Debtor was managed as a going concern in accordance with Section 21
of the IB Code. It is submitted that even the proposal to suspend
operations at Dahej Yard and provide workmen with 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.
SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT
AND OTHERS [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
324
SUPREME COURT REPORTS
[2022] 17 S.C.R.
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 appellants has relied upon some documents
from the paper book as well as rejoinder affidavit in respect of proof of
work done by the respective employees/workmen during the CIRP
period.
6.3 It is submitted that all claims filed by the employees/workmen
in Form-E with the Liquidator have been verified. It is submitted that the
verified and admitted claims of the employees and workmen of the
Corporate Debtor for CIRP period on the basis of the records available
including the attendance register have been uploaded by the RP/Liquidator
on 24.12.2020 on the official website of the Corporate Debtor as per
regulations. It is submitted that therefore further verification in respect
of the claims of the appellants based on their actual attendance is
vexatious.
6.4 Learned counsel appearing on behalf of the appellants has
taken us to the relevant provisions of the IB Code in support of her
submission that the workmen/employees of the Dahej Yard and Mumbai
Head Office are at least entitled to the wages/salaries during the period
of CIRP and are also entitled to the amount due and payable towards
provident fund, gratuity and pension. Learned counsel appearing on behalf
of the appellants has taken us to Section 3(36); Section 5(13); Section
5(14); Section 5(23); Section 17, Section 18; Section 19; Section 20;
Section 25; Section 33(7); Section 36(4) and Section 53 of the IB Code.
6.5 It is further submitted that the objective of the IB Code is for
maximising of value of assets of the Corporate Debtor so that they are
efficiently run as a going concern. Reliance is placed on the decision of
this Court in the case of Swiss Ribbons Pvt. Ltd. v. Union of India,
reported in (2019) 4 SCC 17 (para 37); and in the case of Gujarat
Urja Vikas Nigam Limited v. Amit Gupta, Civil Appeal No. 9241 of
2019 decided on 8.3.2021 (para 57).
6.6 It is submitted that even under Section 20(1) of the IB Code,
the RP is mandated to manage the operations of the Corporate Debtor
A
B
C
D
E
F
G
H
325
as a going concern. It is submitted that for this purpose he is vested with
the authority to issue instructions to the personnel of the Corporate Debtor
as may be necessary for keeping the Corporate Debtor as a going
concern. It is submitted that the RP is under the mandate to take all such
actions as are necessary to keep the Corporate Debtor as a going
concern.
6.7 It is submitted that Section 5(13) of the 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 workmen are deemed to have been discharged under
Section 33(7) of the IB Code. It is submitted that even the workmen/
employees are required to be paid the wages/salaries for the pre-CIRP
period as per the priorities mentioned in Section 53 of the IB Code.
6.9 It is further submitted by the learned counsel appearing on
behalf of the appellants that the salaries and wages payable to the
workmen/employees for the CIRP period are a component of the
resolution professional costs and therefore the CIRP period salaries and
wages payable to the respective workmen/employees are to be first
paid and are not to be paid "pari passu" in terms of Section 53(1)(b)
and (c) of the IB Code. It is submitted that even the 'Workmen's Dues'
is explained in Explanation (ii) to Section 53 of the Code as the term
having the same meaning as assigned to it in Section 326 of the Companies
Act, 2013. It is submitted that Section 327 of the Companies Act provides
SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT
AND OTHERS [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
326
SUPREME COURT REPORTS
[2022] 17 S.C.R.
for preferential payments upon winding up of a company, enlists the
component of the wages or salary and dues payable to an employee
under clauses b, c, e & f under sub-clause 1.
6.10. It is submitted that thus on a combined reading of the
provisions of Sections 326 & 327 of the Companies Act, it is clear that
the workmen's dues and the employee's dues are comprised of several
components including wages or salary, holiday remuneration, sums due
from the provident fund, pension fund and the gratuity fund amongst
other items. It is submitted that as observed by this Court in the case of
Swiss Ribbons Pvt. Ltd. (supra), the costs and expenses of the RP/
Liquidator are to be given preferential treatment by excepting them from
the pari passu principle.
6.11 It is submitted that Rs. 2.75 crores are earmarked and kept
apart towards the dues of the workmen/employees. It is submitted that
therefore the said sum of Rs.2.75 crores which is deposited for the
benefit of the workmen/employees is liable to be disbursed in terms of
Section 53(1)(a) r/w Section 5(13)(c) of the IB Code. It is submitted
that the amount in the sum of Rs.16.8 crores (approximately) payable
towards the provident fund, gratuity and pension in terms of Section
36(4) to all the employees and workmen of the Corporate Debtor including
the appellants and therefore is required to be paid in priority over the
disbursement to be made under Section 53(1)(b) & (c).
6.12 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
A
B
C
D
E
F
G
H
327
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 payments to the appellants as part of
the CIRP costs. It is submitted that the wages and salaries of the appellants
- workmen/employees of the Corporate Debtor would fall under Sections
53(1)(b) and 53(1)(c) of the IB Code.
7.3 It is submitted that as per Section 5(13)(c) of the IB Code r/w
Regulations 31 and 33 of the CIRP Regulations, cost incurred by the RP
in running the business of the Corporate Debtor is required to be ratified
by the COC for it to be classified as CIRP costs. It is submitted that only
the costs for those employees who have assisted the RP during the
CIRP period, have been approved by the COC in the first COC meeting,
held on 4.9.2017. It is submitted that therefore no other costs can be
classified as CIRP costs, except unless it is ratified by the COC. It is
submitted that the remaining dues of the workmen will form part of the
dues falling under Section 53(1)(b) of the IB Code.
7.4 It is submitted that in the meetings of the COC held periodically
right from first meeting to fourth meeting, it was specifically recorded
that the Dahej Shipyard is not operational and that the Corporate Debtor
is not in a position to pay the salaries of the workmen and employees
due to paucity of funds since the Corporate Debtor was not a going
concern and did not have a running business.
7.5 It is further submitted that the main business of the Corporate
Debtor was shipbuilding and ship repairing which was carried out at its
Yards at Surat and Dahej. It is submitted that the Yard at Dahej was not
in operation since 2015 and the Yard at Surat was closed in October
2017 and therefore it cannot be said that the Corporate Debtor was a
going concern during the CIRP and therefore all its employees would be
required to be treated as those who assisted the RP to run the Corporate
Debtor as a going concern.
7.6 It is further submitted that as such there is no evidence to
suggest that the respective workmen/employees deployed at Dahej Yard
and Mumbai Head Office have actually worked during the CIRP period.
It is therefore submitted that the Appellate Tribunal has rightly observed
that the respective workmen/employees can at least have to prove their
claims before the RP/Liquidator by submitting their respective claims
and the same are required to be adjudicated upon and/or verified by the
SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT
AND OTHERS [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
328
SUPREME COURT REPORTS
[2022] 17 S.C.R.
Liquidator. It is submitted that therefore the Appellate Tribunal 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 5(13) (c) of the
IB Code and in a case where the same has been approved by the COC
under Regulations 31 and 33 of the CIRP Regulations.
It is submitted that in the present case the Corporate Debtor is
neither a going concern nor the RP has incurred any costs. It is submitted
that therefore the wages/salaries of the workmen/employees at the Dahej
Yard cannot be included in the CIRP costs.
7.9 It is further submitted that after the commencement of the
CIRP, workmen and employee's dues which are outstanding as on the
date of CIRP, are treated as operational creditors in terms of Section
5(20) and 5(21) of the IB Code. It is submitted that in terms of Section
30(2)(b) of the IB Code, the amount payable to operational creditors by
a prospective resolution applicant shall not be less than the amount to be
paid to such creditors in the event of a liquidation of the corporate debtor
under Section 53; OR the amount that would have been paid to such
creditors, if the amount to be distributed under the resolution plan had
been distributed in accordance with the order of priority in sub-section
(1) of section 53, whichever is higher.
A
B
C
D
E
F
G
H
329
7.10 It is 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 operational creditors fall sixth in line after payment
of CIRP dues, dues of secured creditors etc.
7.11 It is submitted that in the present case, it is only few of the
Surat workmen/employees and 8 Mumbai employees who have rendered
services during the CIRP period to assist the RP to complete the CIRP
process whose dues would be treated as CIRP costs. Otherwise, all
dues of employees and workmen which have accrued prior to CIRP
would be paid in terms of Section 53(1)(f) of the IB Code, both during
CIRP and during liquidation. It is submitted that in the present case, the
Liquidator has accepted the claim filed by the workmen and employees.
However, the said claims filed by the workmen/employees cannot be
considered as CIRP costs and cannot be paid in priority to all other
claims. The treatment of the said claims of the workmen and employees
have to be treated in accordance with the provisions of Section 53(1)(b)(i)
and 53(1)(c) of the IB Code respectively, as applicable and not as CIRP
costs.
7.12 It is submitted that in the present case the appellants who
are the workmen 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
SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT
AND OTHERS [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
330
SUPREME COURT REPORTS
[2022] 17 S.C.R.
Head Office were required to submit their individual claims and they
have to establish before the RP/Liquidator that in fact they actually
worked during the CIRP period, the Appellate Tribunal has rightly
observed that the respective workmen/employees have to submit their
claims before the RP/Liquidator, who is required to verify whether the
Corporate Debtor was a going concern during the CIRP period and
whether in fact the concerned workmen/employees actually worked
during the CIRP period or not. It is submitted that therefore no
interference of this Court is called for.
8. We have heard the learned counsel for the respective parties
at length.
The issue before this Court is with respect to wages/salaries of
the workmen/employees during the CIRP period and the amount due
and payable to the respective workmen/employees towards Pension Fund,
Gratuity Fund and Provident Fund.
8.1 While considering the aforesaid claims, the legislative history
and the relevant provisions of the IB Code are required to be referred
to.
Relevant Provisions of the IB Code:
"Section 3(36)
Section 3(36) "workman" shall have the same meaning as assigned
to it in clause (s) of section 2 of the Industrial Disputes Act, 1947
(14 of 1947);
Section 5(13)
(13) "insolvency resolution process costs" means-
(a) the amount of any interim finance and the costs incurred in
raising such finance;
(b) the fees payable to any person acting as a resolution
professional;
(c) any costs incurred by the resolution professional in running
the business of the corporate debtor as a going concern;
(d) any costs incurred at the expense of the Government to
facilitate the insolvency resolution process; and
(e) any other costs as may be specified by the Board;
A
B
C
D
E
F
G
H
331
Section 5(14)
5(14) "insolvency resolution process period" means the period of
one hundred and eighty days beginning from the insolvency
commencement date and ending on one hundred and eightieth
day;
Section 17
17. Management of affairs of corporate debtor by interim
resolution professional. (1) From the date of appointment of
the interim resolution professional, -
(a) the management of the affairs of the corporate debtor shall
vest in the interim resolution professional;
(b) the powers of the board of directors or the partners 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;
(d) have the authority to access the books of account, records
and other relevant documents of corporate debtor available with
SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT
AND OTHERS [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
332
SUPREME COURT REPORTS
[2022] 17 S.C.R.
government authorities, statutory auditors, accountants and such
other persons as [may be specified; and]
[(e) be responsible for complying with the requirements under
any law for the time being in force on behalf of the corporate
debtor.]
Section 20
20. Management of operations of corporate debtor as going
concern. - (1) The interim resolution professional shall make every
endeavour to protect and preserve the value of the property of
the corporate debtor and manage the operations of the corporate
debtor as a going concern.
(2) For the purposes of sub-section (1), the interim resolution
professional shall have the authority-
(a) to appoint accountants, legal or other professionals as may be
necessary;
(b) to enter into contracts on behalf of the corporate debtor or to
amend or modify the contracts or transactions which were entered
into before the commencement of corporate insolvency resolution
process;
(c) to raise interim finance provided that no security interest shall
be created over any encumbered property of the corporate debtor
without the prior consent of the creditors whose debt is secured
over such encumbered property:
Provided that no prior consent of the creditor shall be required
where the value of such property is not less than the amount
equivalent to twice the amount of the debt.
(d) to issue instructions to personnel of the corporate debtor as
may be necessary for keeping the corporate debtor as a going
concern; and
(e) to take all such actions as are necessary to keep the corporate
debtor as a going concern.
Section 25
25. Duties of resolution professional - (1) It shall be the duty
of the resolution professional to preserve and protect the assets
A
B
C
D
E
F
G
H
333
of the corporate debtor, including the continued business operations
of the corporate debtor.
(2) For the purposes of sub-section (1), the resolution professional
shall undertake the following actions, namely: -
(a) take immediate custody and control of all the assets of the
corporate debtor, including the business records of the corporate
debtor;
(b) represent and act on behalf of the corporate debtor with third
parties, exercise rights 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 may be 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 shall be deemed
to be a notice of discharge to the officers, employees and workmen
SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT
AND OTHERS [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
334
SUPREME COURT REPORTS
[2022] 17 S.C.R.
of the corporate debtor, except when the business of the corporate
debtor is continued during the liquidation process by the liquidator.
Section 36(4)
Section 36 (4) Liquidation Estate -
(4) The following shall not be included in the liquidation estate
assets and shall not be used for recovery in the liquidation: -
(a) assets owned by a third party which are in possession of the
corporate debtor, including-
(i) assets held in trust for any third party;
(ii) bailment contracts;
(iii) all sums due to any workman or employee from the provident
fund, the pension fund and the gratuity fund;
(iv) other contractual arrangements which do not stipulate transfer
of title but only use of the assets; and
(v) such other assets as may be notified by the Central Government
in consultation with any financial sector regulator;
(b) assets in security collateral held by financial services providers
and are subject to netting and set-off in multi-lateral trading or
clearing transactions;
(c) personal assets of any shareholder or partner of a corporate
debtor as the case may be provided such assets are not held on
account of avoidance transactions that may be avoided under this
Chapter;
(d) assets of any Indian or foreign subsidiary of the corporate
debtor; or
(e) any other assets as may be specified by the Board, including
assets which could be subject to set-off on account of mutual
dealings between the corporate debtor and any creditor.
Section 53
53.