IBC - Wages/Salaries Of Only Those Workmen/Employees Who Actually Worked During CIRP Are To Be Included In CIRP Costs: Supreme Court

The Supreme Court held that the dues towards the wages/salaries of only those workmen/employees who actually worked during the Corporate Insolvency Resolution Process(CIRP) are to be included in the CIRP costs.The court clarified that the wages and salaries of all other workmen/employees of the Corporate Debtor during the CIRP who actually have not worked and/or performed their duties when the Corporate Debtor was a going concern, shall not be included automatically in the CIRP costs. Such dues will be governed by Section 53(1)(b) and Section 53(1) (c) of the Insolvency and Bankruptcy Code, the bench comprising Justices MR Shah and Aniruddha Bose observed.The insolvency resolution proces costs have the first priority in the distribution of assets on the liquidation of the corporate debtor as per Section 53(1)(a) IBC.Legal provisionsAs per Section 5(13) of the IB Code, "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. As per Section 20, 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 Section 53(1)(a) of the IB Code.Brief BackgroundIn this case, National Company Law Appellate Tribunal dismissed the appeal preferred by the workmen/employees of M/s ABG Shipyard Limited ('Corporate Debtor') against National Company Law Tribunal order denying any relief to them with regard to their claim relating to salary, which they claimed for the period involving 'Corporate Insolvency Resolution Process' ('CIRP') and the prior period. The workmen/employees therefore approached the Apex Court in appeal.Rival ContentionsThe appellants contended that 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. It was further submitted that the provident fund, gratuity and pension fund amounts remain outside the liquidation under Section 36(4) of the IB Code. On the other hand, the respondent contended 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.IssueThus the issue considered by the court was whether the the 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?Wages/salaries of only those workmen/employees who actually worked during the CIRP are to be included in the CIRP costsThe court, referring to the provisions of the Code, observed that 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. "The wages and salaries of all other workmen/employees of the Corporate Debtor during the CIRP who actually have not worked and/or performed their duties when the Corporate Debtor was a going concern, shall not be included automatically in the CIRP costs. Only with respect to those workmen/employees who actually worked during CIRP when the Corporate Debtor was a going concern, their wages/salaries are to be included in the CIRP costs and they shall have the first priority over all other dues as per Section 53(1)(a) of the IB Code. Any other dues towards wages and salaries of the employees/workmen of the corporate debtor shall have to be governed by Section 53(1)(b) and Section 53(1) (c) of the IB Code. Any other interpretation would lead to absurd consequences and violate the scheme of Section 53 r/w Section 5(13) of the IB Code. If any other interpretation, more particularly, the interpretation canvassed on behalf of the appellants is accepted, in that case, the 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.. 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 29...

IBC - Wages/Salaries Of Only Those Workmen/Employees Who Actually Worked During CIRP Are To Be Included In CIRP Costs: Supreme Court

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