The Hon'ble Supreme Court while adjudicating an appeal filed in the matter of Sunil Kumar Jain and others versus Sundaresh Bhatt and others held that only working employees during the Corporate Insolvency Resolution Process can claim salary/wages under IBC.
The case, in brief, is that the employees of M/S ABG Shipyard preferred an appeal before the Hon'ble Supreme Court after the dismissal of their appeal by the National Company Law Appellate Tribunal, praying for relief with regard to their claim relating to salary for the period involving (CIRP) and the period prior thereto.
One of the primary issues, in this case, was the right pertaining to the amount due in salary/wages and payable towards the pension fund, gratuity fund and provident fund of the employees during the CIRP period.
The counsel on behalf of the appellants contended that the salaries/wages payable to the Employees are mandated to be disbursed before the amount distributed under section 53 of the IBC as the same would fall under the ambit of section 5(13) of the Code in lieu of the CIRP costs. Furthermore, it was contended that the pension fund, provident fund and gratuity fund fall beyond the liquidation under section 36(4) of the Code.
However, the counsel on the behalf of Respondent refuted the claims and further contended that the employees who have not done any work during the CIRP period and also have not assisted the Resolution Professional would fall beyond the ambit of section 5(13)(c) of the Code.
The Court however observed that section 5(13) of the Code circumscribes only those costs which are incurred by the resolution professional in running the business of the corporate debtor as a growing concern. The Court held that the dues towards the wages/salaries of only those employees who actually worked during the CIRP are to be included in the CIRP costs. Therefore, it came to the conclusion that in the case of CIRP, the workmen/employees who have worked when the CIRP was a going concern, fall under the ambit of CIRP costs and are entitled to have the first priority as per section 53(1)(a) of the IBC, and the rest of the claims towards the same shall be governed by Sections 53(1)(b) and (c) of the Code.
Also, it was observed that Resolution Professional is not under a mandate to manage the operations of the corporate debtor as a going concern under Section 20 of the Code. Furthermore, the court concluded that as per section 36(4) of the Code, provident funds, gratuity funds, and pension funds are not to be used for recovery in the liquidation, which is specifically kept out of the liquidation estate assets.