The Supreme Court has made clear the complexities surrounding the demand for payment of wages/salaries before the Corporate Insolvency Resolution Process (CIRP), during CIRP, and during the liquidation of a Corporate Debtor.
In the instant case titled Sunil Kumar Jain and ors vs. Sundaresh Bhatt and ors the issue that was raised before the Supreme Court was:
Whether 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?
With regard to this issue the Supreme Court held that it must first be established and proven that the Corporate Debtor was a going concern during the CIRP and that the concerned workmen/employees actually worked while the Corporate Debtor was a going concern during the CIRP before the claims of the concerned workmen/employees towards the wages/salaries payable during CIRP can be considered. Consequently, a two-step formula has developed.
The wages and salaries of all other workmen and employees of the Corporate Debtor during the CIRP who actually have not worked and/or fulfilled their tasks when the Corporate Debtor was a going concern should not be automatically included in the CIRP costs. This exclusion has also been developed. In accordance with Section 53(1)(a) of the IBC, the wages and salaries that are included in CIRP costs will also receive priority, while all other wages and salaries that are not covered by CIRP costs must adhere to Sections 53(1)(b) and (c) of the IBC.
The court further noted that each case's facts must be considered and that it is not always possible to assume that a corporate debtor will continue to operate throughout the CIRP.
It was noted that Section 36(4)(iii) of the IBC specifically excludes "all sums due to any workman or employee from the provident fund, the pension fund, and the gratuity fund" from the scope of "liquidation estate assets" and as a result, the liquidator shall have no claim over such funds.
Therefore, the position of the workers/employees and the law are clear that claims for wages and salaries for the time during the CIRP can only be included in the CIRP costs if it is proven that the CIRP was managed as a Going Concern by the IRP/Resolution Professional and that the workers/employees in question actually worked during the CIRP and not otherwise.