25 四月 2022

Insolvency – ‘CIRP costs’ to include only salaries of employees who worked during CIRP

The Supreme Court has 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 Apex Court in this regard observed that as per Section 5(13) of the Insolvency and Bankruptcy Code (‘IBC’), “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.

The Court observed that 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 IBC. It also held that the rest of the claims towards the wages/salaries of the workmen/employees shall be governed by Sections 53(1)(b) and (c) of the IBC.

Further, on the contention that Resolution Professional (RP) is under the mandate to manage the operations of the Corporate Debtor as a going concern, the Apex Court in its judgment dated 19 April 2022 referred to Section 20 of IBC and held that if it is found that the Corporate Debtor was not a going concern during the CIRP despite best efforts by the resolution professional, it cannot be presumed that still the Corporate Debtor was a going concern during the CIRP period. The Court was of the view that it depends on the facts of each case.

The Supreme Court hence rejected the submission that as the RP is under mandate to manage the operations of the corporate debtor as a going concern under Section 20 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.

Dues of workmen towards provident, gratuity and pension fund

Considering Section 36(4) of the IBC, the Court also held that the concerned workmen/employees shall be entitled to provident fund, gratuity fund and pension fund from such funds which are specifically kept out of liquidation estate assets and as per Section 36(4) of the IB Code, they are not to be used for recovery in the liquidation.

The Supreme Court in this case Sunil Kumar Jain vs Sundaresh Bhatt hence partly allowed the appeal against the decision of the NCLAT.

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