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Sunil Kumar Jain and others vs. Sundaresh Bhatt and others

Civil Appeal · 2022 INSC 438Decided 19 Apr 2022
Civil Appeal No. 5910 of 2019
M.R. Shah · Aniruddha Bose · B.V. Nagarathna

Background

272 workmen and employees of ABG Shipyard Limited (a company undergoing insolvency proceedings) at its Dahej Yard and Mumbai office claimed unpaid salaries/wages for the period during the Corporate Insolvency Resolution Process (CIRP) and before it. When the company was eventually ordered into liquidation, the insolvency tribunal (NCLT) did not grant them relief on this claim, and the appellate tribunal (NCLAT) upheld that decision, only allowing the workers to file individual claims before the appointed Liquidator. The workers appealed to the Supreme Court arguing that since the law required the Resolution Professional to run the company as a "going concern" during CIRP, they were automatically entitled to have their wages during that period treated as top-priority "CIRP costs."

Decision Breakdown

The Supreme Court held that wages during the CIRP period can only be counted as high-priority "CIRP costs" if it is actually proved that the company was run as a going concern during that time and that the specific workers actually worked during that period. It cannot simply be presumed just because the law directs the Resolution Professional to "make every endeavour" to run it as a going concern. Since there was a genuine factual dispute over whether ABG Shipyard was actually operating during CIRP and whether these specific workers worked, the Court directed the Liquidator to independently examine and decide these facts for each worker's claim within twelve weeks. Separately, the Court clarified that provident fund, gratuity, and pension fund dues are completely protected. They are excluded from the company's liquidation assets altogether under the law, so the Liquidator has no claim over these funds and workers are entitled to them regardless of the CIRP dispute. The appeal was therefore partly allowed, with the amount already set aside earlier to be used to pay whatever is found due once the Liquidator adjudicates the claims.

Lesson Learnt

Employees of a company going through bankruptcy are not automatically entitled to top-priority payment of wages for the insolvency period, that depends on proof that the company was actually run as a going concern and that they actually worked during that time, but their provident fund, gratuity, and pension dues are always protected and kept outside the pool of company assets used to pay other creditors.

Official source (sci.gov.in)View Judgment (PDF)

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