SUNIL KUMAR JAIN AND OTHERSversusSUNDARESH BHATT AND OTHERS

318                      [2022]REPORTS
               SUPREME COURT   17 S.C.R. 318              [2022] 17 S.C.R.


A                   SUNIL KUMAR JAIN AND OTHERS
                                       v.
                    SUNDARESH BHATT AND OTHERS
                        (Civil Appeal No. 5910 of 2019)
B                               APRIL 19, 2022
               [M. R. SHAH AND ANIRUDDHA BOSE, JJ.]
             Insolvency and Bankruptcy Code, 2016 – ss.5(13), 36(4),
      53(1)(b) & (c) – Claim of the appellants-workmen/employees of
      Corporate Debtor, working at Dahej Yard and Mumbai, relating to
C
      wages/salary for the period involving Corporate Insolvency
      Resolution Process (CIRP) and the amount due and payable to the
      respective workmen/employees towards Pension Fund, Gratuity Fund
      and Provident Fund – Held: On a fair reading of s.5(13) of the IB
      code which defines “insolvency resolution process costs”, the dues
D     towards the wages/salaries of only those workmen/employees who
      actually worked during the CIRP are to be included in the CIRP
      costs – Rest of the claims towards the wages/salaries of the workmen/
      employees shall be governed by ss.53(1)(b) & (c) of the IB Code –
      Further, considering s.36(4) of the IB code and when the provident
      fund, gratuity fund and pension fund are kept out of the liquidation
E
      estate assets, the share of the workmen dues shall be kept outside
      the liquidation process and the concerned workmen/employees shall
      have to be paid the same out of such provident fund, gratuity fund
      and pension fund, if any, available and the Liquidator shall not
      have any claim over such funds – In the present case, there are
F     disputed questions, whether in fact the IRP/RP managed the
      operations of the corporate debtor as a going concern during the
      CIRP and there is a serious dispute whether Dahej Yard was
      operational during the CIRP or not and the concerned workmen/
      employees of the Dahej Yard and the Mumbai Head Office actually
      worked during the CIRP or not – Appellants to submit their claims
G
      before the Liquidator and establish and prove that during CIRP,
      IRP/RP managed the operations of the corporate debtor as a going
      concern and that they actually worked during the CIRP – Liquidator
      to adjudicate such claims in accordance with law and on its own
      merits and on the basis of the evidence, independently.
H
                                      318
 SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                           319
                   AND OTHERS

       Insolvency and Bankruptcy Code, 2016 – ss. 3 (36), 5 (13) &        A
(14), 17, 20, 25, 33 (7), 36 (4), 53(1)(a), (b) & (c) – Companies Act,
1956 – ss.59 A, 529A (1) (c), 530– Companies Act, 2013 – ss.326,
327 – Legislative History with respect to workmen/employee’s dues
towards the wages/salaries including the amount due and payable
towards provident fund, gratuity and pension fund – Discussed.
                                                                          B
       Insolvency and Bankruptcy Code, 2016 – ss.36(4), 53 – Held:
Under the IB Code, the workmen dues have been duly protected
and the provident fund, gratuity and pension fund have been
excluded from the liquidation estate assets [s.36(4)] – Furthermore,
as per s.53 of the IB Code, the workmen dues are given the top
priority in the waterfall mechanism.                                      C

      Insolvency and Bankruptcy Code, 2016 – ss.5(13), 20,
53(1)(a) – Held: It cannot be disputed that as per s.5(13), “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 – It is also true that s.20 mandates that       D
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       E
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 s.53(1)(a)– Therefore, while
considering the claims of the concerned workmen/employees                 F
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 – Plea of the appellants that as the RP is under          G
mandate to manage the operations of the corporate debtor as a
going concern u/s.20 and therefore it is to be presumed that the RP
managed the operations of the Corporate Debtor as a going
concern and thus, the workmen/employees are entitled to their wages
and salaries during the CIRP, as their wages/salaries to be included
                                                                          H
320             SUPREME COURT REPORTS                         [2022] 17 S.C.R.


A     in the CIRP costs, is not acceptable – However, the wages and
      salaries of the workmen/employees of pre-CIRP period will have to
      be governed as per the priorities mentioned in s.53(1).
            Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC
            17 : [2019] 3 SCR 535; Gujarat Urja Vikas Nigam
B           Limited v. Amit Gupta (2021) 7 SCC 209 – referred to.
                               Case Law Reference
      [2019] 3 SCR 535                   referred to               Para 6.5
      (2021) 7 SCC 209                   referred to               Para 6.5
C           CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5910
      of 2019.
            From the Judgment and Order dated 31.05.2019 of the National
      Company Law Appellate Tribunal at New Delhi in Company Appeal(AT)
      (Insolvency) No. 605 of 2019.
D           Ms. Shobha Ramamoorthy, J. Thalapathy Sriram, Shilp Vinod,
      Pushkin Rajkumar, Ms. Vincy George, Nawaz Sherif, Advs. for the
      Appellants.
            Nakul Dewan, Sr. Adv., Abhishek Sharma, Ashly Cherian,
      Kamlendra Pratap Singh, Gautam Talukdar, Dinesh Tripathi, Pradeep
E     Kumar Jaiswal, Ms. Sundri, Parminder Singh Bhullar, Yogesh Pachouri,
      Sanjay Kumar Tyagi, M/S. Cyril Amarchand Mangaldas, Advs. for the
      Respondents.
            The Judgment of the Court was delivered by
            M. R. SHAH, J.
F            1. Feeling aggrieved and dissatisfied with the impugned order dated
      31.05.2019 passed by the National Company Law Appellate Tribunal,
      New Delhi (hereinafter referred to as the ‘Appellate Tribunal’) in
      Company Appeal (AT) (Insolvency) No. 605 of 2019, by which the
      Appellate Tribunal has dismissed the said appeal preferred by the
G     appellants herein – workmen/employees of M/s ABG Shipyard Limited
      (hereinafter referred to as the ‘Corporate Debtor’), working at Dahej
      and Mumbai, which was filed against the order passed by the National
      Company Law Tribunal, Ahmedabad Bench, Ahmedabad (hereinafter
      referred to as the ‘Adjudicating Authority’) dated 25.04.2019 not granting
      any relief to them with regard to their claim relating to salary, which they
H     claimed for the period involving ‘Corporate Insolvency Resolution
 SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                              321
           AND OTHERS [M. R. SHAH, J.]

Process’ (hereinafter referred to as the ‘CIRP’) and the prior period,       A
original applicants – workers/employees have preferred the present
appeal.
        2. That the Corporate Debtor was a private sector Ship Building
Yard with its manufacturing activities at Dahej Yard and Surat Yard in
Gujarat and having its corporate office at Mumbai. That prior to the         B
initiation of CIRP, the Corporate Debtor had 562 workmen and 93
employees at Dahej; 291 workmen and 99 employees at Surat and 101
employees at its Mumbai Head Office. The appellants herein are the
272 employees and workmen employed at Mumbai Head Office and
Dahej Yard of the Corporate Debtor. None of the 201 employees and
workmen at Surat Yard are the appellants herein.                             C

      3. Vide its order dated 1.8.2017, the Adjudicating Authority
admitted an application under Section 7 of the Insolvency and Bankruptcy
Code, 2016 (hereinafter referred to as the ‘IBC Code’) and the CIRP
was initiated. The Adjudicating Authority also appointed the Interim
Resolution Professional of the Corporate Debtor who was thereafter           D
confirmed as the Resolution Professional (for short, ‘RP’) by the
Committee of Creditors (for short, ‘COC’) of the Corporate Debtor on
7.9.2017. First meeting of the COC was held on 4.9.2017.
       3.1 On 23.10.2017, Company Application No. 348 of 2017 was
filed before the Adjudicating Authority, praying inter alia to direct the    E
Resolution Professional to make payment to the employees and the
workmen. On 9.3.2018, the appellants herein filed Company Application
No. 78 of 2018 in Company Application No. 348/2017 before the
Adjudicating Authority, praying inter alia to direct the RP to utilize the
amount of Rs.9,75,33,236/- to be received from the Indian Coast Guard        F
solely for employees/workmen.
        3.2 Vide order dated 25.04.2018 passed in Company Application
No. 78/2018, the Adjudicating Authority directed the RP to deposit
Rs.2,75,00,000/- in the Registry of the Adjudicating Authority, subject to
the outcome of Company Application No. 348/2017. In the meantime, in         G
the 4th meeting of the COC held on 08.12.2017, the issue with respect to
the payment of salaries/wages of the employees/workers respectively
was discussed in view of the directions passed by the Adjudicating
Authority vide its order dated 01.12.2017. However, the issue was not
resolved and thereafter the appellants herein filed the aforesaid IA No.
                                                                             H
322             SUPREME COURT REPORTS                          [2022] 17 S.C.R.


A     78/2018 in which the Adjudicating Authority directed to deposit Rs. 2.75
      crores out of the total amount of Rs.9,75,33,236/- with the Registry of
      the NCLT towards disbursement of the outstanding salaries/wages to
      the appellants, subject to the final outcome of IA No. 348/2017 and the
      Adjudicating Authority accordingly disposed of Company Application
      No. 78/2018.
B
             3.3 It appears that thereafter since no agreed resolution plan could
      be adopted of the Corporate Debtor, the RP filed IA No. 113/2019 before
      the Adjudicating Authority praying for an order of liquidation of Corporate
      Debtor. The Adjudicating Authority by order dated 25.04.2019, after
      deciding various other applications including the application of the
C     appellants being Company Application No. 348/2017 passed an order of
      liquidation of the Corporate Debtor and appointed respondent no.1 herein
      as Liquidator of the Corporate Debtor. While passing the order of
      liquidation, the Adjudicating Authority also disposed of Company
      Application No. 348/2017 in view of the order passed in Company
D     Application No. 78/2018 by which the Adjudicating Authority earlier
      directed to deposit Rs.2.75 crores towards the dues of the appellants
      which as such was subject to the final outcome of Company Application
      No. 348/2017. Therefore, as such, the Adjudicating Authority while
      disposing of Company Application No. 348/2017 did not grant the relief
      claimed by the appellants – 272 workers/employees working at Dahej
E     Yard and Mumbai Head Office for their claim relating to salary for the
      period involving CIRP and the prior period.
             4. Feeling aggrieved and dissatisfied with the order passed by the
      Adjudicating Authority, not granting the relief to the appellants herein
      with regard to their claim relating to salary/wages, which they claimed
F     for the period involving CIRP and prior period, the appellants-workmen/
      employees working at Dahej Yard and Mumbai Head Office preferred
      Company Appeal No. 605/2019 before the Appellate Tribunal. By the
      impugned order, the Appellate Tribunal has disposed of the said appeal
      declining to interfere with the order passed by the Adjudicating Authority,
G     however, allowed the appellants – 272 workmen/employees to file their
      individual claims before the Liquidator, who after going through the record
      and taking into consideration the pleadings made by the workmen/
      employees will determine the claim. The Appellate Tribunal has also
      further observed that if claim of one or other workmen/employee is
      rejected, it will be open to them to move before the Adjudicating Authority,
H
 SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                               323
           AND OTHERS [M. R. SHAH, J.]

which may decide the same in accordance with law. The Appellate               A
Tribunal has also observed that so far as the Gratuity and Provident
Funds are concerned, the same cannot be treated to be the asset of the
Corporate Debtor and they are to be disbursed amongst the employees/
workmen who are entitled for the same.
      5. Feeling aggrieved and dissatisfied with the impugned order           B
passed by the Appellate Tribunal, the appellants-workmen/employees of
the Corporate Debtor working at Dahej Yard and Mumbai Head Office
have preferred the present appeal.
       6. Ms. Shobha Ramamoorthy, learned Advocate appearing on
behalf of the appellants has vehemently submitted that in the present         C
case the respective appellants are all the workmen and employees –
272 in number and were employed at Dahej Yard and Mumbai Head
Office of the Corporate Debtor. It is submitted that in the present case,
the CIRP period commenced from 01.08.2017 and ended on 25.04.2019
– commencement of liquidation. It is submitted that for this entire period
of 20 months and 25 days, the respective employees and workmen were           D
on the payrolls of the Corporate Debtor. It is submitted that the RP did
not terminate the employment contracts or retrench or layoff the workmen.
It is submitted that on the other hand, RP issued instructions dated
4.9.2017 to all the employees and workmen to report to him and follow
his instructions. It is submitted that on 15.11.2017, RP issued an email to   E
HR Department of Corporate Debtor instructing strictly not to relieve or
permit resignation of any employee/workmen, without written approval.
       6.1 It is further submitted that in the present case, the Corporate
Debtor was managed as a going concern in accordance with Section 21
of the IB Code. It is submitted that even the proposal to suspend             F
operations at Dahej Yard and provide workmen with paid leave was
rejected by the COC for lack of majority. It is submitted that therefore
when the Corporate Debtor was managed as a going concern, which as
such is mandatory under Section 19 of the IB Code and when the
operations at Dahej Yard were not suspended, the workmen/employees
at Dahej Yard are entitled to at least the wages/salaries during the CIRP     G
period. It is submitted that irrespective of whether the wages/salaries
for the period during CIRP are to be qualified as CIRP cost or not,
provident fund, gratuity and pension fund are to be paid to the workmen
and employees at Dahej Yard under Section 36(4) of the IB Code in
priority over other dues, which are also not paid till date.                  H
324            SUPREME COURT REPORTS                          [2022] 17 S.C.R.


A            6.2 It is further submitted that in the present case, throughout the
      CIRP period, the employees and workmen of Dahej Yard were asked to
      assemble at ABG Enclave and sign the attendance register since
      transportation to the yard was discontinued by the RP. It is submitted
      that throughout the CIRP period, the employees of Mumbai office had
      regularly attended the office; recorded their attendance with the
B
      Attendance Reader installed at the Mumbai office. Learned counsel
      appearing on behalf of the appellants has relied upon some documents
      from the paper book as well as rejoinder affidavit in respect of proof of
      work done by the respective employees/workmen during the CIRP
      period.
C            6.3 It is submitted that all claims filed by the employees/workmen
      in Form-E with the Liquidator have been verified. It is submitted that the
      verified and admitted claims of the employees and workmen of the
      Corporate Debtor for CIRP period on the basis of the records available
      including the attendance register have been uploaded by the RP/Liquidator
D     on 24.12.2020 on the official website of the Corporate Debtor as per
      regulations. It is submitted that therefore further verification in respect
      of the claims of the appellants based on their actual attendance is
      vexatious.
             6.4 Learned counsel appearing on behalf of the appellants has
E     taken us to the relevant provisions of the IB Code in support of her
      submission that the workmen/employees of the Dahej Yard and Mumbai
      Head Office are at least entitled to the wages/salaries during the period
      of CIRP and are also entitled to the amount due and payable towards
      provident fund, gratuity and pension. Learned counsel appearing on behalf
      of the appellants has taken us to Section 3(36); Section 5(13); Section
F     5(14); Section 5(23); Section 17, Section 18; Section 19; Section 20;
      Section 25; Section 33(7); Section 36(4) and Section 53 of the IB Code.
             6.5 It is further submitted that the objective of the IB Code is for
      maximising of value of assets of the Corporate Debtor so that they are
      efficiently run as a going concern. Reliance is placed on the decision of
G     this Court in the case of Swiss Ribbons Pvt. Ltd. v. Union of India,
      reported in (2019) 4 SCC 17 (para 37); and in the case of Gujarat
      Urja Vikas Nigam Limited v. Amit Gupta, Civil Appeal No. 9241 of
      2019 decided on 8.3.2021 (para 57).
            6.6 It is submitted that even under Section 20(1) of the IB Code,
H     the RP is mandated to manage the operations of the Corporate Debtor
 SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                                325
           AND OTHERS [M. R. SHAH, J.]

as a going concern. It is submitted that for this purpose he is vested with    A
the authority to issue instructions to the personnel of the Corporate Debtor
as may be necessary for keeping the Corporate Debtor as a going
concern. It is submitted that the RP is under the mandate to take all such
actions as are necessary to keep the Corporate Debtor as a going
concern.
                                                                               B
       6.7 It is submitted that Section 5(13) of the IB Code defines
“Insolvency Resolution Process Cost”. It is submitted that as per Section
5(13) of the Code, “Insolvency Resolution Process Cost” means any
costs incurred by the RP in running the business of the Corporate Debtor
as a going concern and any other costs as may be specified by the IBBI
– Liquidator. It is submitted that in the present case, vide Circular dated    C
12.06.2018, the Liquidator had clearly provided the costs on account of
employees and workmen under the head “other services in a running
business” in Forms I, II and III submitted by the RP with respect to
CIRP costs incurred by him. It is submitted that therefore the salaries/
wages and the dues payable to the employees/workmen during the CIRP            D
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.
       6.8 It is further submitted that even otherwise the provident fund,
gratuity and pension fund amounts remain outside the liquidation under         E
Section 36(4) of the IB Code. It is submitted that the obligation to pay
the provident fund, gratuity fund amount would arise as soon as the
employees and workmen are deemed to have been discharged under
Section 33(7) of the IB Code. It is submitted that even the workmen/
employees are required to be paid the wages/salaries for the pre-CIRP
period as per the priorities mentioned in Section 53 of the IB Code.           F

       6.9 It is further submitted by the learned counsel appearing on
behalf of the appellants that the salaries and wages payable to the
workmen/employees for the CIRP period are a component of the
resolution professional costs and therefore the CIRP period salaries and
wages payable to the respective workmen/employees are to be first              G
paid and are not to be paid “pari passu” in terms of Section 53(1)(b)
and (c) of the IB Code. It is submitted that even the ‘Workmen’s Dues’
is explained in Explanation (ii) to Section 53 of the Code as the term
having the same meaning as assigned to it in Section 326 of the Companies
Act, 2013. It is submitted that Section 327 of the Companies Act provides      H
326            SUPREME COURT REPORTS                         [2022] 17 S.C.R.


A     for preferential payments upon winding up of a company, enlists the
      component of the wages or salary and dues payable to an employee
      under clauses b, c, e & f under sub-clause 1.
             6.10. It is submitted that thus on a combined reading of the
      provisions of Sections 326 & 327 of the Companies Act, it is clear that
B     the workmen’s dues and the employee’s dues are comprised of several
      components including wages or salary, holiday remuneration, sums due
      from the provident fund, pension fund and the gratuity fund amongst
      other items. It is submitted that as observed by this Court in the case of
      Swiss Ribbons Pvt. Ltd. (supra), the costs and expenses of the RP/
      Liquidator are to be given preferential treatment by excepting them from
C     the pari passu principle.
             6.11 It is submitted that Rs. 2.75 crores are earmarked and kept
      apart towards the dues of the workmen/employees. It is submitted that
      therefore the said sum of Rs.2.75 crores which is deposited for the
      benefit of the workmen/employees is liable to be disbursed in terms of
D     Section 53(1)(a) r/w Section 5(13)(c) of the IB Code. It is submitted
      that the amount in the sum of Rs.16.8 crores (approximately) payable
      towards the provident fund, gratuity and pension in terms of Section
      36(4) to all the employees and workmen of the Corporate Debtor including
      the appellants and therefore is required to be paid in priority over the
E     disbursement to be made under Section 53(1)(b) & (c).
            6.12 Making the above submissions and relying upon the aforesaid
      decisions, it is prayed to allow the present appeal.
            7. The present appeal is vehemently opposed by Shri Nakul
      Dewan, learned Senior Advocate appearing on behalf of respondent
F     no.1 – Liquidator of Corporate Debtor.
             7.1 Shri Nakul Dewan, learned senior counsel appearing on behalf
      of the Liquidator of Corporate Debtor has vehemently submitted 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
G     during the CIRP, would not fall within the parameters of CIRP costs
      within the definition of Section 5(13)(c) of the IB Code.
             7.2 It is submitted that only 8 employees at the Mumbai location
      for eight months during the CIRP and workmen/employees from Surat
      (from August 2017 to October 2017) assisted the RP in providing services
H     required under the CIRP process. It is submitted that the remaining
 SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                                 327
           AND OTHERS [M. R. SHAH, J.]

employees and workmen including the appellants herein were not required         A
to and did not perform any services to run the Corporate Debtor during
the CIRP period. It is submitted that therefore the COC of the Corporate
Debtor rightly did not approve any payments to the appellants as part of
the CIRP costs. It is submitted that the wages and salaries of the appellants
– workmen/employees of the Corporate Debtor would fall under Sections
                                                                                B
53(1)(b) and 53(1)(c) of the IB Code.
       7.3 It is submitted that as per Section 5(13)(c) of the IB Code r/w
Regulations 31 and 33 of the CIRP Regulations, cost incurred by the RP
in running the business of the Corporate Debtor is required to be ratified
by the COC for it to be classified as CIRP costs. It is submitted that only
the costs for those employees who have assisted the RP during the               C
CIRP period, have been approved by the COC in the first COC meeting,
held on 4.9.2017. It is submitted that therefore no other costs can be
classified as CIRP costs, except unless it is ratified by the COC. It is
submitted that the remaining dues of the workmen will form part of the
dues falling under Section 53(1)(b) of the IB Code.                             D
       7.4 It is submitted that in the meetings of the COC held periodically
right from first meeting to fourth meeting, it was specifically recorded
that the Dahej Shipyard is not operational and that the Corporate Debtor
is not in a position to pay the salaries of the workmen and employees
due to paucity of funds since the Corporate Debtor was not a going              E
concern and did not have a running business.
      7.5 It is further submitted that the main business of the Corporate
Debtor was shipbuilding and ship repairing which was carried out at its
Yards at Surat and Dahej. It is submitted that the Yard at Dahej was not
in operation since 2015 and the Yard at Surat was closed in October             F
2017 and therefore it cannot be said that the Corporate Debtor was a
going concern during the CIRP and therefore all its employees would be
required to be treated as those who assisted the RP to run the Corporate
Debtor as a going concern.
        7.6 It is further submitted that as such there is no evidence to        G
suggest that the respective workmen/employees deployed at Dahej Yard
and Mumbai Head Office have actually worked during the CIRP period.
It is therefore submitted that the Appellate Tribunal has rightly observed
that the respective workmen/employees can at least have to prove their
claims before the RP/Liquidator by submitting their respective claims
and the same are required to be adjudicated upon and/or verified by the         H
328             SUPREME COURT REPORTS                          [2022] 17 S.C.R.


A     Liquidator. It is submitted that therefore the Appellate Tribunal has rightly
      not interfered with the order passed by the Adjudicating Authority in not
      passing any order in favour of the workmen/employees.
             7.7 It is further submitted that Section 53 of the IB Code sets out
      the waterfall mechanism in terms of which the dues of the creditors are
B     paid. It is submitted that even the operational creditors fall sixth in line
      after payment of CIRP dues, dues of Secured Creditors etc. It is submitted
      that even after the Corporate Debtor goes into liquidation in terms of
      Section 33 of the IB Code, the dues of the employees and workmen
      being operational creditors would be paid in last in terms of the waterfall
      mechanism of Section 53(1)(f) of the IB Code. It is therefore submitted
C     that the respective appellants – workmen/employees are not entitled to
      any wages/salaries for the period during CIRP as CIRP costs, as claimed
      by them.
             7.8 Shri Nakul Dewan, learned Senior Advocate appearing on
      behalf of respondent no.1 – RP/Liquidator has further submitted that
D     the costs incurred during the CIRP period by the Corporate Debtor/RP
      will qualify as CIRP costs only with respect to costs incurred by the RP
      running the company as a going concern under Section 5(13) (c) of the
      IB Code and in a case where the same has been approved by the COC
      under Regulations 31 and 33 of the CIRP Regulations.
E            It is submitted that in the present case the Corporate Debtor is
      neither a going concern nor the RP has incurred any costs. It is submitted
      that therefore the wages/salaries of the workmen/employees at the Dahej
      Yard cannot be included in the CIRP costs.
             7.9 It is further submitted that after the commencement of the
F     CIRP, workmen and employee’s dues which are outstanding as on the
      date of CIRP, are treated as operational creditors in terms of Section
      5(20) and 5(21) of the IB Code. It is submitted that in terms of Section
      30(2)(b) of the IB Code, the amount payable to operational creditors by
      a prospective resolution applicant shall not be less than the amount to be
G     paid to such creditors in the event of a liquidation of the corporate debtor
      under Section 53; OR the amount that would have been paid to such
      creditors, if the amount to be distributed under the resolution plan had
      been distributed in accordance with the order of priority in sub-section
      (1) of section 53, whichever is higher.

H
 SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                                     329
           AND OTHERS [M. R. SHAH, J.]

        7.10 It is submitted that Section 53 of the IB Code sets out the            A
waterfall mechanism in terms of which the dues of the creditors are
paid. It is submitted that operational creditors fall sixth in line after payment
of CIRP dues, dues of secured creditors etc.
       7.11 It is submitted that in the present case, it is only few of the
Surat workmen/employees and 8 Mumbai employees who have rendered                    B
services during the CIRP period to assist the RP to complete the CIRP
process whose dues would be treated as CIRP costs. Otherwise, all
dues of employees and workmen which have accrued prior to CIRP
would be paid in terms of Section 53(1)(f) of the IB Code, both during
CIRP and during liquidation. It is submitted that in the present case, the
Liquidator has accepted the claim filed by the workmen and employees.               C
However, the said claims filed by the workmen/employees cannot be
considered as CIRP costs and cannot be paid in priority to all other
claims. The treatment of the said claims of the workmen and employees
have to be treated in accordance with the provisions of Section 53(1)(b)(i)
and 53(1)(c) of the IB Code respectively, as applicable and not as CIRP             D
costs.
       7.12 It is submitted that in the present case the appellants who
are the workmen at Dahej Yard and employees at Mumbai Head Office,
did not help to maintain the Corporate Debtor as a going concern, since
(i) the Corporate Debtor was never a going concern and (ii) the Dahej               E
Yard was not in operation since June, 2015 and (iii) Operations at the
Surat Shipyard were completely shut from October, 2017. It is submitted
that therefore the appellants who are the workmen of the Dahej Yard
and employees of the Mumbai Head Office, cannot claim any amounts
towards wages/salaries for the CIRP period, since no work/services
were rendered by them, except for the critical Mumbai employees whose               F
salaries were ratified by the COC during the first COC meeting.
       7.13 Making the above submissions, it is submitted that the wages
and salaries of the workmen/employees at Dahej Yard and the employees
at Mumbai Head Office, except those who worked during the CIRP
period, cannot be included and/or considered as CIRP costs and therefore            G
they have to be paid as per the waterfall mechanism mentioned in Section
53(1)(b) & (c) of the IB Code.
     7.14 It is submitted that therefore the respective workmen
employed at Dahej Yard and some of the employees employed at Mumbai
                                                                                    H
330            SUPREME COURT REPORTS                          [2022] 17 S.C.R.


A     Head Office were required to submit their individual claims and they
      have to establish before the RP/Liquidator that in fact they actually
      worked during the CIRP period, the Appellate Tribunal has rightly
      observed that the respective workmen/employees have to submit their
      claims before the RP/Liquidator, who is required to verify whether the
      Corporate Debtor was a going concern during the CIRP period and
B
      whether in fact the concerned workmen/employees actually worked
      during the CIRP period or not. It is submitted that therefore no
      interference of this Court is called for.
             8. We have heard the learned counsel for the respective parties
      at length.
C
            The issue before this Court is with respect to 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.

D           8.1 While considering the aforesaid claims, the legislative history
      and the relevant provisions of the IB Code are required to be referred
      to.
            Relevant Provisions of the IB Code:
            “Section 3(36)
E
            Section 3(36) “workman” shall have the same meaning as assigned
            to it in clause (s) of section 2 of the Industrial Disputes Act, 1947
            (14 of 1947);
            Section 5(13)
F           (13) “insolvency resolution process costs” means—
            (a) the amount of any interim finance and the costs incurred in
            raising such finance;
            (b) the fees payable to any person acting as a resolution
            professional;
G
            (c) any costs incurred by the resolution professional in running
            the business of the corporate debtor as a going concern;
            (d) any costs incurred at the expense of the Government to
            facilitate the insolvency resolution process; and
H           (e) any other costs as may be specified by the Board;
SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                              331
          AND OTHERS [M. R. SHAH, J.]

   Section 5(14)                                                            A
   5(14) “insolvency resolution process period” means the period of
   one hundred and eighty days beginning from the insolvency
   commencement date and ending on one hundred and eightieth
   day;
   Section 17                                                               B

   17. Management of affairs of corporate debtor by interim
   resolution professional. (1) From the date of appointment of
   the interim resolution professional, —
   (a) the management of the affairs of the corporate debtor shall          C
   vest in the interim resolution professional;
   (b) the powers of the board of directors or the partners of the
   corporate debtor, as the case may be, shall stand suspended and
   be exercised by the interim resolution professional;
   (c) the officers and managers of the corporate debtor shall report       D
   to the interim resolution professional and provide access to such
   documents and records of the corporate debtor as may be required
   by the interim resolution professional;
   (d) the financial institutions maintaining accounts of the corporate
   debtor shall act on the instructions of the interim resolution           E
   professional in relation to such accounts and furnish all information
   relating to the corporate debtor available with them to the interim
   resolution professional.
   (2) The interim resolution professional vested with the management
   of the corporate debtor shall—                                           F
   (a) act and execute in the name and on behalf of the corporate
   debtor all deeds, receipts, and other documents, if any;
   (b) take such actions, in the manner and subject to such restrictions,
   as may be specified by the Board;
                                                                            G
   (c) have the authority to access the electronic records of corporate
   debtor from information utility having financial information of the
   corporate debtor;
   (d) have the authority to access the books of account, records
   and other relevant documents of corporate debtor available with
                                                                            H
332      SUPREME COURT REPORTS                          [2022] 17 S.C.R.


A     government authorities, statutory auditors, accountants and such
      other persons as [may be specified; and]
      [(e) be responsible for complying with the requirements under
      any law for the time being in force on behalf of the corporate
      debtor.]
B     Section 20
      20. Management of operations of corporate debtor as going
      concern. - (1) The interim resolution professional shall make every
      endeavour to protect and preserve the value of the property of
      the corporate debtor and manage the operations of the corporate
C     debtor as a going concern.
      (2) For the purposes of sub-section (1), the interim resolution
      professional shall have the authority—
      (a) to appoint accountants, legal or other professionals as may be
D     necessary;
      (b) to enter into contracts on behalf of the corporate debtor or to
      amend or modify the contracts or transactions which were entered
      into before the commencement of corporate insolvency resolution
      process;
E     (c) to raise interim finance provided that no security interest shall
      be created over any encumbered property of the corporate debtor
      without the prior consent of the creditors whose debt is secured
      over such encumbered property:
      Provided that no prior consent of the creditor shall be required
F     where the value of such property is not less than the amount
      equivalent to twice the amount of the debt.
      (d) to issue instructions to personnel of the corporate debtor as
      may be necessary for keeping the corporate debtor as a going
      concern; and
G     (e) to take all such actions as are necessary to keep the corporate
      debtor as a going concern.
      Section 25
      25. Duties of resolution professional - (1) It shall be the duty
      of the resolution professional to preserve and protect the assets
H
SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                              333
          AND OTHERS [M. R. SHAH, J.]

   of the corporate debtor, including the continued business operations     A
   of the corporate debtor.
   (2) For the purposes of sub-section (1), the resolution professional
   shall undertake the following actions, namely: —
   (a) take immediate custody and control of all the assets of the
   corporate debtor, including the business records of the corporate        B
   debtor;
   (b) represent and act on behalf of the corporate debtor with third
   parties, exercise rights for the benefit of the corporate debtor in
   judicial, quasi-judicial or arbitration proceedings;
                                                                            C
   (c) raise interim finances subject to the approval of the committee
   of creditors under section 28;
   (d) appoint accountants, legal or other professionals in the manner
   as specified by Board;
   (e) maintain an updated list of claims;                                  D
   (f) convene and attend all meetings of the committee of creditors;
   (g) prepare the information memorandum in accordance with
   section 29;
   (h) invite prospective resolution applicants, who fulfil such criteria   E
   as may be laid down by him with the approval of committee of the
   creditors, having regard to the complexity and scale of operations
   of the business of the corporate debtor and such other conditions
   as may be specified by the Board, to submit a resolution plan or
   plans.
                                                                            F
   (i) present all resolution plans at the meetings of the committee of
   creditors;
   (j) file application for avoidance of transactions in accordance
   with Chapter III, if any; and
   (k) such other actions as may be specified by the Board.                 G
   Section 33(7)
   33(7). The order for liquidation under this section shall be deemed
   to be a notice of discharge to the officers, employees and workmen
                                                                            H
334      SUPREME COURT REPORTS                            [2022] 17 S.C.R.


A     of the corporate debtor, except when the business of the corporate
      debtor is continued during the liquidation process by the liquidator.
      Section 36(4)
      Section 36 (4) Liquidation Estate –
B     (4) The following shall not be included in the liquidation estate
      assets and shall not be used for recovery in the liquidation: —
      (a) assets owned by a third party which are in possession of the
      corporate debtor, including—
      (i) assets held in trust for any third party;
C
      (ii) bailment contracts;
      (iii) all sums due to any workman or employee from the provident
      fund, the pension fund and the gratuity fund;
      (iv) other contractual arrangements which do not stipulate transfer
D     of title but only use of the assets; and
      (v) such other assets as may be notified by the Central Government
      in consultation with any financial sector regulator;
      (b) assets in security collateral held by financial services providers
      and are subject to netting and set-off in multi-lateral trading or
E     clearing transactions;
      (c) personal assets of any shareholder or partner of a corporate
      debtor as the case may be provided such assets are not held on
      account of avoidance transactions that may be avoided under this
      Chapter;
F
      (d) assets of any Indian or foreign subsidiary of the corporate
      debtor; or
      (e) any other assets as may be specified by the Board, including
      assets which could be subject to set-off on account of mutual
      dealings between the corporate debtor and any creditor.
G
      Section 53
      53. Distribution of assets - (1) Notwithstanding anything to the
      contrary contained in any law enacted by the Parliament or any
      State Legislature for the time being in force, the proceeds from
H     the sale of the liquidation assets shall be distributed in the following
SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                             335
          AND OTHERS [M. R. SHAH, J.]

   order of priority and within such period and in such manner as          A
   may be specified, namely :—
   (a) the insolvency resolution process costs and the liquidation costs
   paid in full;
   (b) the following debts which shall rank equally between and among
   the following:—                                                         B

   (i) workmen’s dues for the period of twenty-four months preceding
   the liquidation commencement date; and
   (ii) debts owed to a secured creditor in the event such secured
   creditor has relinquished security in the manner set out in section     C
   52;
   (c) wages and any unpaid dues owed to employees other than
   workmen for the period of twelve months preceding the liquidation
   commencement date;
   (d) financial debts owed to unsecured creditors;                        D
   (e) the following dues shall rank equally between and among the
   following: —
   (i) any amount due to the Central Government and the State
   Government including the amount to be received on account of
   the Consolidated Fund of India and the Consolidated Fund of a           E
   State, if any, in respect of the whole or any part of the period of
   two years preceding the liquidation commencement date;
   (ii) debts owed to a secured creditor for any amount unpaid
   following the enforcement of security interest;
                                                                           F
   (f) any remaining debts and dues;
   (g) preference shareholders, if any; and
   (h) equity shareholders or partners, as the case may be.
   (2) Any contractual arrangements between recipients under sub-
                                                                           G
   section (1) with equal ranking, if disrupting the order of priority
   under that sub-section shall be disregarded by the liquidator.
   (3) The fees payable to the liquidator shall be deducted
   proportionately from the proceeds payable to each class of
                                                                           H
336             SUPREME COURT REPORTS                           [2022] 17 S.C.R.


A            recipients under sub-section (1), and the proceeds to the relevant
             recipient shall be distributed after such deduction.
             Explanation. —For the purpose of this section—
             (i) it is hereby clarified that at each stage of the distribution of
             proceeds in respect of a class of recipients that rank equally, each
B            of the debts will either be paid in full, or will be paid in equal
             proportion within the same class of recipients, if the proceeds are
             insufficient to meet the debts in full; and
             (ii) the term “workmen’s dues” shall have the same meaning as
             assigned to it in section 326 of the Companies Act, 2013 (18 of
C            2013).”
             Legislative History with respect to workmen/employee’s
             dues towards the wages/salaries including the amount due
             and payable towards provident fund, gratuity and pension
             fund:
D
             8.2 Under the Companies Act, 1956 (hereinafter referred to as
      “1956 Act”), Section 59A provided that workmen’s dues and debts due
      to secured creditors in terms of Section 529A(1)(c) of the 1956 Act
      shall be paid in priority to other debts. Further, it provided that in case of
      insolvent company, winding up should be undertaken in terms of laws of
E     insolvency with respect to the status of persons adjudged insolvent.
              8.2.1 The proviso to Section 59(1) of 1956 Act provided that
      workmen shall deem to have pari passu charge in his favour to the
      extent of workmen’s portion. It further stated that where the secured
      creditor (instead of relinquishing) is enforcing his security, the debt due
F     to the extent of workmen’s share/ portion in the security shall rank pari
      passu with workmen’s dues for the purposes of Section 529A. The said
      section was brought in by way of Companies (Amendment) Bill, 1985
      with the objective to introduce necessary legislation for the legitimate
      dues of workers rank pari pasu with the secured creditors in the event
      of the closure of the Company. The laudable objective was that in the
G
      unfortunate event of liquidation, workers whose labour and effort
      constitute an invisible but easily perceivable part of the capital of the
      company, are not deprived of their legitimate right to participate in the
      product of their labour and effort.

H
 SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                                337
           AND OTHERS [M. R. SHAH, J.]

        8.2.2 Section 530 of 1956 Act provided the waterfall mechanism         A
as per which priority is to be given to different kinds of debts.
Subsequently, the Companies Bill, 2009 and 2011 were introduced wherein
wages/salaries payable to workmen for a period of 2 years were
protected in case of winding up of the Company. Thereafter, under the
Companies Act, 2013 (hereinafter referred to as “2013 Act”), Section
                                                                               B
326 and Section 327 i.e. “Overriding Preferential Payment” and
“Preferential Payments” were introduced wherein a proviso to Section
326 of the 2013 Act was inserted. Initially the insolvency process in
case of winding up of insolvent companies were provided under Section
325 of 2013 Act. However, Section 325 of the 2013 Act was omitted
w.e.f. 15.11.2016 on the coming into force the IB Code. On enactment           C
of the IB Code, the winding up proceedings in case of insolvency are to
be governed by the provisions of the IB Code and the provisions of the
IB code only shall be applicable to deal with the winding up proceedings
as the IB Code is a complete Code in itself. That thereafter, an amendment
w.e.f. 15.11.2016 has been brought in under Section 327 (7) of 2013 Act
                                                                               D
wherein it has been clarified that the provisions of Section 326 and Section
327 of the 2013 Act will not be applicable in the event of liquidation
under the IB Code.
       8.2.3 In case of any insolvency, in a winding up of a company
under Section 326 and 327 of the Companies Act, the workmen dues
are to be paid as under: -                                                     E

      • workmen’s portion in the security shall be paid in priority to all
      other debts.
      • however, workmen’s dues (given in (b)(i) and (ii) payable for
      the period of 24 months, shall be paid in priority to all other debts    F
      (including debts due to secured creditors). This means that wages/
      salary for the period of 24 months is over and above every other
      claim/debts (including debts due to secured creditors).
      • workmen’s dues include Provident Fund, Pension Fund and
      Gratuity Fund or any other Fund for the welfare of the workmen           G
      maintained by the Company.
      8.2.4 Under the IB Code, the workmen dues have been duly
protected and the provident fund, gratuity and pension fund have been
excluded from the liquidation estate assets (Section 36(4) of the IB Code).
                                                                               H
338            SUPREME COURT REPORTS                           [2022] 17 S.C.R.


A     Furthermore, as per Section 53 of the IB Code, the workmen dues are
      given the top priority in the waterfall mechanism.
            8.2.5 The issue of giving priority to the workmen dues have been
      considered time and again in the various Committee’s Reports:
            In the Bankruptcy Law Reforms Committee (Volume 1)
B           (November, 2015), it was agreed that the assets held in by the
            entity in trust (such as employee pensions), assets held as collateral
            to certain financial market institutions and assets held as part of
            operational transactions where the entity has right over the asset
            but is not the owner of the same shall be excluded from the
C           liquidation estate. Furthermore, it was also debated with respect
            to the waterfall mechanism under the Code and was agreed that
            the workmen dues capped up to 3 months will be given the second
            priority with the secured creditor after the costs of the corporate
            insolvency and resolution process and liquidation.

D           Subsequently, a report of the Joint Committee on the Insolvency
            and Bankruptcy Code, 2015 was prepared and presented in Lok
            Sabha on 28.04.2016 wherein the issue of exclusion of provident
            fund, pension fund and gratuity fund from the liquidation estate
            assets and estate of bankrupt was debated. The Committee, after
            in dept examination, was of the view that provident fund, pension
E           fund and gratuity fund provide the social safety net to the workmen
            and employees and hence, need to be secured in the event of
            liquidation of a company or bankruptcy of partnership firm. The
            Committee observed that the workers are the nerve center of
            any company and in the event of any company becoming insolvent
F           or bankrupt, the workmen get affected adversely and therefore,
            priority must be given to their outstanding dues. Therefore, all
            sums due to any workman or employee from the provident fund,
            gratuity fund or pension fund should not be included in the liquidation
            estate assets. Thus, to protect the interest of the workmen, the
            Committee decided that that the workmen dues for a period of 12
G           months as provided under Section 53 of the Code be increased to
            24 months preceding liquidation commencement date. 6
            In light of the same, the Section 36 of the Code has clearly given
            outright protection to workmen’s dues under Provident Fund,
            Pension Fund and Gratuity Fund which is not treated as liquidation
H
 SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                                 339
           AND OTHERS [M. R. SHAH, J.]

      assets and liquidator has no claim over such funds. Therefore,            A
      this share of workmen’s dues has consciously been taken outside
      the liquidation process.
      8.2.6 In light of the above statutory provisions under the IB Code
and the legislative history, the claims of the workmen/employees towards
wages/salaries prior to CIRP and during the CIRP are required to be             B
considered.
        9. It cannot be disputed that as 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. It is also true that Section 20 of the IB Code mandates     C
that 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           D
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. Therefore, while considering the claims of the concerned
workmen/employees towards the wages/salaries payable during CIRP,               E
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              F
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      G
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
                                                                                H
340             SUPREME COURT REPORTS                          [2022] 17 S.C.R.


A     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.
             10. On a fair reading of Section 5(13) of the IB code which defines
B     “insolvency resolution process costs”, it is observed and held that the
      dues towards the wages/salaries of only those workmen/employees who
      actually worked during the CIRP are to be included in the CIRP costs.
      The rests of the claims towards the wages/salaries of the workmen/
      employees, as observed hereinabove, shall be governed by Sections
      53(1)(b) & (c) of the IB Code.
C
             11. In the present case, the RP/Liquidator has seriously disputed
      that during the CIRP, the Corporate Debtor was a going concern. It is
      seriously disputed that the respective appellants – workmen/employees
      employed at Dahej Yard and Mumbai Head Office actually worked during
      the CIRP. It is true that while submitting the claims towards CIRP costs,
D     the RP has not submitted the claims towards the wages/salaries of the
      appellants, however, still the claims submitted/to be submitted by the
      appellants will have to be adjudicated upon and considered by the
      Liquidator and the Liquidator has to adjudicate and consider, (i) whether
      the Corporate Debtor was a going concern during the CIRP; (ii) how
E     many workmen/employees actually worked during the CIRP while the
      Corporate Debtor was a going concern.
             If on adjudication of the claims made by the respective workmen/
      employees, if it is established and proved that during CIRP, the Corporate
      Debtor was a going concern and the concerned workmen/employees
F     actually worked during the CIRP when the Corporate Debtor was a
      going concern, the wages and salaries of such workmen/employees to
      be included in the CIRP costs as defined under Section 5(13) of the IB
      Code and they will have to be paid such wages/salaries as per Section
      53(1)(a) of the IB Code as part of the CIRP costs in full before making
      any payment as per priorities mentioned in Section 53(1) of the IB code.
G
             12. Now so far as the submission on behalf of the appellants that
      as per Section 20 of the IB Code and even as per the decisions of this
      Court in the cases of Swiss Ribbons Pvt. Ltd. (supra) and Gujarat
      Urja Vikas Nigam Ltd. v. Amit Gupta (supra), the RP is under mandate
      to manage the operations of the Corporate Debtor as a going concern
H
 SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                                341
           AND OTHERS [M. R. SHAH, J.]

and therefore it is to be believed that during CIRP, the Corporate Debtor      A
was a going concern, managed and/or operated as a going concern cannot
be accepted. It is true that under Section 20 of the IB Code, it is the duty
of the RP to manage and run the operations of the Corporate Debtor as
a going concern. However, the words used in Section 20 are “the interim
resolution professional shall make every endeavour to …. manage the
                                                                               B
operations of the corporate debtor as a going concern”. Therefore, even
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. It depends on the facts of each case. In a given case, the
Corporate Debtor may be a going concern and in a given case, the               C
corporate debtor might not be a going concern. Therefore, submission
on behalf of the appellants that as the RP is under mandate to manage
the operations of the corporate debtor as a going concern under Section
20 of the IB code and therefore it is to be presumed that the RP managed
the operations of the Corporate Debtor as a going concern and therefore
                                                                               D
the workmen/employees are entitled to their wages and salaries during
the CIRP, as their wages/salaries to be included in the CIRP costs cannot
be accepted. However, the wages and salaries of the workmen/
employees of pre-CIRP period will have to be governed as per the priorities
mentioned in Section 53(1) of the IB Code.
     Dues of the workmen/employees towards Provident Fund,                     E
Gratuity Fund and Pension Fund”
      13. Now so far as the dues of the workmen/employees on account
of provident fund, gratuity and pension are concerned, they shall be
governed by Section 36(4) of the IB Code. Section 36(4)(iii) of the IB
Code specifically excludes “all sums due to any workman or employee            F
from the provident fund, the pension fund and the gratuity fund”, from
the ambit of “liquidation estate assets”. Therefore, Section 53(1) of the
IB Code shall not be applicable to such dues, which are to be treated
outside the liquidation process and liquidation estate assets under the IB
Code. Thus, Section 36(4) of the IB Code has clearly given outright            G
protection to workmen’s dues under provident fund, gratuity fund and
pension fund which are not to be treated as liquidation estate assets and
the Liquidator shall have no claim over such dues. Therefore, the
concerned workmen/employees shall be entitled to provident fund, gratuity
fund and pension fund from such funds which are specifically kept out
                                                                               H
342            SUPREME COURT REPORTS                          [2022] 17 S.C.R.


A     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.
            14. In view of the above and for the reasons stated above, it is
      held as under:
             i) that the wages/salaries of the workmen/employees of the
B     Corporate Debtor for the period during CIRP can be included in the
      CIRP costs provided it is established and proved that the Interim
      Resolution Professional/Resolution Professional managed the operations
      of the corporate debtor as a going concern during the CIRP and that the
      concerned workmen/employees of the corporate debtor actually worked
C     during the CIRP and in such an eventuality, the wages/salaries of those
      workmen/employees who actually worked during the CIRP period when
      the resolution professional managed the operations of the corporate debtor
      as a going concern, shall be paid treating it and/or considering it as part
      of CIRP costs and the same shall be payable in full first as per Section
      53(1)(a) of the IB Code;
D
             ii) considering Section 36(4) of the IB code and when the provident
      fund, gratuity fund and pension fund are kept out of the liquidation estate
      assets, the share of the workmen dues shall be kept outside the liquidation
      process and the concerned workmen/employees shall have to be paid
      the same out of such provident fund, gratuity fund and pension fund, if
E     any, available and the Liquidator shall not have any claim over such
      funds.
             15. As observed hereinabove, there are disputed questions, whether
      in fact the IRP/RP managed the operations of the corporate debtor as a
      going concern during the CIRP and there is a serious dispute whether
F     Dahej Yard was operational during the CIRP or not and there is a serious
      dispute that the concerned workmen/employees of the Dahej Yard and
      the concerned employees of the Mumbai Head Office actually worked
      during the CIRP or not and therefore it is directed that let the appellants
      submit their claims before the Liquidator and establish and prove that
G     during CIRP, IRP/RP managed the operations of the corporate debtor
      as a going concern and that they actually worked during the CIRP and
      the Liquidator is directed to adjudicate such claims in accordance with
      law and on its own merits and on the basis of the evidence which may
      be laid/produced, irrespective of the fact whether the RP who himself is
      now the Liquidator included the claims of the appellants being wages/
H
 SUNIL KUMAR JAIN AND OTHERS v. SUNDARESH BHATT                                   343
           AND OTHERS [M. R. SHAH, J.]

salaries during CIRP as CIRP costs or not. The Liquidator is directed to          A
adjudicate such claims independently. If it is found that in fact the IRP/
RP managed the operations of the corporate debtor as a going concern
during the CIRP and the concerned workmen/employees actually worked
during CIRP, their wages and salaries be considered and included in
CIRP costs and they will have to be paid as per Section 53(1)(a) of the
                                                                                  B
IB Code in full before distributing the amount in the priorities as mentioned
in Section 53 of the IB Code. The aforesaid exercise shall be completed
within a period of twelve weeks from today and such amount shall be
paid out of the amount which is directed to be kept aside earlier by the
Adjudicating Authority/Appellate Tribunal and thereafter by this Court.
Till such claims are adjudicated upon, the Liquidator is directed to keep         C
aside the said amount exclusively to be used for the workmen/employee’s
dues which is to be paid on adjudication as above.
      16. The present appeal is partly allowed to the aforesaid extent
and disposed of accordingly. No costs.
                                                                                  D
Divya Pandey and Amarendra Kumar                         Appeal partly allowed.
(Assisted by : Adnan Khan, LCRA)




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