Case Number: Civil Appeal No. 5910 of 2019
Judges Name: Hon’ble Judges M.R. Shah J, Aniruddha Bose J.
Order dated: 19.04.2022

Facts of the Case: 

• This is an appeal preferred by the workmen/employees of M/s. ABG Shipyard Limited (‘Corporate Debtor’) working at Dahej and Mumbai challenging the decision passed by the Hon’ble National Company Law Appellate Tribunal (NCLAT) in Company Appeal (AT) (Insolvency) No.605 of 2019. 
• The Corporate Debtor was a private sector Ship Building Yard having its corporate office at Mumbai. Prior to the 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. The Hon’ble NCLT vide its order dated 01.08.2017, admitted an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 and the CIRP was initiated against the Corporate Debtor. 
• A Company Application No. 348 of 2017 was filed before the Hon’ble NCLT, praying to direct the Resolution Professional to make payment to the employees and the workmen. 
• In 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 Hon’ble NCLT vide its order dated 01.12.2017. The issue was not resolved and the Appellants filed an application IA No. 78/2018 in which the Hon’ble NCLT 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. 
• The Hon’ble NCLT by order dated 25.04.2019, after deciding various other applications including the application of the appellants being Company Application No. 348/2017 passed an order of liquidation of the Corporate Debtor. 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 Yard and Mumbai Head Office for their claim relating to salary for the period involving CIRP and the prior period. 
• The Appellants 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 Hon’ble NCLT, 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 issue was whether 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?

1. As per Section 5(13), “insolvency resolution process costs” includes any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern and Section 20 mandates 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 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). 
2. The Hon’ble Court 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 rest of the claims towards the wages/salaries of the workmen/employees, as observed hereinabove, shall be governed by Sections 53(1)(b) & (c). 
3. The Hon’ble Court held that the wages/salaries of the workmen/employees of the 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 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. 
4. The Hon’ble Court held that considering Section 36(4), 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 any, available and the Liquidator shall not have any claim over such funds. 
5. The Hon’ble Court allowed the appeal partly and disposed of accordingly.