Summary
ABG Shipyard workers and employees sought priority payment of wages during insolvency resolution and protection of retirement funds. The Court held that CIRP-period wages qualify as resolution costs only upon proof that the business operated as a going concern and the claimants actually worked. It directed independent liquidation-stage adjudication within twelve weeks and preservation of the earmarked amount. Provident, pension and gratuity funds remained outside the liquidation estate and distributable from the available respective funds.
Issues
- When CIRP-period wages qualify as insolvency resolution costs.
- Whether provident, pension and gratuity funds fall within the liquidation estate and waterfall.
Provisions considered
- Section 5(13)(c), Section 20 and Section 53(1)(a)-(c), Insolvency and Bankruptcy Code, 2016Actual work in a business operated as a going concern was required for CIRP-cost wage priority; other wage claims followed the applicable statutory distribution priorities. (¶¶ 9-12, 14-15)
- Section 36(4)(a)(iii), Insolvency and Bankruptcy Code, 2016The specified employee-benefit funds were excluded from the liquidation estate and could not be appropriated through the liquidation waterfall. (¶ 13-14)
Held
- CIRP-period payroll status alone did not automatically make wages resolution costs. The claimants had to prove actual work during the period when the resolution professional operated the debtor as a going concern. Qualifying wages would be paid in full as CIRP costs before lower-priority distributions. (¶¶ 9-11, 14(i))
- The professional’s statutory duty to endeavour to preserve going-concern operations did not establish that those operations actually continued. That factual question required evidence; other wage claims, including pre-CIRP claims, remained subject to the applicable Section 53 priorities. (¶ 10-12)
- Sums due from provident, pension and gratuity funds were outside the liquidation estate. The liquidator had no claim over those funds for distribution to other creditors; entitled employees were to receive payment from the respective funds, if available. (¶¶ 13, 14(ii))
- The liquidator had to independently adjudicate the disputed operational and actual-work facts, notwithstanding the resolution professional’s earlier omission of the wage claims from CIRP costs. Pending that exercise, the earmarked amount had to remain reserved for employee dues payable on adjudication. (¶ 15)
Result
Appeal partly allowed. Claimants were permitted to substantiate their claims before the liquidator, who was directed to decide them independently within twelve weeks. Qualifying CIRP wages were to be paid from the earmarked amount with statutory first priority; that amount was to remain reserved pending adjudication. Protected retirement funds remained outside the estate. No costs.