[BREAKING] Salary-wages during CIRP are costs for asset distribution under Section 53 IBC: Supreme Court

The Supreme Court on Tuesday held that salary wages of employees during the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC) are to be treated as costs for asset distribution purposes under the IBC [Sunil Kumar Jain & Ors vs Sundaresh Bhatt & ors]..A Bench of Justices MR Shah and Aniruddha Bose stated that under Sections 53 and 5 of the IBC, such pay is to be given precedence over other debts provided the employees have actually worked and the corporate debtor was being run as a going concern by the Resolution Professional. The matter involved 273 employees of ABG Shipyard Ltd while the respondent was the liquidator of the firm. The question of law as framed by the Supreme Court in this case, at the stage of issuing notice, was whether:Dues payable to employees even for the period when they were working under the CIRP are to be treated as costs of running the business by the Interim Resolution Professional as payable in terms of Section 5(13) of the IBC, orThey are to be treated as wages and any unpaid dues owed to employees are payable under Section 53 of the IBC..The top court held as per Section 5(13) of the IB Code, 'insolvency resolution process costs' will include any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern. .For the claims of workmen/employees 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. The bench clarified that wages/ salaries of only those workmen/employees who actually worked during CIRP when the corporate debtor can be included in the CIRP costs and they shall have the first priority over all other dues as per Section 53(1)(a) of IBC."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 was a going concern, shall not be included automatically in the CIRP costs," the Court made it clear. .The bench further noted that Section 20 of the IBC 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. .The Court also stated 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 the corporate debtor was a going concern during the CIRP period..Advocates Shobha Ramamoorthy and Shikhil Suri appeared for the appellants while Senior Advocate Nakul Dewan appeared for the liquidator of corporate debtor. .[Read Judgment]