9911796707
TMI Blog2023 (5) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... Sanchar Anand, Adv. Mr. Devendra Singh, AOR Mr. Shiv Kumar, Adv. Mr. Aman Kumar Thakur, Adv. Mr. Ajay Nain, Adv. Mr. Anmol Harna, Adv. Mr. Ankur Mittal, AOR Ms. Nidhi Mittal, Adv. Mr. Raushal Kumar, Adv. Ms. Yashika Sharma, Adv. Ms. Muskan Jain, Adv. Ms. Pallavi Pratap, AOR Ms. Prachi Pratap, Adv. Dr. Prashant Pratap, Adv. Mr. Akshay Singh, Adv. Ms. Avadhi Jain, Adv. JUDGMENT M. R. SHAH, J. Writ Petition (C) No. 421 of 2019 1. By way of this writ petition under Article 32 of the Constitution of India, filed by the writ petitioner - Moser Baer Karamchari Union have prayed for an appropriate writ, direction or order striking down Section 327(7) of the Companies Act, 2013 (hereinafter referred to as "Act, 2013") as arbitrary and violative of Article 21 of the Constitution of India. It is also prayed to issue an appropriate writ, direction or order in the nature of Mandamus so as to leave the statutory claims of the "workmen's dues" out of the purview of waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to either as "IBC" or "Code"). It is further prayed to issue an appropriate writ in the nature of Mandamus by giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of India. 3. Shri K.V. Viswanathan, learned Senior Advocate has first of all taken us to the legislative history of the Companies Act and the Preferential Payments and also the framing of the Insolvency and Bankruptcy Code. 3.1 It is submitted that the Companies Act, 1956, as it existed prior to the Companies (Amendment) Act, 1985, did not provide for any "overriding preferential payments" to any party. It is submitted that in 1985, the Companies (Amendment) Bill, 1985 sought to introduce the proviso to sub-section (1) of Section 529, definition of "workmen", "workmen's dues" and "workmen's portion" through insertion of Section 529(3) and the "overriding preferential payments" through Section 529-A. 3.2 It is submitted that the Statement of Objects and Reasons for bringing these changes into effect was to ensure that the resources of the company are distributed even to workers whose labour and effort form a part of the capital of the Company. Resultantly, through Companies (Amendment) Act, 1985, the idea of "workmen's portion" and the "overriding preferential payments" were introduced and crystallised in the Companies Act, 1956. 3.3 It is submitted that a cumulative reading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the focus of these two Committees was on bringing the claims of "employees of a company" pari passu with the secured creditors, when the existing provision as on that day only specified that "workmen's dues" would rank pari passu with secured creditors. It is submitted that these two Reports were followed by the introduction of the Companies Bill, 2009 which retained the same structure as that of Section 529, 529-A and 530 of the Companies Act, 1956. It is submitted that it was clear that the recommendations qua ranking of dues of "employees of a company" were not accepted as the existing structure had been retained. It is submitted that however, this Companies Bill, 2009 lapsed and, therefore, the same was not given effect to. 3.7 It is submitted that thereafter, again, the Companies Bill, 2011 was introduced, which was then referred to a Standing Committee. The Report of the Standing Committee of 15th Lok Sabha on Companies Bill, 2011 notes the legislative changes made to the Companies Act, 1956 and the Companies Bill, 2009. It is submitted that this indicates that Section 326, which was being introduced in lieu of Section 529-A of Companies Act, 1956, will now incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Law Reforms Committee (BLRC) Report may be summarized as follows: i. The Committee noted that operational creditors will include workmen and employees whose past payments are due. ii. Further, the Committee notes that the Central and State Government dues will be kept at a priority below the unsecured financial creditors in addition to all kinds of secured creditors. iii. The Committee also categorically notes that liquidation under the new regime will have an irreversible, time-bound process with defined payout prioritisation. In the waterfall, secured creditors shall share highest priority along with a defined period of workmen dues. iv. Thereafter, the Committee, in order to bring the law in India in line with global practice, established the priority of payout in liquidation and drafting instructions were accordingly given. As proposed, the costs of IRP and Liquidation would rank first. After that, secured creditors and workmen dues capped up to 3 months from the start of IRP will be given pari passu priority. This was to be followed by dues to employees capped up-to 3 months. As the next tier, workmen dues for 9 month period beginning 12 months before liquidation com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al safety net to the workmen and employees. Secondly, after consideration of the representations that workmen dues are to be paid as per the scheme contained in the Companies Act, 2013, the Joint Committee recommended that since the dues owed to Governments are being paid in respect of two years preceding liquidation commencement date, the workmen's dues must also be paid for a period of two years, instead of the existing period of 12 months, preceding liquidation commencement date. It is submitted that this was recommended keeping in mind that the workers are the "nerve centre of any company" and that their interests were to be protected. It is submitted that keeping in view the Joint Committee Recommendations, the IBC was brought into force. It is submitted that Section 36(4)(a)(iii) of the IBC now excludes all sums due to any workman or employee from the Provident Fund, Pension Fund and Gratuity Fund from being included in the liquidation estate assets. It is further submitted that Section 53(1)(b)(i) and (ii) of the IBC now ranks workmen's dues for a period of 2 years preceding the liquidation commencement date and the debts owed to secured creditors in event of them relinquish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat subsequently, the Insolvency Law Committee submitted its report in 2018 under the chairmanship of Mr. Injeti Srinivas. The Report contained summary responses of the Committee to the comments and issues raised with respect to the IBC. It is submitted that importantly, all questions that raised the issue of workmen's dues either being unfairly ranked with secured creditors or that workmen's dues were not protected under the IBC, the Committee noted that the interests of workmen were protected in line with the Objects sought to be achieved by the IBC. 3.14 It is further submitted that therefore, the legislature through the IBC has attempted to overhaul the existing system of law and provide for a different modality through which liquidation would function. It is submitted that under the Companies Act, 2013, the waterfall mechanism and preferential payments were being made, keeping in mind the scheme of winding up of a Company. It is submitted that admittedly, workmen's dues were given pari passu priority with secured creditors of a defined kind and the wages and salaries owed for two years preceding the Order of winding up was to get absolute priority. It is further submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss Ribbons Private Limited and Anr. (supra), this Court was concerned with a challenge to Constitutional Validity of several provisions of the IBC including the waterfall mechanism under Section 53 of the IBC, even though it was at the instance of the Operational Creditors. It is submitted that after noting the objects and reasons for enactment of the IBC, this Hon'ble Court held that there existed an intelligible differentia for classification of financial creditors and operational creditors under the IBC. It is further submitted that Section 53 of the IBC was also upheld from the perspective of this reasonable classification by placing reliance on the object sought to be achieved by the IBC 3.17 It is further submitted that in the case of Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta and Ors., (2020) 8 SCC 531, this Court was concerned with whether a resolution plan was to treat operational creditors on par with financial creditors and further with amendments made to the IBC that provided operational creditors with a minimum of liquidation value under the CIRP Process. It is submitted that this Court in the said decision held that the principle of "e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarified that the provisions of Section 326 and Section 327 of the Act, 2013 will not be applicable in the event of liquidation under the IBC. 4.3 It is submitted that only in case of any winding up under Companies Act, 2013, Sections 326 and 327 of the Companies Act, 2013 are relevant. He has submitted that following are the relevant features in case of winding up proceedings under Sections 326 and 327 of the Act, 2013:- 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 (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 maintained by the Company. 4.4 It is submitted that the waterfall mechanism is given in Section 327, which is similar to Section 530 of the Companies Act, 1956. It is submitted that thereafter the IBC has been introduced in the year 2016 where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a new insolvency mechanism in line with the international practices and with overarching objective of unlocking sick and insolvent companies primarily to revive such companies in event of failure, for transparent and equitable liquidation of assets. It is submitted that the IBC was introduced as a watershed moment for insolvency law in India that consolidated process under several disparate statutes such as Act, 2013, SICA, SARFAESI, Recovery of Debts Act etc., into a single Code. It is submitted that the objective of the IBC was to introduce comprehensive and time bound insolvency framework and to maximize the value of assets of all persons and balance the interest of all stakeholders. 4.9 It is submitted that the UNICITRAL Legislative Guide on Insolvency Law was instructive for the Indian experience on drafting the IBC which provided critical guidance on what an insolvency law represents. It is submitted that a reading together of the UNICITRAL Legislative Guide on Insolvency Law and Bankruptcy Law Report clarifies in no uncertain terms, that the procedure designed for the insolvency process under the IBC is critical for allocating economic coordination between the parties w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy of partnership firm. It is submitted that the Committee further observed that the workers are the nerve center of any company and in the event of any company becoming insolvent 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. It is submitted that thus, to protect the interest of the workmen, the Committee decided that the workmen dues for a period of 12 months as provided under Section 53 of the IBC be increased to 24 months preceding liquidation commencement date. 4.13 It is submitted that in light of the same, Section 36 of the IBC has clearly given outright protection to workmen's dues under Provident Fund, Pension Fund and Gratuity Fund which is not treated as liquidation assets and liquidator has no claim over such funds. That therefore, this share of workmen's dues has consciously been taken outside the liquidation process. 4.14 It is submitted that liquidation costs cover the wages and salary of the workmen during the liquidation process. It is su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the IBC as they would have been under the Companies Act, 1956. That the said provision intends to promote the overall value maximization. 4.17 It is submitted that furthermore, the Committee in its report of February, 2020 also decided whether the secured creditors who realized their security interest should contribute towards the payment of dues of workmen. Regulation 21(A) of Liquidation Process requires that secured creditors who realise their security interest contribute towards the payment of dues of workmen as they would have if they had relinquished their security interest to the liquidation estate. It is submitted that thus, the requirement to contribute to workmen dues as provided under Regulation 21A, recognizes that workmen are key stakeholders and form the backbone of the efforts to preserve the business of the Corporate Debtor not just prior to commencement of insolvency but also during the insolvency proceedings. 4.18 It is submitted that thus, visualizing the objects and working of the IBC, it is clear that the rights and interest of the workers have been protected from the date of enactment of the IBC. It is submitted that in either case that is of relinquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statutory claims of the "workmen's dues" out of the purview of waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016. As per Section 327(7), Sections 326 and 327 of the Act, 2013 shall not be applicable in the event of liquidation under the IBC. Sections 326 and 327 of the Act, 2013 provide for preferential payments in a winding up under the provisions of the Act, 2013. However, in view of the introduction of new regime under the IBC, in case of liquidation under IBC, distribution is to be made as per Section 53 of IBC. At this stage, it is required to be noted that IBC has been enacted w.e.f. 28.05.2016 and as per Section 53 of the IBC, the distribution of assets in case of liquidation under the IBC is required to be made. Section 53 of the IBC reads as under: - "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 the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely- (a) the insolvency resolution proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject and purpose of amending the Act, 2013 and to exclude Sections 326 and 327 in the event of liquidation under the IBC seems to be that there may not be two different provisions with respect to winding up/liquidation of a company. Therefore, in view of the enactment of IBC, it necessitated to exclude the applicability of Sections 326 and 327 of the Act, 2013 which cannot be said to be arbitrary as contended on behalf of the petitioner. 6.1 At this stage, it is required to be noted that Sub- Section (7) of Section 327 of which the vires are under challenge, shall be applicable in case of liquidation of a company under the IBC. Meaning thereby, in case of liquidation of a company under IBC, the provisions of Section 53 of the IBC and other provisions of the IBC shall be applicable as the company is ordered to be liquidated or wound up under the provisions of IBC. Therefore, merely because under the earlier regime and in case of winding up of a company under the Act, 1956/2013, the dues of the workmen may have pari passu with that of the secured creditor, the petitioner cannot claim the same benefit in case of winding up/liquidation of the company under IBC. The parties shall be g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the company could be wound up was when the company is unable to pay its debts. The other grounds were, when the company, by special resolution, has decided to be wound up; when the company has acted against the interests of sovereignty and integrity of India, the security of the State, friendly relations with foreign State, public order, decency or morality; if the Tribunal has ordered winding up of the company under Chapter XIX of the Companies Act, 2013, a chapter relating to revival and rehabilitation of sick companies; if on an application made by the Registrar or any other person authorised by the Central Government by notification, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company has been formed for fraudulent and unlawful purpose, or persons concerned in formation or management of its affairs have been guilty of fraud, misfeasance, misconduct in connection therewith, which makes it proper that the company be wound up; or if the company has made default in filing its financial statements or annual returns with the Registrar for immediately preceding five consecutive financial years; lastly, if the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revival of the company, and the dissolution/winding up as the last call. 7.3 This is significant and must be highlighted when we examine the question of the Constitutional challenge made by the petitioners, so as to not frustrate the objective and purpose of the Code, which completely replaces the then existing framework for insolvency and bankruptcy resolution that was inadequate, ineffective and guilty of causing undue delays. The enactment of the Code and the amendments thereafter are a consequence of detailed consultation and deliberations by several committees, commissions and experts4, in a matter which deals with the economy of the country as a whole. Earlier position was far from satisfactory in spite of enactment of the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The Code has been enacted with the objective of reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of the value of assets, promote e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straitjacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud where Frankfurter, J., said in his inimitable style: 'In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t guide and inspire the legislature in dealing with complex economic issues. *** 19. .... It would be outside the province of the Court to consider if any particular immunity or exemption is necessary or not for the purpose of inducing disclosure of black money. That would depend upon diverse fiscal and economic considerations based on practical necessity and `administrative expediency and would also involve a certain amount of experimentation on which the Court would be least fitted to pronounce. The Court would not have the necessary competence and expertise to adjudicate upon such an economic issue. The Court cannot possibly assess or evaluate what would be the impact of a particular immunity or exemption and whether it would serve the purpose in view or not. There are so many imponderables that would enter into the determination that it would be wise for the Court not to hazard an opinion where even economists may differ. The Court must while examining the constitutional validity of a legislation of this kind, "be resilient, not rigid, forward looking, not static, liberal, not verbal" and the Court must always bear in mind the constitutional proposition enunciated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wisdom of the legislature and in policy matters the accepted principle is that the courts should not interfere. Moreover in the context of the changed economic scenario the expertise of people dealing with the subject should not be lightly interfered with. The consequences of such interdiction can have large-scale ramifications and can put the clock back for a number of years. The process of rationalisation of the infirmities in the economy can be put in serious jeopardy and, therefore, it is necessary that while dealing with economic legislations, this Court, while not jettisoning its jurisdiction to curb arbitrary action or unconstitutional legislation, should interfere only in those few cases where the view reflected in the legislation is not possible to be taken at all. *** 30. Before we conclude there is another matter which we must advert to. It has been brought to our notice that Section 45-S of the Act has been challenged in various High Courts and a few of them have granted the stay of provisions of Section 45-S. When considering an application for staying the operation of a piece of legislation, and that too pertaining to economic reform or change, then the courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d insolvency resolution of corporate debtors. Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme -workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximise their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses (a) to (e). The reasons and grounds for winding up under Section 271 of the Companies Act, 2013 are vastly different from the reasons and grounds for the revival and rehabilitation scheme as envisaged under the Code. The two enactments deal with two distinct situations and in our opinion, they cannot be equated when we examine whether there is discrimination or violation of Article 14 of the Constitution of India. For the revival and rehabilitation of the companies, certain sacrifices are required from all quarters, including the workmen. In case of insolvent companies, for the sake of survival and regeneration, everyone, including the secured creditors and the Central and State Government, are required to make sacrifices. The workmen also have a stake and benefit from the revival of the company, and therefore unless it is found that the sacrifices envisaged for the workmen, which certainly form a separate class, are onerous and burdensome so as to be manifestly unjust and arbitrary, we will not set aside the legislation, solely on the ground that some or marginal sacrifice is to be made by the workers. We would also reject the argument that to find out whether there was a vio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kmen's dues bears to the aggregate of the amount of workmen's dues and the amount of debts due to the secured creditors. The illustration clarifies the formula by way of an hypothetical case, where the secured creditors and workmen's dues are both Rs.1 lakh. The amount of the debts due from the company to the secured creditors is hypothetically taken as Rs. 3 lakhs. Accordingly, the aggregate amount due towards workmen's dues and the amount of debts due to the secured creditors is Rs. 4 lakhs. In this background, when the value of the security of the secured creditors is Rs. 1 lakh, one-fourth of the value of the security, i.e. Rs.25,000/- would be the workmen's portion. To this extent, there is no difficulty or dispute. As noticed below there is hardly any difference in the said hierarchy and the waterfall mechanism under the Code. 11. However, the proviso to sub-section (1) to Section 326 of the Companies Act, 2013 states that in case of winding up of the company, the sums referred to in sub-clauses (i) and (ii) to clause (b) of the Explanation to Section 326 of the Companies Act, 2013, which are payable for a period of two years preceding the winding up order or such other peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Code, all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund, do not form part and are not to be included in the liquidation proceedings.9 Sub-section (1) to Section 52 of the Code gives two options to a secured creditor. First, the secured creditor in a liquidation proceeding may relinquish its security interest and receive the proceeds from the sale of assets by the liquidator in the manner specified in Section 53 of the Code. The second option is to realise the security interest, but in the manner specified in Section 52 of the Code. Sub-section (2) to Section 52 of the Code states that where the secured creditor realises the security interest, he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realised. The liquidator is to verify the security interest and shall permit the secured creditor to realise such security interest, which is proved either by records of such security interest maintained by an information utility, or by such other means as may be specified by the Board. Sub-section (4) to Section 52 of the Code states that the secured creditor may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de, are therefore protected in terms of sub-clause (b) of sub-section (1) to Section 53 of the Code. 14. Before we refer to Section 53 of the Code, we would like to take note of Section 30 of the Code, which relates to the submission of resolution plan, which is required to be examined by the resolution professional in the manner stipulated in sub-section (2) to Section 3011 of the Code. Substantial part of clause (b) of sub-section (2) to Section 30 of the Code relates to the payment of debts of operational creditors, which is not relevant for us. However, the later portion of clause (b) of sub-section (2) to Section 30 of the Code provides for the payment of debts of financial creditors who do not vote in favour of the resolution plan. The amount payable to them, it stipulates, shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) to Section 53 of the Code in the event of a liquidation of the corporate debtor. Sub-section (4) to Section 30 of the Code states when and how a Committee of Creditors is to approve the resolution plan. Sub-section (6) states that the resolution professional shall submit the resolution plan as approved by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation to Section 53 of the Code states that 'workmen's dues' shall have the same meaning as assigned to it in Section 326 of the Companies Act, 2013. In other words, Explanation to Section 326 of the Companies Act, 2013 has been incorporated and applies to the waterfall mechanism as prescribed in clause (b) to sub-section (1) to Section 53 of the Code. What is significant here is that under clause (b) to sub-section (1) to Section 53 of the Code, the workmen's dues are for the period of twenty four months preceding the liquidation commencement date. The liquidation commencement date, as defined in terms of sub-section (17) to Section 5 of the Code, is much earlier in point of time and need not coincide with the date of winding up. This is in the interest of the workmen. Clause (i) of Explanation to Section 53 of the Code states that where the distribution of proceeds in respect of class of recipients that rank equally, each of the debts would be paid either in full or would be paid in equal proportion within the same class of recipients, if the proceeds are insufficient to meet the debts in full. Ex facie, the clause is very just and fair. It is to be noted that the wages and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirements of the Code governing liquidation. It introduced a comprehensive and time-bound framework to maximise the value of assets of all persons and balance the interest of the stakeholders. The guiding principle for the Code in setting the priority of payments in liquidation was to bring the practices in India in line with global practices. In the waterfall mechanism, after the costs of the insolvency resolution process and liquidation, secured creditors share the highest priority along with a defined period of dues of the workmen. The unpaid dues of the workmen are adequately and significantly protected in line with the objectives sought to be achieved by the Code and in terms of the waterfall mechanism prescribed by Section 53 of the Code. In either case of relinquishment or non-relinquishment of the security by the secured creditor, the interests of workmen are protected under the Code. In fact, the secured creditors are taking significant hair-cut and workmen are being compensated on an equitable basis in a just and proper manner as per Section 53 of the Code. The Code balances the rights of the secured creditors, who are financial institutions in which the general public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordered the winding up of the company under Chapter XIX; (e) if on an application made by the Registrar or any other person authorised by the Central Government by notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that is proper that the company be wound up; (f) if the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years; or (g) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up. *** 3 271. Circumstances in which company may be wound up by Tribunal. - A company may, on a petition under section 272, be wound-up by the Tribunal, - (a) if the company has, by special resolution, resolved that the company be wound up by the Tribunal; (b) if the company has acted against the interests of the sovereignty and integrity of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s portion in his security (if payable under the law), whichever is less, pari passu with the workmen's dues: Provided that in case of the winding up of a company, the sums referred to in sub-clauses (i) and (ii) of clause (b) of the Explanation, which are payable for a period of two years preceding the winding up order or such other period as may be prescribed, shall be paid in priority to all other debts (including debts due to secured creditors), within a period of thirty days of sale of assets and shall be subject to such charge over the security of secured creditors as may be prescribed. (2) The debts payable under the proviso to sub-section (1) shall be paid in full before any payment is made to secured creditors and thereafter debts payable under that sub-section shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. Explanation.-For the purposes of this section, and Section 327- (a) "workmen", in relation to a company, means the employees of the company, being workmen within the meaning of clause(s) of Section 2 of the Industrial Disputes Act, 1947; (b) "workmen's dues", in rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t,1956 or even Section 36 (4)(a)(iii) of the Code. However, see - Employees Provident Fund Commissioner v. Official Liquidator of Esskay Pharmaceuticals Limited, (2011) 10 SCC 727 and Bhupinder Singh v. Unitech Limited, (2022) 8 SCC 749. 9 For the purpose of the present decision, we are not interpreting sub-clause (iii) to clause (a) of sub-section (4) to Section 36 of the Code as this is an issue of some debate and pending consideration in other matters. The legal effect of exclusion is that, the amount of sums due to any workmen or employee from the provident fund, the pension fund or the gratuity fund cannot be made subject matter of reduction or dilution even in a rehabilitation or revival plan. They are excluded from the waterfall mechanism and would not be used in recovery on liquidation, and they cannot be shared. 10 21A. Presumption of security interest.- (1) A secured creditor shall inform the liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest, as the case may be, in Form C or Form D of Schedule II: Provided that, where a secured creditor does not intimate its decision within thirty days fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in accordance with the order of priority in sub-section (1) of Section 53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of Section 53 in the event of a liquidation of the corporate debtor. Explanation 1.-For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors. Explanation 2.-For the purposes of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor- (i) where a resolution plan has not been approved or rejected by the Adjudicating Authority; (ii) where an appeal has been preferred under Section 61 or Section 62 or such an appeal is not time barred under any provision of law for the time being in force; or (iii) where a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
