Workers Not Entitled to Wages for Period Not Worked During CIRP: NCLAT upholds Layoff Notice, Approved Resolution Plan Binding on All Stakeholders [Read Order]

The Principal Bench of National Company Law Appellate Tribunal (NCLAT) at New Delhi, held that workers are entitled to wages during CIRP only if the corporate debtor is a going concern and they actually performed work and as no work was done after the layoff due to factory closure, wages were not payable. Thus, the resolution plan once approved bound all stakeholders, limiting workers’ claims to its terms.

The Appeal was filed by the employee union under Section 61(1) of the IBC against the NCLT's order dated 06.10.2023 dismissing their application (IA/3780/2021 in IB-937/PB/2018).

The Appellant, Unitech Machines Karamchari Sangh, underwent insolvency proceedings through order dated 01.03.2019 under Section 7 of the IBC. The appellant workmen's union sought directions from NCLT under Section 60(5) for release of salaries and statutory dues. The Resolution Professional released salaries up to March 2020 but did not clear provident fund for four months prior to CIRP or gratuity

The Resolution Professional on 01.02.2020, issued a layoff notice citing fund constraints and cessation of factory operations. The appellant challenged this notice as illegal, alleging violation of Sections 25C, 25F, and 25M of the Industrial Disputes Act, 1947, and contending that the RP lacked authority to issue such notice without following prescribed procedures.

The Resolution Professional contended that the layoff was issued in the interest of the Appellant after oral advice from the Adjudicating Authority on 29.01.2020, as no work remained at the factory. A revised resolution plan submitted by Respondent No. 2 was approved by the Committee of Creditors on 17.09.2021 with 89.71% voting share and subsequently by the Adjudicating Authority. The workers' application challenging the layoff notice was dismissed by NCLT, leading to the present appeal.

The Counsel for the Appellant, Swarnendu Chatterjee and Harshita Rawat, stated that the Resolution Professional lacks adjudicatory powers and was duty-bound to comply with the Industrial Disputes Act before issuing the layoff notice whereby the layoff violated Sections 25C, 25F, and 25M of the ID Act as prescribed and procedures were not followed as reliance was placed on Swiss Ribbons Pvt. Ltd. vs. UOI & Ors. (2019) 4 SCC 17.

Further, the Counsel relied on Sunil Kumar Jain vs. Sundaresh Bhat (2022) 7 SCC 540 which stated that the resolution plan was approved without regard to workers' lawful dues, contrary to the mandatory requirement under Section 30(2)(b) of the IBC, 2016.

On the other hand, the Counsel for the Respondents No.1 (Resolution Professional), Abhishek Anand, Karan Kohli, Palak Kalra, and Vanshika Agrawal, submitted that workers were entitled to wages as CIRP costs only when the Appellant operated as a going concern and workers actually perform services. The Adjudicating Authority recorded that no work was carried out at the factory, and the layoff notice dated 01.02.2020 was issued following oral directions from the Tribunal on 29.01.2020.

Further, the Counsel for the Respondent No.2 (SRA), Amish Tandon, Anushree Kulkarni, Swankit Nanda, and Akanksha Mishra, observed that the appeal violated the clean slate principle as the resolution plan was approved by the CoC and Adjudicating Authority, and the workers' objections (IA No. 408/2022) were withdrawn. The SRA cannot face monetary hardship not contemplated during plan approval. Workers who did not work post-layoff were not entitled to wages for that period.

The Tribunal consisted of Judicial Members, Justice Rakesh Kumar Jain and Justice Mohd. Faiz Alam Khan along with the Technical member, Indevar Pandey, heard and reviewed the matter.

The Tribunal, after considering the submissions made, observed that the appellant workers did not work after the layoff notice dated 01.02.2020 and were therefore not entitled to any dues beyond that date, except provisions made in the approved resolution plan. The approved resolution plan is binding on all stakeholders and cannot be challenged collaterally. Section 238 of the IBC provides that the Code has an overriding effect over the Industrial Disputes Act.

Further, the Tribunal applied the Supreme Court's decision in Sunil Kumar Jain vs. Sundaresh Bhat (2022) 7 SCC 540, held that workers were entitled to wages during CIRP only if, the appellant operated as a going concern, and the workers actually performed work during that period. Workers who did not work were not entitled to wages, which would not be included in CIRP costs.

Accordingly, the Tribunal found no illegality in the impugned order and the appeal was dismissed.

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