How the claims filed Workmen or Employees under CIRP and Liquidation Process has to be differentiated between them under Insolvency and Bankruptcy Code 2016? – Adv. Shivam Jaiswal

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Shivam Jaiswal,
Legal at AAA Insolvency Professionals LLP

Claim Form To Be Filled By Workmen or Employees In Case The Company Is Under CIRP or Liquidation Process

In case the company is under CIRP, the employees and workmen has to file claim in FORM D i.e. Proof of Claim by a Workman or Employee, Under Regulation 9 of the Insolvency and Bankruptcy (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

In case the company is under Liquidation Process, the employees and workmen has to file claim in FORM E i.e. Proof of Claim by a Workman or Employee, Under Regulation 19 of the Insolvency and Bankruptcy (Liquidation Process) Regulations, 2016.

Why the claim filed Workmen or Employees under CIRP and Liquidation Process has to be differentiated between them under Insolvency and Bankruptcy Code 2016?

The claims filed by the workmen and employees has to be differentiated as in the liquidation process because as per Section 53 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) which provides for the order of priority in which the proceeds from the sale of liquidation assets is to be distributed which is as follows :

  • The dues of workmen for the period of 24 months preceding the liquidation commencement date rank equally with debts owed to secured creditors, which relinquish their security interest in favor of liquidation estate.
  • The wages and any unpaid dues owed to employees other than the workmen for the period of 12 months preceding the liquidation commencement date rank below the secured creditors and workmen dues.

    The relevant portion of Section 53 of IBC is quoted below:

“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 as may be specified, namely: –

 (a) the insolvency resolution process costs and the liquidation costs paid in full;

(b) the following debts which shall rank equally between and among the following:

(i) Workmen’s dues for the period of twenty-four months preceding the liquidation commencement date; and

(ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52;

(c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date;

(d) financial debts owed to unsecured creditors’….”

(Emphasis Supplied)

 

A. Main Issue: How the claims filed Workmen or Employees under CIRP and Liquidation Process has to be differentiated between them under Insolvency and Bankruptcy Code 2016?

The word ’employee’ is not defined in the IBC, However, the term ‘workman’ is defined under the provisions of Section 3(36) of the Code and has the same meaning as assigned to it in the Industrial Disputes Act, 1947.

The Workmen has been defined under Section 2 (s) of Industrial Disputes Act, 1947. The said definition is quoted below:

“workman” means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person.

(i) who is subject to the Air Force Act, 1950 (45 of 1950 ), or the Army Act, 1950 (46 of 1950 ), or the Navy Act, 1957 (62 of 1957 ); or

(ii) who is employed in the police service or as an officer or other employee of a prison; or

(iii) who is employed mainly in a managerial or administrative capacity; or

(iv) who, being employed in a supervisory capacity, draws wages exceeding ten thousand rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature”

(Emphasis Supplied)

 

B. Other Issues: Whether the services/business of the corporate debtor would come under the definition of Section 2(j) of Industrial Dispute Act 1947?

Before answering the main issue, i.e. how the claims filed Workmen or Employees under CIRP and Liquidation Process has to be differentiated between them under Insolvency and Bankruptcy Code 2016 it has to be checked that whether company/corporate debtor would come under the ambit of Industry as defined under Section 2 (j) of Industrial Dispute Act 1947?

The definition of Industry as defined under Section 2 (j) of Industrial Dispute Act 1947 is mentioned below:

“Industry” means any business, trade, undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or a vocation of workmen;

(Emphasis Supplied)

 

The Hon’ble Supreme Court in the Bangalore Water Supply and Sewerage Board v. R. Rajappa elaborated upon the definition of Industry. The term industry has been given a wide scope and the judgment overruled several earlier decisions. The court held-

Any activity will be industry if it fulfills the ‘triple test’, as under:

  • Systematic and organized activity
  • With the cooperation between Employers and employees
  • For the production and distribution of goods and services, whether or not capital has been invested for this activity.

Conclusion to Issue No B: After going through the above mentioned triple test it is clear that the test laid down by the Hon’ble Supreme Court has to be applied on the company/corporate debtor in order to check as to whether  the company/corporate debtor would  comes under the ambit of Section 2 (j) i.e. Industry or not. In case it is fulfilled, the company/corporate debtor would be an Industry and hence the definition lay down of workmen under Section 2 (s) of Industrial Disputes Act, 1947 would be applied and has to be checked, which is the main issue as mentioned below.

Main Issue i.e. Issue No A: How the claims filed Workmen or Employees under CIRP and Liquidation Process has to be differentiated between them under Insolvency and Bankruptcy Code 2016?

The word ’employee’ is not defined in the IBC, 2016 (“Code”). However, the term ‘workman’ is defined under the provisions of Section 3(36) of the Code and has the same meaning as assigned to it in the Industrial Disputes Act, 1947.

The Workmen has been defined under Section 2 (s) of Industrial Disputes Act, 1947 and the same has been quoted above.

In the matter of Delta Jute & Industries Ltd. Staff Association and Ors. v. State of West Bengal and Ors (Calcutta High Court), it was held that a person working in purely managerial and/or supervisory capacity does not fall within the definition of workman under Industrial Dispute Act. However, when a person performs multifarious functions, the nature of the main function performed by the person has to be considered to determine if the person is a “workman.” The designation of a person is not a conclusive factor in determining the nature of work. Even if a person is designated as supervisor, the employer has to prove that his work and his duties were in nature of a supervisor.

The exception to the general rule would be that the person must be 

(a) Employed in a supervisory capacity; 

(b) Draw more than Rs 10,000 as wages; and 

(c) Primarily perform the functions of managerial nature.

Analysis of The Section 2 (S) Of Industrial Disputes Act, 1947 i.e. Definition Of Workmen:

  1. The emphasis really is to exclude those persons who are performing mainly managerial work and are employed in supervisory capacity i.e. evaluating the work of their subordinates.
  2. A managerial work includes: powers and duties related to hiring and firing of new employees, grant of leave to employees and actual participation in the policy of the business. The managerial functions may not be performed as a consequence of a written contract but may be implied from the powers vested in a person or the nature of his duties.
  3. .The number of working hours is not considered while determining whether a person qualifies as “workman” or not. However, there must exist a master-servant relationship between the employee and his employer.
  4. An independent contractor cannot be termed as a workman. The employer must be in a position to control the manner of employee’s work.
  5. It may reasonably be assumed that the key thing that is generally addressed in determining whethera single individual is a worker is the essence of his or her role and the duties that he or she is carrying out. Persons holding supervisory authority are not usually known to be workmen under the Act.

Conclusion to Main Issue No A:

Workmen:

Therefore, in order to differentiate between the employee and workmen, in the present case, the required documents would be either appointment letter or offer letter, preferably the offer letter. However, at the same time as observed above only the designation of person are not important factor but the roles and duties being performed by them. For this, one could ask from the erstwhile director of the Corporate Debtor a summary as to what duties are being performed by the employed person based on designation.

Employees:

There are various acts wherein the employee has been defined such as under Section 2(f) of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, Section 2 of the Payment of Wages Act, 1936 etc. Since the definition of employee is not mentioned in the IBC 2016, and the definition of workmen is being mentioned, one could infer from this, is that the intention of legislature would be that in case if the employed person don’t fall under the ambit of the workmen the same can be considered as employee.

 

Disclaimer: The views expressed in this article are the personal views and are purely informative in nature. The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement.

 

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