CA-326

The word ‘winding up’ mentioned in the Companies Act, 2013 is synonymous with the word ‘liquidation’, as mentioned in the Insolvency and Bankruptcy Code, 2016 – CS Anagha Anasingaraju, Liquidator for Pandit Automotive Pvt. Ltd. Vs. Bank of Baroda (Earlier Vijaya Bank) and Ors. – NCLT Mumbai Bench

Hon’ble NCLT Mumbai Bench held that the argument raised by the Counsel for the Respondents that the provisions of Section 529A of the Companies Act, 1956 or Section 326 of the Companies Act, 2013 are applicable to winding up proceedings only and not to liquidation cannot be sustained in the eyes of law and, is therefore, hereby repelled.

The word ‘winding up’ mentioned in the Companies Act, 2013 is synonymous with the word ‘liquidation’, as mentioned in the Insolvency and Bankruptcy Code, 2016 – CS Anagha Anasingaraju, Liquidator for Pandit Automotive Pvt. Ltd. Vs. Bank of Baroda (Earlier Vijaya Bank) and Ors. – NCLT Mumbai Bench Read Post »

Waterfall Mechanism in Insolvency & Bankruptcy Code, 2016 (IBC) vs. in Companies Act, 2013 – Moser Baer Karamchari Union Thr. President Mahesh Chand Sharma Vs. Union of India and Ors. – Supreme Court

Hon’ble Supreme Court held that (i) in principle, it cannot be doubted that the cases of revival or winding up of the company on the ground of insolvency and inability to pay debts are different from cases where companies are wound up under Section 271 of the Companies Act 2013. The two situations are not identical. 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.
(ii) In view of the enactment of IBC and Section 53 of the IBC, it necessitated to amend the Act, 2013. As per Sub-Section (7) of Section 327, Sections 326 and 327 shall not be applicable in the event of liquidation under the IBC.
(iii) Entire unpaid dues are not covered by the proviso to sub-section (1) to Section 326 of the Companies Act, 2013.
(iv) The provisions under the IBC cannot be compared with that of the earlier regime, namely, the Companies Act, 1956/2013.
(v) The waterfall mechanism is based on a structured mathematical formula, and the hierarchy is created in terms of payment of debts in order of priority with several qualifications, striking down any one of the provisions or rearranging the hierarchy in the waterfall mechanism may lead to several trips and disrupt the working of the equilibrium as a whole and stasis, resulting in instability. Every change in the waterfall mechanism is bound to lead to cascading effects on the balance of rights and interests of the secured creditors, operational creditors and even the Central and State Governments.
Hon’ble Apex Court concluded that as sub-section (7) of Section 327 of the Act, 2013 provides that Sections 326 and 327 of the Act, 2013 shall not be applicable in the event of liquidation under the IBC, which has been necessitated in view of the enactment of IBC and it applies with respect to the liquidation of a company under the IBC, Section 327(7) of the Act, 2013 cannot be said to be arbitrary and/or violative of Article 21 of the Constitution of India. In case of the liquidation of a company under the IBC, the distribution of the assets shall have to be made as per Section 53 of the IBC subject to Section 36(4) of the IBC, in case of liquidation of company under IBC.

Waterfall Mechanism in Insolvency & Bankruptcy Code, 2016 (IBC) vs. in Companies Act, 2013 – Moser Baer Karamchari Union Thr. President Mahesh Chand Sharma Vs. Union of India and Ors. – Supreme Court Read Post »

Workmen and Employees are entitled for payment of full amount of Provident Fund and Gratuity till the date of commencement of the insolvency – Jet Aircraft Maintenance Engineers Welfare Association Vs. Ashish Chhawchharia RP of Jet Airways (India) Ltd. and Ors. – NCLAT New Delhi

Following questions arise for consideration in this case:

I. What is the extent and the limitation of the judicial review by the Adjudicating Authority and the Appellate Tribunal in context of a Resolution Plan approved by the CoC with requisite majority?

II. Whether the workmen and employees are entitled to receive the payment of provident fund, gratuity and other retirement benefits in full since they are not part of the liquidation estate under Section 36(4)(b)(iii) of the Code?

III. Whether the workmen and employees are entitled to receive their dues from the Corporate Debtor as per the provisions of the Code i.e. the minimum liquidation value envisaged under Section 30(2)(b) by referring to waterfall mechanism provided under Section 53(1) of the Code?

IV. Whether the Resolution Plan approved by the Adjudicating Authority violates the provisions of Section 30(2)(b) of the Code since it does not provide the minimum amount to the workmen/ employees as contemplated under Section 30(2)(b)?

V. Whether the Resolution Plan as approved by the Adjudicating Authority violates provisions of Section 30(2)(e) of the Code since it contravenes provisions of Industrial Disputes Act, 1947 it having not provided for retrenchment compensation to the workmen/employees who were so entitled under Section 25-F and 25-FF of the Industrial Disputes Act, 1947 and other legislations?

VI. Whether the demerger of entire workforce except of 50 employees as Asset Protection Team to AGSL is illegal and contrary to the provision of Section 25-FF of Industrial Disputes Act, thus, violates Section 30(2) of the Code?

VII. Whether the workmen/employees are entitled for payment of Rs.750 crores (or more) as CIRP cost subsequent to insolvency commencement date they being on the roll of the Corporate Debtor and principle of no work no pay could not have been applied by the Resolution Professional?

VIII. Whether for computing the payment to secured financial creditors under Section 53(1)(b) only the value of their security interest has to be taken into consideration or their entire financial debt is to be considered while computing their entitlement?

IX. Whether the Resolution Plan being contingent and conditional ought not to have been approved in view of the law laid down by the Hon’ble Supreme Court in “Ebix Singapore Pvt. Ltd. Vs. CoC of Educomp Solutions Ltd. & Anr., (2022) 4 SCC 401”?

X. Whether the allocation of fixed amount of Rs.15,000/- each to the Operational Creditors (other than workmen/employees) in the resolution plan can be held to be fair and equitable and deserves no interference by this Appellate Tribunal?

XI. Whether the claim of Regional Provident Fund Commissioner verified to the extent of Rs.24,40,65,594/- arising out of an order dated 17.10.2018 passed under Section 14B of Employees’ Provident Funds & Miscellaneous Provisions Act 1952 can be treated as secured debt and the Appellant was entitled to receive the amount as secured creditors?

XII. Whether the claim of Department of State Tax which was submitted within time created a charge in favour of the Department on the assets of the Corporate Debtor by virtue of operation of law and the State Tax Department has the security interest and is a secured creditor?

XIII. Reliefs, if any, to which the appellants are entitled?

Workmen and Employees are entitled for payment of full amount of Provident Fund and Gratuity till the date of commencement of the insolvency – Jet Aircraft Maintenance Engineers Welfare Association Vs. Ashish Chhawchharia RP of Jet Airways (India) Ltd. and Ors. – NCLAT New Delhi Read Post »

Wages/Salaries of the Workmen/Employees for the period during CIRP can only be included in the CIRP costs if it is established that the IRP/Resolution Professional managed the operations of the Corporate Debtor as a Going Concern during the CIRP and that the concerned workmen/employees actually worked during the CIRP – Sunil Kumar Jain and others Vs. Sundaresh Bhatt and others – Supreme Court

The issue before Hon’ble Supreme Court is with respect to wages/salaries of the workmen/employees during the CIRP period and the amount due and payable to the respective workmen/employees towards Pension Fund, Gratuity Fund and Provident Fund. Hon’ble Supreme Court held that:

i) that the wages/salaries of the workmen/employees of the Corporate Debtor for the period during CIRP can be included in the CIRP costs provided it is established and proved that the Interim Resolution Professional/Resolution Professional managed the operations of the corporate debtor as a going concern during the CIRP and that the concerned workmen/employees of the corporate debtor actually worked during the CIRP and in such an eventuality, the wages/salaries of those workmen/employees who actually worked during the CIRP period when the resolution professional managed the operations of the corporate debtor as a going concern, shall be paid treating it and/or considering it as part of CIRP costs and the same shall be payable in full first as per Section 53(1)(a) of the IB Code;

ii) considering Section 36(4) of the IB code and when the provident fund, gratuity fund and pension fund are kept out of the liquidation estate assets, the share of the workmen dues shall be kept outside the liquidation process and the concerned workmen/employees shall have to be paid the same out of such provident fund, gratuity fund and pension fund, if any, available and the Liquidator shall not have any claim over such funds.

Wages/Salaries of the Workmen/Employees for the period during CIRP can only be included in the CIRP costs if it is established that the IRP/Resolution Professional managed the operations of the Corporate Debtor as a Going Concern during the CIRP and that the concerned workmen/employees actually worked during the CIRP – Sunil Kumar Jain and others Vs. Sundaresh Bhatt and others – Supreme Court Read Post »

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