Salary of employees can be included in CIRP costs: SC

Sunil Kumar Jian and Others Vs Sundaresh Bhatt and Others (Supreme Court)

Whether the amounts of provident fund, gratuity, and pension fund should be separated from the liquidation and other rights of workmen in liquidation process

The Hon’ble Supreme Court in the case of Sunil Kumar Jian and Others v. Sundaresh Bhatt and Others (decided on April 19, 2022), allowed the appeal, and held that, the salaries of employees can be included in the corporate insolvency resolution process (“CIRP”) costs during CIRP proceedings, and the provident, gratuity & pension funds should be kept out of the liquidation process.

Facts:

The appellants (employees of M/s ABG Shipyard Limited) filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC” and “the Code”) seeking to initiate the CIRP against M/s ABG Shipyard Limited (Corporate Debtor) before the NCLT, Ahmedabad Bench. Upon no relief from the bench, the appellants approached the NCLAT which held that the gratuity & provident funds cannot be treated as an assent of the Corporate Debtor and allowed all the employees to file individual claims before the liquidator. Thereby dismissing the appeal of the appellants against the order of NCLT.

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