Insolvency and Bankruptcy Code

CA. Pravin Navandar, CA. Mukund Mall

Supreme Court Judgement:

Clean Slate Principle’ stand neglected if the successful Resolution Applicant is asked to pay the arrears payable by the Corporate Debtor…

Tata Power Western Odisha Distribution Limited & Anr. V Jagannath Sponge Private Limited, dtd. 11th Sept 2023.

Facts of the Case

  1. On April 20, 2019, CIRP was initiated against Jagannath Sponge Private Limited under Section 7 of the Code.
  2. During the CIRP, M/s Omkara Asset Reconstruction Company submitted a Resolution Plan, which received approval from the NCLT on August 6, 2021.
  3. On August 5, 2022, the Respondent requested the Appellant to provide electricity with a capacity of 550KVA to its units. The Appellant informed the Respondent of outstanding electricity dues totalling Rs. 13,46,19,931/-. In response, the respondent filed an application seeking a directive for the Appellant to supply electricity and dismiss the demand for arrears. The NCLT identified two key issues: the validity of the Rs. 13,46,19,931/- demand and the entitlement of the applicant to a service connection.
  4. The NCLT and NCLAT determined that the Resolution Plan, having been approved and legally binding, rendered the Appellant’s claim for arrears against the Successful Resolution Applicant invalid. Furthermore, the Adjudicating Authority observed that the Appellant did not submit any claims during the Insolvency Resolution Process of the Corporate Debtor and issued corresponding directives.
  5. Dissatisfied with the Adjudicating Authority’s decision, the Appellant has filed an appeal challenging the ruling.

Order

  1. The Supreme Court has held that under the Insolvency and Bankruptcy Code, 2016 (“IBC”), once the Resolution Plan stands approved by the National Company Law Tribunal (NCLT), the Electricity Department cannot demand payment of arrears, which were payable by the Corporate Debtor, from the Successful Resolution Applicant for restoration/grant of electricity connection.
  2. The ‘clean slate principle’ would stand negated if the Successful Resolution Applicant is asked to pay the arrears payable by the Corporate Debtor for the grant of an electricity connection in her/his name.

NCLT Judgement:

Section 238 of IBC overrides the provisions of the Industrial Dispute Act, 1947. Resolution Professional is well within its powers to issue lay-off notices to workers/employees of the Corporate Debtor during CIRP.

Unitech Machines Karmchari Sangh vs. Mr. Vivek Raheja, dtd. 6th Oct 2023.

Facts of the Case

  1. On 01.03.2019, the Tribunal accepted an Application under Section 7 of the IBC, 2016 against the Corporate Debtor, initiating the CIRP.

  2. On 21.07.2019, the Applicant Union filed a separate Application under Section 60(5) of the Code, 2016, seeking instructions from the RP to release salaries, wages, and statutory dues, as well as deposit Provident Fund. Following the Tribunal’s directions, the RP released salaries and dues up to March 2020.

  3. On 01.02.2020, the RP issued a contentious layoff notice without settling legitimate and statutory dues. This action disregarded the proper procedure outlined in the Industrial Disputes Act and appeared to be a response to his liability for releasing worker salaries.

  4. The layoff was deemed entirely illegal as the Resolution Professional exceeded his authority under Section 33 of the IBC, 2016. Furthermore, it violated Sections 25C and 25M of the Industrial Dispute Act, 1947, and Section 2(n) of the UP Industrial Disputes Act, 1947.

  5. Subsequently, the RP failed to release worker salaries both before and during the layoff period. Currently, these salaries remain unpaid, leaving workers in a precarious financial situation, struggling to secure their wages.

  6. On 14.09.2020, relying on the notice dated 01.02.2020, the RP sent an email to the workmen Union advising them to seek alternative employment.

NCLT Order

  1. The RP has the authority to safeguard the Corporate Debtor’s assets and business operations under Section 25 of the IBC, 2016. In the present case the RP is obligated to protect the Corporate Debtor’s interests, as seen in their notice dated 01.02.2020, when the Corporate Debtor couldn’t pay worker salaries.

  2. The layoff contradicts certain labour laws like Sections 25C and 25M of the Industrial Dispute Act, 1947 and Section 2(n) of UP Industrial Disputes Act, 1947 but Section 238 of the Code, 2016 makes it clear that this Code takes precedence over other laws. Thus, discontinuing worker services with the notice dated 01.02.2020 is not illegal.