Labour Court Award Cannot Give Priority To Workmen's Dues Beyond 24 Months Before Liquidation: NCLT Indore

The National Company Law Tribunal, Indore Bench, has held that a labor court award by itself cannot give priority to old workmen's dues in liquidation under the Insolvency and Bankruptcy Code.

The tribunal said that priority for workmen's dues is limited to amounts arising in the twenty-four months preceding the liquidation commencement date as per waterfall mechanism

A coram of Judicial Member Brajendra Mani Tripathi and Technical Member Man Mohan Gupta said a prior labour adjudication cannot alter the IBC waterfall under Section 53

“While the applicant has relied upon the labor court order and the recovery certificate issued therein, the existence of such orders does not, by itself, determine the priority of a claim under Section 53 of the Code, which operates strictly in accordance with the statutory scheme,” the tribunal observed.

The case was filed by Prakash Joshi, a former worker of Dhanlaxmi Solvex Pvt. Ltd., which was ordered into liquidation in February 2020. Joshi had obtained a labor court order and a recovery certificate awarding him Rs12.05 lakh in unpaid wages relating to the period between 1997 and 2006. He said he learned of the liquidation only after seeing a newspaper auction notice and submitted his claim thereafter.

The liquidator admitted the claim after earlier directions from the Tribunal but placed it in the residual claims. Joshi challenged this, seeking treatment as workmen's dues with priority under Section 53(1)(b)(i).

Dismissing the plea, the tribunal noted that priority is limited to workmen's dues for the twenty-four months preceding the liquidation commencement date. Since liquidation began on February 27, 2020, the dues claimed were far too old to qualify.

The tribunal also recorded that the company's assets had already been sold and that “the liquidation proceeds being insufficient even to satisfy the claims of secured creditors.”