Supreme Court turns down staff’s plea to give priority to their dues – Times of India

NEW DELHI: The Supreme Court on Tuesday turned down the plea of workmen to give priority to their dues in case of liquidation of an insolvent company. It upheld Section 53 of the Insolvency and Bankruptcy Code, which limits the dues to 24 months only preceding the date of order of liquidation and then rank their dues equally with the secured creditors.
A bench of Justices MR Shah and Sanjiv Khanna said the unpaid dues of the workmen are adequately and significantly protected under the Code and in terms of the waterfall mechanism prescribed by Section 53 of the Code and the provision is valid and constitutional.
“In fact, the secured creditors are taking significant hair-cut and workmen are being compensated on an equitable basis in a just and proper manner as per Section 53 of the Code. The Code balances the rights of the secured creditors, who are financial institutions in which the general public has invested money, and also ensures that the economic activity and revival of a viable company is not hindered because it has suffered or fallen into a financial crisis. The Code focuses on bringing additional gains to both the economy and the exchequer through efficiency enhancement and consequent greater value capture,” it said.
The court said in economic matters, a wider latitude was given to the lawmaker and some sacrifices have to be always made for the greater good, and unless such sacrifices are prima facie apparent.
“The workmen also have a stake and benefit from the revival of the company, and therefore unless it is found that the sacrifices envisaged for the workmen, which certainly form a separate class, are onerous and burdensome so as to be manifestly unjust and arbitrary, we will not set aside the legislation, solely on the ground that some or marginal sacrifice is to be made by the workers,” it said.
The top court held that waterfall mechanism prescribed in the Code with reference to the workmen’s dues is a well-considered and thought-out decision. “The waterfall mechanism and the hierarchy prescribed to the workmen’s dues should be seen in the overall objective of the Code, which is to explore whether the corporate debtor can be revived so that jobs are not lost,” it said.