The Insolvency and Bankruptcy Code (IBC) formulated in 2016 is inter alia supposed to take care of recovery of debts in a time-bound manner and also set a deterrent for other defaulters. While an “Act” is enacted in order to regulate legal issues faced and maintain law and order, a “code” is a procedural law to be followed by the regulating agency while enforcement or discharging their duties as a judge in the court.According to the IBC, if insolvency cannot be resolved, the assets of borrowers may be sold to repay creditors.
In practical application, although it is a positive development for the fuel providers, i.e. the creditors, at the same time it may ultimately lead to loss of employment in certain circumstances. The new Code protects the workers in case of insolvency by giving priority on paying their dues. Also, in case of a default, employees are in the initial lines to be able to secure their rights as prescribed under the Code.
However, the new Code is silent on some key issues such as keeping the employment of the workers secured, maintaining their continuity in service as well as on compliances required under industrial laws in case of a situation of separation.
Age-old Industrial Disputes Act, 1947, prescribes that where there are more than a 100 workers, permission before closure or retrenchment is mandatorily required to be taken from the appropriate authorities, else the same cannot be carried out.
Past precedents reflect that such a permission was given in rarest of rare cases, even if the company was running into colossal losses for the basic reason of preventing unemployment. True rights of financial creditors must be protected, but at the same time situation of de-industrialisation has to be prevented, especially in current scenario of steep unemployment.
One middle path solution to the issue can be mandatorily handing over/selling off entire assets of the company under liquidation to an entity which undertakes to take over operation and management along with the same set of workers, maintaining their continuity in service.
This would be ideal in situations where companies under liquidation have ongoing concerns and are active in operations. Of course, a distinction may be drawn for entities, which are virtually a junkyard and have nil or only namesake functioning.
According to Section 238 of the IB Code, its provisions shall have an effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
It is incumbent for the legislature to clarify and amend provisions of the Industrial Disputes Act, 1947, in required situations, especially with respect to clauses relating to retrenchment, closure, transfer of ownership, etc. Lest it is possible for authorities in various states to give different interpretations leading companies to face lengthy innings of litigations.
Security of employment in our country got recognition by virtue of the Industrial Disputes Act. Recovery of debts and maintenance of livelihood, both need to be taken care of. Though at the outset, the new IB Code appears to care for the interests of business, its ultimate aim is to ease the process of recovery of money by creditors in a timely manner. But the million-dollar question is whether the Code with the current provisions is designed comprehensively to meet requirements of the Indian economy. Or does it require to make specific and clear clarifications especially with respect to protection of livelihood?
Raavi Birbal
Advocate, Supreme Court of India
raavibirbal@gmail.com