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Section 160: Overriding priority of worker dues in insolvency

The Code on Social Security, 2020 (Act No. 36 of 2020) • Official Statutory Text & Plain English Practice Guide

Statutory Mandate
Chapter XIV: Miscellaneous
Competent Labour Forum
Act No. 36 of 2020
Section 159 All 163 Sections of Code on Social Security, 2020 Section 161

Legal Commentary & Landmark Judgments: Section 160

Section 160 of the Code establishes the overriding priority of worker dues in insolvency, providing that statutory provident fund, gratuity, and employee compensation liabilities shall be paid in first priority and shall not form part of the assets of the insolvent debtor.

  • Statutory Exclusion from Liquidation Estate: Explicitly declares that sums due to employees on account of provident fund, pension, gratuity, and compensation shall not form part of the liquidation estate of the corporate debtor under the Insolvency and Bankruptcy Code, 2016.
  • First-Charge Priority Over All Creditors: Confers an absolute first priority of payment over all other debts—including secured financial creditors and operational creditors—reaffirming the constitutional sanctity of worker retiral dues.
  • Direct Payment Obligation on Resolution Professionals: Obligates the Resolution Professional or Liquidator to disburse all verified employee social security dues in full without subjecting them to insolvency haircuts.
Key Landmark Precedents:
  • Moser Baer Karamchari Union v. Union of India (2023) 9 SCC 275: Landmark Constitution ruling: Supreme Court upheld the overriding priority of worker dues, confirming that Section 53 IBC excludes provident fund, pension, and gratuity dues from the liquidation waterfall, ensuring workers are paid in full ahead of secured lenders.
  • Sunil Kumar Jain v. Sundaresh Bhatt (2022) 7 SCC 540: Supreme Court held that employee social security dues must be prioritized and paid during the Corporate Insolvency Resolution Process (CIRP).
  • Bakshish Singh v. Darshan Engineering Works (1994) 1 SCC 9: Affirmed that employer insolvency cannot extinguish retiral and disability entitlements earned through decades of labor.
Courtroom Practice & Strategic Litigation Guidance:

If a corporate employer enters CIRP or liquidation under IBC, worker representatives and legal counsel must file Form E with the Resolution Professional citing Section 160 read with Moser Baer, establishing that PF, gratuity, and compensation claims cannot be subjected to resolution plan haircuts.

Section 159 All 163 Sections of Code on Social Security, 2020 Section 161