What happens to my unpaid salary and other dues if my employer company goes into insolvency?

Question

The company I work for has been admitted into corporate insolvency resolution process and I have several months of unpaid salary and provident fund dues. I want to know how I get paid. I have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

MyVakeel Legal Desk · Accepted Answer

What happens to my unpaid salary and other dues if my employer company goes into insolvency? is governed in India primarily by Insolvency and Bankruptcy Code 2016, Section 53, Insolvency and Bankruptcy Code 2016, Section 36(4) and Employees' Provident Funds and Miscellaneous Provisions Act 1952, Section 11. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

Section 53 of the Insolvency and Bankruptcy Code 2016 sets out the waterfall mechanism for distribution of liquidation proceeds, and workmen's dues for the preceding 24 months rank alongside secured creditors at the top of the priority list, ahead of unsecured financial creditors and government dues.

Section 36(4) of the Code excludes provident fund, pension fund and gratuity fund dues from the liquidation estate of the corporate debtor, meaning these amounts, to the extent they have actually been deposited into dedicated funds, do not get distributed among creditors and remain payable in full to employees.

Section 11 of the EPF Act 1952 gives provident fund dues priority over most other debts even outside liquidation, reinforcing that unpaid statutory PF contributions that were deducted from an employee's salary but never deposited remain a first charge recoverable from the employer's assets.

During the corporate insolvency resolution process itself, employees are treated as operational creditors for unpaid wages and can file their claim with the interim resolution professional or resolution professional in the prescribed form within the timeline set by public announcement.

Employees who do not file their claim within the process may lose the ability to recover dues through the resolution plan, since claims not submitted in time are typically not factored into the plan approved by the committee of creditors and the adjudicating authority.

What to do next: 1) Check the public announcement of the corporate insolvency resolution process for the claim filing deadline; 2) File your claim for unpaid wages and dues with the resolution professional in the prescribed form as a workman or employee; 3) Separately verify your provident fund contribution and deposit status with the EPFO, since these dues are excluded from the liquidation estate; 4) Consult an insolvency or labour lawyer if your claim is rejected or under-valued by the resolution professional.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — most remedies under Insolvency and Bankruptcy Code 2016, Section 53 carry limitation periods, and a delay you cannot explain weakens an otherwise strong case. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in this practice area.