The Supreme Court of India, in an order dated 30 October 2025, issued notice on two critical questions concerning the intersection of insolvency law and labour rights — whether the Insolvency and Bankruptcy Code, 2016 overrides the Industrial Disputes Act, 1947, and the legality of layoffs carried out during insolvency proceedings. A Bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan framed the issues for adjudication in the Unitech Machines matter.
Background
The case arose from a challenge by workers of Unitech Machines who were laid off during the pendency of insolvency proceedings under the IBC. The workers contended that the insolvency resolution professional and the corporate debtor could not circumvent the protections available under the Industrial Disputes Act, 1947, including the requirement of prior government approval for layoffs and retrenchment in establishments employing over one hundred workers.
The IBC, enacted in 2016, introduced a comprehensive insolvency resolution framework that includes a moratorium under Section 14, restricting certain actions against the corporate debtor during the insolvency process. Section 238 of the IBC provides that the Code shall have effect notwithstanding anything inconsistent in any other law. The tension between this overriding provision and the protective framework of the Industrial Disputes Act has remained an area of significant uncertainty, particularly regarding the treatment of workers during the insolvency resolution process.
The Industrial Disputes Act, 1947 mandates specific procedural requirements for layoffs and retrenchment, including notice periods, compensation obligations, and — for larger establishments — prior government permission. Whether these requirements survive the commencement of insolvency proceedings under the IBC was the core question.
Key Holdings
The Court framed and issued notice on the following questions:
IBC supremacy over Industrial Disputes Act: Whether Section 238 of the IBC, which gives the Code overriding effect over inconsistent provisions in other statutes, extends to the protective provisions of the Industrial Disputes Act, 1947, particularly regarding layoffs and retrenchment.
Legality of layoffs during CIRP: Whether a resolution professional or interim resolution professional can lawfully lay off or retrench workers of the corporate debtor during the corporate insolvency resolution process without complying with the procedural requirements of the Industrial Disputes Act.
Workers as stakeholders in CIRP: The Court indicated that the matter raises broader questions about the treatment of workers as stakeholders in the insolvency resolution process and the adequacy of existing safeguards under the IBC for protecting employment interests.
Implications for Practitioners
Although this matter is at the notice stage and final adjudication is pending, the framing of issues itself signals the Supreme Court's intent to address a critical gap in the IBC framework. Insolvency practitioners, labour law advocates, and trade union counsel should closely monitor this case.
For resolution professionals managing ongoing CIRPs, the issuance of notice introduces an element of caution regarding workforce restructuring decisions. Until the Court rules definitively, resolution professionals would be prudent to comply with Industrial Disputes Act procedures when contemplating layoffs, rather than relying solely on the IBC's overriding provision.
Labour law practitioners advising workers in insolvency-affected companies should note that the framing of the third question — regarding workers as stakeholders — could potentially expand the participatory rights of employees in the CIRP process. If the Court rules that Industrial Disputes Act protections survive during insolvency, it would fundamentally alter how workforce matters are handled in resolution plans and liquidation proceedings.