Employee Gets Justice Despite Employer’s Insolvency; Karnataka HC Orders Payment of Dues

In a significant judgment protecting employee rights, the Karnataka High Court has ruled in favour of a former customer service assistant, Rao, directing that he be paid ₹13 lakh with interest, even though his employer had subsequently gone insolvent.
Rao, who joined the company in 2000 and was confirmed after a six-month probation, was dismissed in August 2008 following allegations of misconduct. He challenged the termination before the Central Government Administrative Tribunal-cum-Labour Court, arguing that the disciplinary action violated the principles of natural justice and that no evidence of misconduct had been presented.
In January 2017, the Tribunal agreed with Rao, declaring the dismissal unfair and illegal. The company was ordered to reinstate him with 50 per cent back wages, continuity of service and related benefits.
However, the employer appealed the decision. During the pendency of that appeal, the court issued an interim order in April 2017, directing the company to deposit ₹13 lakh with the court. Later, in November 2017, another order directed that Rao be paid 30 per cent of his last drawn salary, including arrears from the date of the interim order.
While the case awaited final adjudication, the employer entered liquidation. The Official Liquidator’s counsel argued that the ₹13 lakh deposit formed part of the liquidation estate and could not be disbursed until proceedings concluded.
Rao challenged this stance, filing a writ petition before the Karnataka High Court, which in September 2025 dismissed the Liquidator’s objection. The Court observed that Rao’s entitlement to back wages had been recognised before the initiation of liquidation, and therefore the funds could not be withheld.
The Bench held that “the employee’s right to receive back wages had crystallised through a judicial order in 2017, much before insolvency proceedings began,” and directed that the ₹13 lakh be released to Rao with applicable interest immediately.

Legal Significance
The verdict reinforces that employees’ adjudicated dues take precedence over subsequent insolvency proceedings when the right to such dues is established prior to liquidation. Legal experts note that this ruling strengthens worker protections in cases involving corporate insolvency or restructuring.

Key Takeaways

Dismissal declared illegal due to violation of natural justice.

Employee entitled to 50 % back wages and continuity of service.

Employer later went insolvent, but HC ruled employee dues must still be paid.

Court directed immediate release of ₹13 lakh plus interest to Rao.

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