The New Delhi Principal Bench of the National Company Law Appellate Tribunal (NCLAT) has held that exclusion of provident fund, pension fund and gratuity fund dues from the liquidation estate under Section 36(4)(a)(iii) of the Insolvency & Bankruptcy Code, 2016 (IBC) is not contingent upon the existence of a separate or identifiable fund on the liquidation commencement date. Such dues do not form part of the liquidation estate and are not to be distributed through the waterfall mechanism under Section 53(1)(b).
The Tribunal further held that, for determining workmen’s dues for the 24 months preceding the liquidation commencement date, 1,656 days spent in litigation beyond the permissible 330-day CIRP period must be excluded, and therefore workmen’s dues for that 24-month period cannot be treated as nil. However, salary dues covered by the recovery certificate for January to March 2019 were held to remain within the liquidation framework and were not entitled to be kept outside the liquidation estate.
The NCLAT therefore dismissed SBI’s appeals and upheld the NCLT’s direction that the liquidator must pay provident fund and gratuity dues to workmen and employees in terms of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and the Payment of Gratuity Act, 1972, and that such dues shall not form part of the liquidation estate. The Tribunal partly allowed the workmen’s appeal by granting exclusion of 1,656 days spent in litigation for computing the 24-month period under Section 53(1)(b), and directed the liquidator to recompute the workmen’s dues accordingly and take consequential action.
The Division Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) observed that Section 36(4)(a)(iii) of the Insolvency & Bankruptcy Code, 2016 (IBC) is clear in excluding “all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund” from the liquidation estate, and that this exclusion is due-centric, not asset-centric. It rejected the contention that such exclusion depends on the existence of a segregated fund on the liquidation commencement date, observing that accepting that argument would defeat the statutory right of workmen and employees to receive provident fund, pension fund and gratuity, and would negate the legislative scheme under the Code. The Tribunal also reaffirmed that absence of a separate fund does not extinguish the entitlement of workmen and employees.
On the issue of the 24-month period under Section 53(1)(b) of the Insolvency & Bankruptcy Code, 2016 (IBC), the Tribunal observed that the workmen were not seeking alteration of the liquidation commencement date under Section 5(17), but only exclusion of 1,656 days lost in litigation for the limited purpose of computing the look-back period. It held that if such exclusion were not granted, the workmen’s dues for the 24 months preceding liquidation would become nil merely because the CIRP remained pending for years in litigation, which would defeat the object of Section 53(1)(b).
Referring to the decision of Arcelormittal India Pvt Ltd vs Satish Kumar Gupta [(2019) 2 SCC 1], the Tribunal held that time lost in litigation can be excluded so that statutory timelines do not prejudice stakeholders, especially workmen whose livelihood depends on the insolvency process. However, the Tribunal held that the recovery certificate for salary dues for January to March 2019 only quantified salary dues, and such dues would still fall within workmen’s dues under Section 53(1)(b); therefore, they could not be kept outside the liquidation estate.
Briefly, the case arose from the liquidation of Jet Airways after the Supreme Court, on Nov 07, 2024, held that the successful resolution applicant had failed to implement the approved resolution plan and directed liquidation under Article 142. Thereafter, the NCLT appointed a liquidator on Nov 26, 2024. During liquidation, workmen filed applications seeking: (i) exclusion of provident fund and gratuity dues from the liquidation estate under Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code, 2016; (ii) recognition of a recovery certificate for salary dues for January to March 2019 outside the liquidation estate; and (iii) exclusion of 1,656 days spent in litigation, beyond the outer CIRP period of 330 days, for computing the 24-month look-back period under Section 53(1)(b).
The NCLT held that provident fund and gratuity dues were payable outside the liquidation estate, but refused to exclude the 1,656 days and declined to keep the recovery certificate outside the liquidation estate. SBI and other financial creditors challenged the direction on provident fund and gratuity, while the workmen challenged the refusal of their other prayers.
