Workman Dues of Pension, Gratuity, PF not included in liquidation Assets: NCLAT

The National Company Law Appellate Tribunal in “State Bank of India vs Moser Baer Karamchari Union & Anr” in Company Appeal (AT) (Insolvency) No. 396 of 2019 (decided on 19.08.2019) confirmed that the dues should be paid to the workers directly, and would not fall under the waterfall mechanism of distribution of assets under section 53 of IBC, 2016. Therefore, the provident fund, the pension fund and the gratuity fund do not come within the meaning of ‘Liquidation Estate’ for the purpose of distribution of assets under Section 53 IBC, 2016.

CHALLENGE:

Whether the provident fund, pension fund and gratuity fund come within the meaning of assets of the ‘Corporate Debtor’ for distribution under Section 53 of the ‘I&B Code’?

HELD:

The Appellate Tribunal while dismissing an appeal filed by SBI (financial creditors) of Moser Baer India ltd. has upheld the view taken by NCLT Principal Bench (Delhi), that provident fund, pension fund and gratuity fund dues are not treated as a part of Liquidation Estate and will not fall under the waterfall mechanism of distribution of assets under section 53 of IBC.

The CIRP (Corporate Insolvency Resolution Process) was initiated against Moser Baer after an application filed by one of the financial creditor u/s 7 of IBC. The Committee of Creditors (COC) decided to liquidate Moser Baer India ltd by 100% voting share.

An application was filed by the Financial Debtor in NCLT for excluding the dues owed to them towards ‘Provident Fund’, ‘Pension Fund’ and Gratuity Trust Fund’ from the waterfall mechanism envisaged under Section 53 of the IBC and pay them the ‘Provident Fund Dues’, ‘Pension Fund Dues’ and ‘Gratuity Fund Dues’ as these will not constitute part of the liquidation estate.

The liquidator took stand that explanation of section 53 of IBC, “workmen dues” shall have the same meaning as that assigned under section 326 of the Companies Act, 2013 but the NCLT held that sub-section (4) (a) (iii) of Section 36, it is clear that all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund, shall not be included in the liquidation estate

assets and cannot be used for recovery in the liquidation.

The bench further observed that the workmen’s dues as mentioned in section 326 (1) (a) is not confined to a period like twenty-four months preceding the liquidation commencement date and, therefore, the Appellant for the purpose of determining the workmen’s dues as mentioned in section 53(1)(b), cannot derive any advantage of any Explanation (iv) of Section 326 of the Companies Act, 2013. Therefore, the provident fund, the pension fund and the gratuity fund do not come within the meaning of ‘Liquidation Estate’ for the purpose of distribution of assets under Section 53 IBC, 2016.