National Company Law Appellate Tribunal, Delhi: In a batch of appeals filed challenging order dated 22-06-2021 passed by the National Company Law Tribunal (NCLT), Mumbai approving the Resolution Plan submitted by ‘Jalan Fritesch Consortium’ with respect to the Corporate Debtor – ‘Jet Airways (India) Limited’ on various grounds primarily being non-payment of full provident fund, gratuity, leave encashment etc to the employees and workmen who are rightly entitled to it, a Division Bench of Ashok Bhushan J. (Chairperson) and Barun Mitra J. (Technical Member) held that non-payment of full provident fund amount to the workmen and employees and the gratuity payment till the insolvency commencement date amounts to noncompliance of provisions of Section 30(2)(e) of Insolvency and Bankruptcy Code, 2016 (IBC) finding no other parts of the resolution plan to be infirm in any manner. The Court further directed the Successful Resolution Applicant to make pending payments of provident fund and gratuity to the workmen and the employees.

The Court noted that Section 36(4) IBC contains an injunction “the following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation”. A plain reading of the above provision indicate that what is excluded from the liquidation estate are sums due to any workman or employee from the provident fund, pension fund and gratuity fund.

Thus, sums due to any workman from the above funds are excluded from the liquidation estate. The legislative intent is clear that any sums due to any workman from aforesaid fund are excluded and cannot be used for recovery in the liquidation. The object is that sums due to any workman and employee from the aforesaid funds should not be used for recovery in liquidation for dues of other creditors since those dues are exclusive to workmen and employees.

In State Bank of India v. Moser Baer Karamchari Union, 2019 SCC OnLine NCLAT 447, the Tribunal approved the decision of the Adjudicating Authority by which the Adjudicating Authority directed that the provident fund, pension fund and gratuity fund do not come within the meaning of liquidation estate.

Further reliance was placed on Tourism Finance Corporation of India Ltd. v. Rainbow Papers Ltd., 2019 SCC OnLine NCLAT 910, wherein the Tribunal held that no provision of the Employees Provident Funds and Miscellaneous Provision Act, 1952 is in conflict with the provisions of I&B Code and thus directed to pay the full amount of provident fund by the Successful Resolution Applicant.

In Savan Godiwala v. Apalla Siva Kumar, 2020 SCC OnLine NCLAT 191, it was held that in a case, where no fund is created by a company, in violation of the statutory provision of Section 4 of Payment of Gratuity Act, 1972, in that situation also, the Liquidator cannot be directed to make the payment of gratuity to the employees because the Liquidator has no domain to deal with the properties of the Corporate Debtor, which are not part of the liquidation estate.

The Supreme Court in Sunil Kumar Jain v. Sundaresh Bhatt, 2019 SCC OnLine SC 2159, directed that the share of workmen dues shall be kept outside the liquidation process and the concerned workmen/employees shall have to be paid the same out of such provident fund, gratuity fund and pension fund, if any, available.

The Court noted that present is a case where resolution plan has been approved; present is not a case of liquidation. Under the provisions of 1952 Act, the Corporate Debtor is statutorily obliged to deposit the provident fund of the workmen and employees with the EPFO which has not been deposited as per the Additional Affidavit of the Resolution Professional dated 25-07-2022. Insolvency commencement date being 20-06-2019, the Corporate Debtor was obliged to deposit the contribution towards provident fund with EPFO.

The claim of provident fund till the insolvency commencement date, of the workmen and employees was to be accepted and Successful Resolution Applicant was liable to make payment of provident fund till the date of initiation of CIRP and statutory obligation of the Corporate Debtor was liable to be discharged by the Successful Resolution Applicant.

However, from the Affidavit of Resolution Professional, it is clear that Resolution Professional in the claim which has been admitted of the workmen for 24 months, the provident fund and gratuity amount was also included. The workmen have received payments with regard to provident fund and gratuity in part under the Resolution Plan subject to the liquidation value of the workmen.

Thus, workmen are entitled for issuing appropriate direction to Successful Resolution Applicant to make payment of the workmen of the provident fund and gratuity dues up to the date of insolvency commencement date less the amount already received under the Resolution Plan towards provident fund and gratuity. The Corporate Debtor having not deposited the statutory dues with the EPFO, the said statutory liability has to be discharged by the Successful Resolution Applicant.

The Court remarked that with regard to pension no materials have been brought before the Tribunal to indicate that the Corporate Debtor has any rules /provisions for payment of pension, hence, no direction with regard to pension were issued.

Thus, the Court held that the workmen and employees are entitled for payment of full amount of provident fund and gratuity till the date of commencement of the insolvency which amount is to be paid by the Successful Resolution Applicant consequent to approval of the Resolution Plan in addition to the 24 months workmen dues as the workmen are entitled to under Section 53(1)(b) of IBC.

[Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia, 2022 SCC OnLine NCLAT 418, decided on 21-10-2022]

Advocates who appeared in this case:

For Appellant: Mr. Swarnendu Chatterjee, Ms. Deepakshi Garg, Mr. Yashwardhan Singh, Advocates.

For Respondent: Mr. Malhar Zatakia, Mr. Dhiraj Kumar Totala, Ms. Aditi Bhansali, Ms. Tanya Chib and Mr. Parimal Kashyap, Advocates for RP (AZB & Partners) Mr. Raghav Chadha, Advocate.

Mr. Raunak Dhillon, Ms. Isha Malik and Ms. Niharika Shukla, Advocates for R-2.

Ms. Ritu Sobti, Ms. Priyanka Sethia, Advocates for Intervenor in I.A 1985, 1986 of 2022.

Mr. Krishnendu Datta, Sr. Advocate with Mr. Rajat Sinha, Mr. Burjis Shabir, Ms. Srishty Kaul, Advocates for SRA

*Arunima Bose, Editorial Assistant has put this report together.

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