Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice A.I.S Cheema, Member (Judicial) and Kanthi Narahari, Member (Technical) decided an appeal including the following question for consideration:

“Whether the Provident Fund, Pension Fund and Gratuity Fund come within the meaning of assets of ‘Corporate Debtor’ for distribution under Section 53 of the Insolvency and Bankruptcy Code, 2016?”

Following is the timeline in order to understand the issues pertaining to sections of Companies Act and Insolvency and Bankruptcy Code:

14th November, 2017-

Pursuant to an Application under Section 7 of Insolvency and Bankruptcy Code, 2016, the ‘Corporate Insolvency Resolution Process’ was initiated against ‘Corporate Debtor’.

20th September, 2018 –

National Company Law Tribunal, New Delhi passed a liquidation order stating that the workmen stood discharged under Section 33(7) of the Insolvency and Bankruptcy Code, 2016.

5th December, 2018 –

Liquidator, by email, denied payment of:

Gratuity Fund, Provident Fund and Pension Fund preferentially and included the same for the payments under ‘waterfall mechanism’ under Section 53 of the Insolvency and Bankruptcy Code, 2016.

January, 2019 –
‘Moser Baer Karamchari Union’ prayed that –

Directions be issued to the liquidator to exclude amount due to them towards:

  • Provident Fund, Pension Fund and Gratuity Fund from ‘Waterfall Mechanism’ under Section 53 of I&B Code, 2016 as these will not constitute part of liquidation estate.

19th March, 2019 –

National Company Law Tribunal, New Delhi held that provident fund dues, pension fund dues and gratuity dues cannot be a part of Section 53 of the I&B Code. State Bank of India, a secured creditor, challenged the order in this present appeal.

Contentions as placed by the parties:

The counsel on behalf of the appellant stated that, for the purpose of ‘distribution of assets’ of ‘Corporate Debtor’ under Section 52 of I&B Code, 2016 – dues of employees as mentioned in sub-clause (c) of sub-section (1) includes the contribution of ‘Provident Fund’.

To suggest the view that, ‘workmen’s dues’ shall bear the same meaning as given under Section 326 of Companies Act, 2013, appellant placed reliance on the same. Further, it also stated that explanation (iv) below Section 326 of Companies Act, 2013 relating to ‘Overriding Preferential Payments’ and it is mentioned that sums due to any workman from any of the above-stated funds maintained by the company are covered under the term ‘Workmen’s dues’.

Reliance was also placed on Section 327 of the Companies Act, 2013 related to ‘Preferential Payments’.

Resolution Professional’s counsel submitted that Section 36(3) of I&B Code, 2016 defines the components of liquidation estate and lays down what forms the liquidation estate.

Therefore, it was submitted that, workmen have the first charge on the aforesaid funds.

Thus, while concluding in consideration of the issue as was stated earlier in this appeal, Section 36 (Liquidation Estate) and Section 53 (Distribution of Assets) were mentioned for understanding the relevance with the present case.

Tribunal stated that, Appellant cannot derive the meaning as assigned to it in Section 326 of the Companies Act, 2013 including the explanation below it.

It further added that, Section 326 of the Companies Act, 2013 provides ‘Overriding Preferential Payments’.

Explaining the difference between the distribution of assets and preference/ priority of workmen’s dues under Section 53(1)(b) of I&B Code, 2016 and Section 326(1)(a) of the Companies Act, 2013. Applying Section 53 of the I&B Code, Section 326 of the Companies Act, 2013 is relevant for the limited purpose of understanding ‘workmen’s dues’ which can be more than the provident fund, pension fund and gratuity fund kept aside and protected under Section 36(4)(iii).

Another point stated by the Tribunal was that, appellant for the purpose of determining workmen’s dues under Section 53(1)(b), cannot derive any advantage of Explanation (iv) of Section 326 of Companies Act, 2013.

Provisions of I&B Code have overriding effect in case of inconsistency in any other law for the time being enforced. Therefore, it is held that Section 53(1) (b) read with Section 36 (4) will have an overriding effect on Section 326(1) (a), including the Explanation (iv) mentioned below Section 326 of Companies Act, 2013.

The finding of the adjudicating authority, that the aforesaid funds do not come within the meaning of ‘liquidation estate’ for the purpose of distribution of assets under Section 53, Tribunal found no ground for interference with the impugned order of 19th March, 2019. [State Bank of India v. Moser Baer Karamchari Union, 2019 SCC OnLine NCLAT 447, decided on 19-08-2019]

Case BriefsHigh Courts

Rajasthan High Court: The Bench of P.K. Lohra and Manoj Kumar Garg, JJ. allowed the application which was made on behalf of applicant petitioners for modification of order dated February 2018.

In the application, it was averred that while allowing the writ petition filed by petitioners, the Court had also directed the petitioners to deposit Provident Fund amount drawn by them with interest @ 6% within two months from the date of passing of order. It was further averred that subsequently endeavor was made by petitioners for seeking modification of the order and extension of the period for depositing the amount aforesaid, which was allowed by the Court and lastly the Court allowed various employees/petitioners to deposit the amount latest by 31st of August, 2018. The Counsel for the petitioners had informed the Court that petitioners had already deposited requisite PF amount with interest before 31st of August, 2018.

The Court directed the State Government to accept the same and proceed to carry out the directions of the judgment as was carried out in the case of other employees. [Shiv Singh Dulawat v. State of Rajasthan, 2019 SCC OnLine Raj 158Order dated 19-02-2019]

Case BriefsHigh Courts

Calcutta High Court: A Single Judge Bench comprising of Debangsu Basak, J. dismissed a petition filed by widow of a deceased teacher seeking directions to respondent authorities to accept her change of option from provident fund to family pension scheme.

The petitioner submitted that the deceased employee did not exercise the option of change-over during his lifetime because he had no opportunity to do so as the law relating to switchover stood settled subsequent to his death. On the other hand, the Government Pleader submitted that the option of switchover was available only to living employees, and the deceased teacher never exercised the option in his lifetime, so her widow could not be allowed to exercise such option now.

The High Court perused the record and considered submissions made by the parties. It also referred to its various earlier decisions on the same subject. The Court found that there was a divergence of opinion as to whether a widow of deceased employee should be allowed to exercise the option of switchover from contributory provident fund cum gratuity scheme to pension including family pension cum gratuity scheme? However, the Court followed the decision in Renuka Khatua v. State of W.B., 2016 SCC OnLine Cal 1442,  rendered by a Division Bench which was later in time. Furthermore, in the facts of the present case, there was nothing on record to suggest that the deceased employee opted for Revision of Pay Allowances, 1990 during his lifetime. The employees who opted for ROPA 1990 were given fresh opportunity to submit option for switchover. The Court held that in such circumstances no relief could be given to the accused. The petition was accordingly dismissed. [Bula Chakraborty v. State of W.B.,2018 SCC OnLine Cal 5951, dated 04-09-2018]

Case BriefsHigh Courts

Calcutta High Court: In the matter where 71 petitioners had filed a writ application challenging the fixation of the cut-off date of the Contributory Provident Fund Scheme on publication of the West Bengal Comprehensive Area Development Corporation Employee’s [Death cum Retirement] Benefit Regulations 2008, I.P. Mukerji, J struck down the part of regulations fixing a cut-off date and held that the petitioners will be entitled to the benefits of the impugned Regulations. However, they will have to return the entire amount of the employer’s share towards Contributory Provident Fund with interest

The Regulation which was merely an Administrative Instruction, was published on 10th December, 2008 and was made applicable with retrospective effect from 1st April, 2008 and and the benefit was extended to all whole time employees, permanent and temporary who were in the service of the Corporation on 1st April, 2008 and also to those who were appointed on and after that date. The employees, by these Regulations became entitled to pension after ten years of qualifying service.

The court observed that, “After termination of their service, the retired employees cannot sit as watchdogs on the periphery of the organization and expect that this benefit will also be extended to them in full measure”. However, the Court took note of the ratio of D.S. Nakara v. Union of India, (1983) 1 SCC 305 where it was observed that the court is entitled to read down an offending piece of legislation to make it compatible with the Constitution. Applying the above-mentioned ratio to the case at hand, the Court said that the impugned regulations treat the members of the same class differently as they make a discrimination between members of the same class i.e. retired employees. It confers benefits on those who retired between 1st April, 2008 and 10th December 2008 and leave out the rest. Hence, reading down the Regulations, the Court held that the benefits of these regulations have to be extended to the remaining petitioning retired employees also. [Rabindra Nath Munsi v. State of West Bengal, 2016 SCC OnLine Cal 2302 decided on 15.06.2016]