{"id":218449,"date":"2019-08-21T13:35:40","date_gmt":"2019-08-21T08:05:40","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=218449"},"modified":"2019-08-29T16:29:33","modified_gmt":"2019-08-29T10:59:33","slug":"nclat-pf-pension-fund-and-gratuity-fund-does-not-come-within-the-meaning-of-assets-of-corporate-debtor-for-distribution-under-s-53-ibc","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2019\/08\/21\/nclat-pf-pension-fund-and-gratuity-fund-does-not-come-within-the-meaning-of-assets-of-corporate-debtor-for-distribution-under-s-53-ibc\/","title":{"rendered":"NCLAT | PF, Pension Fund and Gratuity Fund does not come within the meaning of Assets of Corporate Debtor for distribution under S. 53 IBC"},"content":{"rendered":"<p style=\"text-align: justify;\"><strong>National Company Law Appellate Tribunal (NCLAT): <\/strong>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:<\/p>\n<p style=\"text-align: justify;\"><em>\u201cWhether the Provident Fund, Pension Fund and Gratuity Fund come within the meaning of assets of \u2018Corporate Debtor\u2019 for distribution under Section 53 of the Insolvency and Bankruptcy Code, 2016?\u201d<\/em><\/p>\n<p style=\"text-align: justify;\">Following is the timeline in order to understand the issues pertaining to sections of Companies Act and Insolvency and Bankruptcy Code:<\/p>\n<p style=\"text-align: justify;\"><strong>14<sup>th<\/sup> November, 2017-<\/strong><\/p>\n<p style=\"text-align: justify;\">Pursuant to an Application under Section 7 of Insolvency and Bankruptcy Code, 2016, the \u2018Corporate Insolvency Resolution Process\u2019 was initiated against \u2018Corporate Debtor&#8217;.<\/p>\n<p style=\"text-align: justify;\"><strong>20<sup>th<\/sup> September, 2018 &#8211;<\/strong><\/p>\n<p style=\"text-align: justify;\">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.<\/p>\n<p style=\"text-align: justify;\"><strong>5<sup>th<\/sup> December, 2018 \u2013 <\/strong><\/p>\n<p style=\"text-align: justify;\">Liquidator, by email, denied payment of:<\/p>\n<p style=\"text-align: justify;\">Gratuity Fund, Provident Fund and Pension Fund preferentially and included the same for the payments under <strong>\u2018waterfall mechanism\u2019<\/strong> under Section 53 of the Insolvency and Bankruptcy Code, 2016.<\/p>\n<p style=\"text-align: justify;\"><strong>January, 2019 &#8211;<br \/>\n<\/strong><span style=\"color: #800080;\">\u2018Moser Baer Karamchari Union\u2019<\/span> prayed that \u2013<\/p>\n<p style=\"text-align: justify;\">Directions be issued to the liquidator to exclude amount due to them towards:<\/p>\n<ul style=\"text-align: justify;\">\n<li>Provident Fund, Pension Fund and Gratuity Fund from <strong>\u2018Waterfall Mechanism\u2019 <\/strong>under Section 53 of I&amp;B Code, 2016 as these will not constitute part of liquidation estate.<\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><strong>19<sup>th<\/sup> March, 2019 \u2013<\/strong><\/p>\n<p style=\"text-align: justify;\"><strong>National Company Law Tribunal, New Delhi <\/strong>held that provident fund dues, pension fund dues and gratuity dues cannot be a part of Section 53 of the I&amp;B Code. State Bank of India, a secured creditor, challenged the order in this present appeal.<\/p>\n<p style=\"text-align: justify;\"><strong>Contentions as placed by the parties:<\/strong><\/p>\n<p style=\"text-align: justify;\">The counsel on behalf of the appellant stated that, for the purpose of \u2018distribution of assets\u2019 of \u2018Corporate Debtor\u2019 under Section 52 of I&amp;B Code, 2016 \u2013 dues of employees as mentioned in sub-clause (c) of sub-section (1) includes the contribution of \u2018Provident Fund\u2019.<\/p>\n<p style=\"text-align: justify;\">To suggest the view that, \u2018workmen\u2019s dues\u2019 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 <strong>\u2018Overriding Preferential Payments\u2019 <\/strong>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 \u2018Workmen\u2019s dues\u2019.<\/p>\n<p style=\"text-align: justify;\">Reliance was also placed on Section 327 of the Companies Act, 2013 related to \u2018Preferential Payments\u2019.<\/p>\n<p style=\"text-align: justify;\">Resolution Professional\u2019s counsel submitted that Section 36(3) of I&amp;B Code, 2016 defines the components of liquidation estate and lays down what forms the liquidation estate.<\/p>\n<p style=\"text-align: justify;\">Therefore, it was submitted that, workmen have the first charge on the aforesaid funds.<\/p>\n<p style=\"text-align: justify;\">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.<\/p>\n<p style=\"text-align: justify;\">Tribunal stated that, <strong>Appellant cannot derive the meaning as assigned to it in Section 326 of the Companies Act, 2013 including the explanation below it. <\/strong><\/p>\n<p style=\"text-align: justify;\">It further added that, <strong>Section 326 of the Companies Act, 2013 provides \u2018Overriding Preferential Payments\u2019.<\/strong><\/p>\n<p style=\"text-align: justify;\">Explaining the difference between the distribution of assets and preference\/ priority of workmen\u2019s dues under Section 53(1)(b) of I&amp;B Code, 2016 and Section 326(1)(a) of the Companies Act, 2013. Applying Section 53 of the I&amp;B Code, Section 326 of the Companies Act, 2013 is relevant for the limited purpose of understanding \u2018workmen\u2019s dues\u2019 which can be more than the provident fund, pension fund and gratuity fund kept aside and protected under Section 36(4)(iii).<\/p>\n<p style=\"text-align: justify;\">Another point stated by the Tribunal was that, appellant for the purpose of determining workmen\u2019s dues under Section 53(1)(b), cannot derive any advantage of <em>Explanation (iv) <\/em>of Section 326 of Companies Act, 2013.<\/p>\n<p style=\"text-align: justify;\"><em>Provisions of I&amp;B Code have overriding effect in case of inconsistency in any other law for the time being enforced.<\/em> 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 <em>Explanation (iv) <\/em>mentioned below Section 326 of Companies Act, 2013.<\/p>\n<p style=\"text-align: justify;\">The finding of the adjudicating authority, that the aforesaid funds do not come within the meaning of \u2018liquidation estate\u2019 for the purpose of distribution of assets under Section 53, Tribunal found no ground for interference with the impugned order of 19<sup>th<\/sup> March, 2019. [State Bank of India v. Moser Baer Karamchari Union, <a href=\"http:\/\/scconline.com\/DocumentLink\/dzYve8K5\"><b>2019 SCC OnLine NCLAT 447<\/b><\/a>, decided on 19-08-2019]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>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 <\/p>\n","protected":false},"author":8808,"featured_media":153604,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,11],"tags":[37184,34532,37183,33852,37182,7011,34533,34529],"class_list":["post-218449","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-tribunals_commissions_regulatorybodies","tag-distribution-of-assets","tag-gratuity-fund","tag-liquidation-estate","tag-pension-fund","tag-preferential-payments","tag-provident-fund","tag-section-53-insolvency-and-bankruptcy-code-2016","tag-waterfall-mechanism"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.4 (Yoast SEO v26.4) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>NCLAT | PF, Pension Fund and Gratuity Fund does not come within the meaning of Assets of Corporate Debtor for distribution under S. 53 IBC | SCC Times<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2019\/08\/21\/nclat-pf-pension-fund-and-gratuity-fund-does-not-come-within-the-meaning-of-assets-of-corporate-debtor-for-distribution-under-s-53-ibc\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"NCLAT | PF, Pension Fund and Gratuity Fund does not come within the meaning of Assets of Corporate Debtor for distribution under S. 53 IBC\" \/>\n<meta property=\"og:description\" content=\"National Company Law Appellate Tribunal (NCLAT): The Bench comprising of Justice S.J. 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NCLT examines","author":"Bhumika Indulia","date":"November 25, 2020","format":false,"excerpt":"National Company Law Tribunal (NCLT):\u00a0The Coram of Dr Deepti Mukesh (Judicial Member) and Sumita Purkayastha (Technical Member), reiterated that any shortfall in gratuity payable to employees has to be made over by the Resolution Professional and payment of dues has to be paid outside the waterfall mechanism provided under Section\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"National Company Law Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":276123,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/10\/24\/non-payment-of-full-provident-fund-and-gratuity-violative-of-s-302e-ibc-nclat-directs-jet-airways-to-make-payments\/","url_meta":{"origin":218449,"position":3},"title":"Non-payment of full provident fund and gratuity violative of S. 30(2)(e) IBC; NCLAT directs Jet Airways to make payments","author":"Editor","date":"October 24, 2022","format":false,"excerpt":"\u00a0 \u00a0 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 \u2018Jalan Fritesch Consortium\u2019 with respect to the Corporate Debtor - \u2018Jet Airways (India) Limited\u2019 on various grounds\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"NCLAT","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":212419,"url":"https:\/\/www.scconline.com\/blog\/post\/2019\/03\/26\/nclt-provident-fund-dues-pension-funds-and-gratuity-fund-dues-cannot-be-recovered-under-the-waterfall-mechanism\/","url_meta":{"origin":218449,"position":4},"title":"NCLT | Provident Fund dues, Pension Funds and Gratuity Fund dues cannot be recovered under the \u2018Waterfall Mechanism\u2019","author":"Bhumika Indulia","date":"March 26, 2019","format":false,"excerpt":"National Company Law Tribunal, New Delhi: The Bench of M.M. 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