Provident Fund, Pension Fund and Gratuity Fund do not fall within the ambit of ‘liquidation estate’: NCLAT
An order of liquidation was passed against Moser Baer by the Adjudicating Authority (National Company Law Tribunal), (NCLT) New Delhi.The Liquidator categorically denied the payment of the gratuity fund, the provident fund and the pension fund preferentially and included the same for the payments under the waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016...
An order of liquidation was passed against Moser Baer by the Adjudicating Authority (National Company Law Tribunal), (NCLT) New Delhi.
The Liquidator categorically denied the payment of the gratuity fund, the provident fund and the pension fund preferentially and included the same for the payments under the waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016 (I&B Code).
The Moser Baer Karamchari Union appealed before the NCLT that directions be issued to the Liquidator to exclude the amount due to them towards Provident Fund, Pension Fund and Gratuity Trust Fund from the waterfall mechanism envisaged under Section 53 of the I&B Code and pay them the same as these will not constitute part of the liquidation estate.
The NCLT held that Provident Fund Dues, Pension Fund Dues and Gratuity Trust Dues cannot form part of Section 53 of the I&B Code. The said order was challenged by State of India who is a secured creditor in this case.
The question for consideration before National Company Law Appellate Tribunal (NCLAT) was 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.
The counsel on behalf of the Resolution Professional submitted that according to Section 36(4)(a)(iii) of the I&B Code, all sums due to any workman or employee from the Provident Fund, the Pension Fund and the Gratuity Fund are excluded from the liquidation estate.
The appellate tribunal held that the appellant cannot derive the meaning of “workmen’s dues” as assigned to it in Section 326 of the Companies Act, 2013 which deals with “overriding preferential payments.”
The NCLAT further held that there is a difference between the distribution of assets and priority of workmen’s dues as mentioned under Section 53(1) (b) of the I&B Code and Section 326(1) (a) of the Companies Act, 2013. While applying provisions of 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 provident fund, pension fund and the gratuity fund kept aside and protected under Section 36(4) (iii).
The NCLAT upholding the order of NCLT concluded that the aforesaid funds i.e., Provident Fund, Pension Fund and Gratuity Fund do not fall within the ambit of ‘liquidation estate’ for the purpose of distribution of assets.