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NCLAT: Workmen Dues Of Pension, Gratuity, PF Not Included In Liquidation Assets

In Company Appeal (AT) (Insolvency) No. 396 of 2019, State Bank of India Vs Moser Baer Karamchari Union & Anr., appeal was filed against the order of the NCLT wherein it was decided that the ‘Provident Fund Dues’, ‘Pension Fund Dues’ and ‘Gratuity Fund Dues’ cannot be part of the Liquidation Assets as per Section 53 of the ‘I&B Code’.

'Liquidation estate' comprises of the assets over which the Corporate Debtor has ownership rights. The Liquidator of Moser Baer took a stand that according to the explanation of section 53 of IBC, "workmen's dues" shall have the same meaning as that assigned to it under section 326 of the Companies Act, 2013 and hence, gratuity is included in the "liquidation estate assets", thus making it as an asset of the Corporate Debtor.

The NCLT Bench was of the view that the term 'liquidation estate' has been defined under section 36 of the IBC and specifically excludes these dues from the purview of recovery made under liquidation.
While referring to a judgment passed by NCLT Mumbai, the Delhi bench held that even though gratuity, pension and provident fund dues are dues payable by the Corporate Debtor, but they are essentially assets of the workmen lying with the Corporate Debtor's company and thus, the provisions of IBC cannot be made applicable to them. The NCLT also clarified that in the event of any deficiency to the funds, the liquidator has to ensure that the amounts are available, even if the Corporate Debtor has not diverted the requisite amount.

The NCLAT observed that the main bone of contention was the difference between and subsequent reliance on the term 'workman's dues' as per Section 53 of the IB Code and Section 326 of the Companies Act 2013. The NCLAT held that the ‘workmen’s dues’ is mentioned in clause (b) (i) of Section 53(1), which are the dues for the period of twenty-four months preceding the liquidation commencement date and the Appellant cannot derive the meaning as assigned to it in Section 326 of the Companies Act, 2013.

The NCLAT decided that there is a difference between the distribution of assets and preference/ 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. It has also been noticed that Section 53(1) (b) (i) which relates to distribution of assets, workmen’s dues is confined to a period of twenty- four months preceding the liquidation commencement date. While 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 provident fund, pension fund and the gratuity fund kept aside and protected under Section 36(4) (iii). On the other hand, 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 Explanation (iv) of Section 326 of the Companies Act, 2013.

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