State Bank of India Vs. Moser Baer Karamchari Union & Anr. - The Adjudicating Authority having come to such finding that the aforesaid funds i.e., the provident fund, the pension fund and the gratuity fund do not come within the meaning of ‘liquidation estate’ for the purpose of distribution of assets under Section 53, we find no ground to interfere with the impugned order dated 19th March, 2019.

 NCLAT (2019.08.19) in State Bank of India Vs. Moser Baer Karamchari Union & Anr. [Company Appeal (AT) (Insolvency) No. 396 of 2019] held that; 

• The Adjudicating Authority having come to such finding that the aforesaid funds i.e., the provident fund, the pension fund and the gratuity fund do not come within the meaning of ‘liquidation estate’ for the purpose of distribution of assets under Section 53, we find no ground to interfere with the impugned order dated 19th March, 2019.

 

Excerpts of the order;

On 14th November, 2017, pursuant to an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code” for short), the ‘Corporate Insolvency Resolution Process’ was initiated against the ‘Corporate Debtor’, wherein finally on 20th September, 2018, the order of liquidation was passed by the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi, and the workmen stood discharged under Section 33(7) of the ‘I&B Code’.

 

# 2. According to the Liquidator, by e-mail dated 5th December, 2018, he 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 ‘I&B Code’.

 

# 4. The Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi, by impugned order dated 19th March, 2019, allowed the CA No. 19(PB) / 2019 and held that the ‘Provident Fund Dues’, ‘Pension Fund Dues’ and ‘Gratuity Fund Dues’ cannot be part of Section 53 of the ‘I&B Code’. The ‘State Bank of India’, a ‘Secured Creditor’, has challenged the order in this appeal.

 

# 11. The question arises for consideration in this appeal is 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’.

 

# 13. From sub-section (4) (a) (iii) of Section 36, it is clear that all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund, shall not be included in the liquidation estate assets and cannot be used for recovery in the liquidation.

 

# 15. From sub-section (1) of Section 53, it is clear that the proceeds from the sale of the liquidation assets of the ‘Corporate Debtor’, the distribution is to be made in order of priority and within such period and in such manner as provided thereunder.

 

# 16. In terms of sub-section (4) (a) (iii) of Section 36, as all sums due to any workman or employees from the provident fund, the pension fund and the gratuity fund, do not form part of the liquidation estate/ liquidation assets of the ‘Corporate Debtor’, the question of distribution of the provident fund or the pension fund or the gratuity fund in order of priority and within such period as prescribed under Section 53(1), does not arise.

 

# 20. 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.

 

# 21. 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).

 

# 22. 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.

 

# 23. This apart, as the provisions of the ‘I&B Code’ have overriding effect in case of consistency in any other law for the time being enforced, we hold that Section 53(1) (b) read with Section 36(4) will have overriding effect on Section 326(1) (a), including the Explanation (iv) mentioned below Section 326 of the Companies Act, 2013.

 

# 24. Once the liquidation estate/ assets of the ‘Corporate Debtor’ under Section 36(1) read with Section 36 (3), do not include all sum due to any workman and employees from the provident fund, the pension fund and the gratuity fund, for the purpose of distribution of assets under Section 53, the provident fund, the pension fund and the gratuity fund cannot be included.

# 25. The Adjudicating Authority having come to such finding that the aforesaid funds i.e., the provident fund, the pension fund and the gratuity fund do not come within the meaning of ‘liquidation estate’ for the purpose of distribution of assets under Section 53, we find no ground to interfere with the impugned order dated 19th March, 2019.

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