Rakesh Sharma Vs. Mr. Sumat Gupta, RP of M/s International Mega Food Park Ltd. - Resolution Professional cannot be directed to make payment of gratuity to the applicant as there is no gratuity fund created by the corporate debtor.

 NCLT Chandigarh (13.10.2022) in Rakesh Sharma Vs. Mr. Sumat Gupta, RP of M/s International Mega Food Park Ltd. [IA No. 300/2020, IA No. 586/20 IA No.942/2020, In CP (IB) No.174/Chd/2018] held that;

• In view of the aforementioned decision we hold that in the instant matter, the Resolution Professional cannot be directed to make payment of gratuity to the applicant as there is no gratuity fund created by the corporate debtor. 

• As regards the salary and leave encashment during the period of CIRP, the same pertains to the amounts payable to an employee for services rendered during the CIRP.

• In view of the above, the Resolution Professional is directed to make provisions for payment of salary and leave encashment after taking on record the necessary information from the applicant and as per his entitlement and modify the resolution plan to that extent with the approval of CoC.

• The Resolution Professional is further directed to report the above compliance at the time of consideration of the Resolution Plan before us. Thus, the present application is allowed and disposed of accordingly. 

• Recovery of rent from the tenant and the eviction of tenant from the property of corporate debtor is in the exclusive domain of the Civil Court and cannot be dealt with by the Adjudicating Authority under Section 60(5) of the IBC.

Excerpts of the Order;.

IA No.300/2020

In the present application, the applicant is seeking direction against Resolution Professional to release the amount due towards Gratuity, Leave Encashment and salary during the CIRP of the corporate debtor as the same does not form part of the liquidation estate of the corporate debtor. In the present matter, this Adjudicating Authority has admitted the petition i.e. CP (IB) No.174/Chd/CHD/2018 and initiated Corporate Insolvency Resolution Process(CIRP) in respect of the corporate debtor vide order dated 28.02.2019. 

# 2) The brief facts submitted by the applicant in the instant application are as follows: 

2.1 It is submitted that the applicant has worked in the corporate debtor as AGM Accounts and Finance for 7 years. The HR Department of the corporate debtor served the applicant a notice for termination of services vide email dated 19.04.2019. The applicant replied to the email of the respondent and requested full and final clearance of pending dues viz. Gratuity, Leave Encashment and pending salary. Copy of emails dated 13.05.2019, 17.05.2019 and 18.05.2019 are attached as Annexure A-2. 

2.2 It is stated that the respondent-Resolution Professional sent a reply dated 18.05.2019 to the applicant stating that only the current month salary would be dispersed and the rest of the dues would be dispersed as per available cash flow. Further, the applicant filed an application vide CA No. 411/2019 challenging his termination. The above said application was dismissed by this Adjudicating Authority on 11.12.2019 with liberty to prefer any claim with regard to any of his employment dues, in accordance with law. Pursuant to that the applicant preferred his claim vide email dated 03.01.2020. 

# 3) The respondent-Resolution Professional has filed its reply vide Diary No. 00480/01 dated 21.09.2020, whereby made the following submissions. 

3.1 It is submitted that the present application is barred by res judicata as the facts relating to emails dated 19.04.2019, 13.05.2019, 17.05.2019 and 18.05.2019 already considered before Adjudicating Authority before dismissing CA 411/2019. Though, liberty was granted to the applicant to file his claim with Resolution Professional. 

3.2 It is further submitted that the applicant has not filed any claim in Form D of Schedule to the Insolvency Regulations, 2016. As per the books of accounts of corporate debtor, there is no Gratuity fund created by the company and therefore, there are no funds available for payment of Gratuity in respect of services rendered by the applicant during the period prior to commencement of CIRP. There is no record of Leave encashment and the applicant has not furnished any details with respect to number of leaves, period of leave encashment and there is no fund created by the corporate debtor with respect to leave encashment. 

3.3 The respondent has relied on the decision of Hon’ble NCLAT in Company Appeal (AT) (Insolvency) No. 1229 of 2019 in the matter of Mr. Savan Godiwala the liquidator of Lanco Infratech Limited Versus Mr. Apalla Siva Kumar In representative capacity on behalf of 66 Ex-employees of the Corporate Debtor decided on 11.02.2020 held as under:   

• "25………………In this case, we are not concerned with determination about the entitlement of Gratuity by the employees of the Corporate Debtor' Payment of Gratuity to employees depends on their entitlement of Gratuity, subject to the fulfilment of the conditions laid down under the payment of Gratuity Act, 1972 and also on the availability of the fund in this regard. 

3.4 It is further stated that Gratuity liability, if any, cannot be part of liquidation estate since only assets can be part of liquidation estate. The respondent contends that had there been any gratuity fund of the corporate debtor as contemplated u/s 36(4)(a)(iii) of IBC or section 4A of the Payment of Gratuity Act, 1972, only then the issue of inclusion or non-inclusion in liquidation estate would arise. In this case the corporate debtor has not created a fund for payment of gratuity. 

# 4) We have heard the learned counsel for the applicant and respondent-Resolution Professional. 

# 5) In the present case, the CIRP was initiated on 28.02.2019 and the applicant was terminated on 18.05.2019 after a decision in this regard taken by the CoC, subsequently an application was moved by applicant i.e.,CA No. 411/2019 before this Bench against the said termination, and the same was dismissed with liberty to the applicant to prefer any claim with regard to his employment dues, in accordance with Law. The contention of the Respondent that the email mentioned in Para 3.1 have been considered by this Bench, is not factually correct. The fact that the applicant worked for the corporate debtor during the CIRP is not disputed by any of the parties and thus the expenses incurred on behalf of the applicant will come under the Insolvency Resolution Process cost as defined in Section 5 (13)(c) as under:

• 5(13) “ insolvency resolution process costs” means— 

• (c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern; 

# 6) The applicant has prayed for release of Rs. 4.97 Lac (1. Salary for the month of January 2019;-Rs. 0.79 lac, 2. Gratuity;- Rs. 2.12 lac, 3. Leave encashment;- Rs. 2.06 lac. That even the respondent has sent a reply to the applicant on 18.05.2019 stating that only the current month’s salary would be dispersed and the rest of the dues would be dispersed as per available cash flow. 

# 7) In the present case no fund has been created by the corporate debtor for payment of gratuity to the employees.The issue at hand is whether Gratuity is payable when no Gratuity fund is created. In this connection, a reference is made to the decision of the Hon’ble NCLAT in Mr Savan Godiwala(the liquidator of Lanco Infratech Limited) Vs. Mr. Apalla Siva Kumar [2020] ibclaw.in 191 NCLAT , wherein it is held that; Thus it is the settled position of law, that the provident fund, the pension fund and the gratuity fund, do not come within the purview of liquidation estate‘ for the purpose of distribution of assets under Section 53 of the Code. Based on this, the only inference which can be drawn is that Pension Fund, Gratuity Fund and Provident Fund can‘t be utilised, attached or distributed by the liquidator, to satisfy the claim of other creditors. Sec 36(2) of the I&B Code 2016 provides that the Liquidator shall hold the Liquidation Estate in fiduciary for the benefit of all the Creditors. The Liquidator has no domain to deal with any other property of the corporate debtor, which is not the part of the Liquidation Estate. In a case, where no fund is created by a company, in violation of the Statutory provision of the Sec 4 of the Payment of Gratuity Act, 1972, then in that situation also, the Liquidator cannot be directed to make the payment of gratuity to the employees because the Liquidator has no domain to deal with the properties of the Corporate Debtor, which are not part of the liquidation estate. ( emphasis supplied) 

8) In view of the aforementioned decision we hold that in the instant matter, the Resolution Professional cannot be directed to make payment of gratuity to the applicant as there is no gratuity fund created by the corporate debtor. As regards the salary and leave encashment during the period of CIRP, the same pertains to the amounts payable to an employee for services rendered during the CIRP. In this connection, these expenses clearly fall within the definition of insolvency resolution process cost as defined in section 5(13)(c) of the IBC, 2016. In this case,a reference is made to the decision of the Hon'ble Supreme Court in the case of Sunil Kumar Jain and others Vs. Sundaresh Bhatt and others (2022) ibclaw.in 23 SC holding that the Wages/Salaries of the Workmen/Employees for the period during CIRP can only be included in the CIRP costs if it is established that the IRP/Resolution Professional managed the operations of the Corporate Debtor as a going concern during the CIRP and that the concerned workmen/employees actually worked during the CIRP. The Resolution Professional is mandated to make provisions to meet such expenses under the code. It is also seen that In this connection a reference is made to the provision under section 30(2) of the IBC, which is extracted herein below; 

• (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan— 

• (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the [payment ] of other debts of the corporate debtor; 

In view of the above, the Resolution Professional is directed to make provisions for payment of salary and leave encashment after taking on record the necessary information from the applicant and as per his entitlement and modify the resolution plan to that extent with the approval of CoC. The Resolution Professional is further directed to report the above compliance at the time of consideration of the Resolution Plan before us. Thus, the present application is allowed and disposed of accordingly. 

IA No. 586/2020 

The present application has been filed by Resolution Professional seeking direction against respondent to pay car rental of Rs. 15,000/- per month/ per car or part thereof up to the date of delivery of the cars to the applicant for using the car for personal purposes and further direction to respondent to hand over the custody of the cars belonging to corporate debtor to the Resolution Professional in view of provisions of Section 18 (f) read with Section 23(2) and read with Section 25(2)(a) of IBC, 2016. 

# 2) The brief facts of a present application as stated by Resolution Professional are as follows: 

2.1 It is stated that the respondents are the suspended directors of the Suspended Board of Directors of the corporate debtor and the cars, registered in the name of corporate debtor, namely Toyota Innova having registration No. CH01AK0645 and Ssangyong Rexton having registration No. CH01BC3341 are in the possession of respondents and they are not returning the same despite repeated requests made in this regard. 

2.2 It is submitted that the respondents are in continuous possession of the above mentioned vehicle of 28.02.2019 i.e. the date of moratorium till date of present application. 

# 3) The respondent has filed its reply vide Diary No. 00965/2 dated 04.03.2022, whereby the following avermnents have been made: 

3.1 It is submitted that the Toyota Innova having registration No. CH01AK0645 has already been handed over to the applicant-Resolution Professional and Ssangyong Rexton having registration No. CH01BC3341 is with suspended director of the company namely Mr. Sukhinder Singh and he has been performing various duties of a director and he has also been drawing salary from the company and the respondents are not liable to return the said vehicle to the company. Further, it is stated that the vehicle in question was not in a working condition and till date it is not in working condition and the respondent has never objected to the Resolution Professional to take possession vehicle in possession however the same is not taken due to non-working condition. 

3.2 It is further submitted that the present application is not maintainable as recovery of rent, eviction of tenants are outside the domain of this Adjudicating Authority. For the above, reliance has been made on the decision of Hon’ble NCLT Mumbai Bench in case titled as “Asset Reconstruction Company (India) Limited V. Precision Fasteners Limited bearing CP(IB) No. 1339/NCLT/MB/2017 and further reliance has been made on the decision taken by Hon’ble Supreme Court in the case of Embassy Property Developments Private Limited V. State of karnataka and Others reported as 2019 SCC.OnLine SC1542 3.3 It is submitted that in the matter of K.L. Jute Products Private Limited V. Tirupti Jute Industries Limited and Others (Company Appeal (AT) (INS) No. 277 of 2019, where the Hon’ble NCLAT held as follows:

•  “Insofar as, the eviction of 2nd respondent is concerned to pass an order of eviction and it is for on ‘Aggrieved party’ to move the appropriate forum for redressal of its grievances in accordance with Law…” 

It is further averred that the Hon’ble NCLAT in the above matter held that recovery of rent from the tenant and the eviction of tenant from the property of corporate debtor is in the exclusive domain of the Civil Court and cannot be dealt with by the Adjudicating Authority under Section 60(5) of the IBC. 

# 4) We have heard the learned counsels for the parties and perused the records. 

# 5) In the instant matter, the corporate debtor’s ownership of the two vehicles mentioned in the application is not under dispute. In this context, the duties of Interim Resolution Professional as outlined in the provisions under Section 18 (f) are extracted below: 

• 18. The interim resolution professional shall perform the following duties, namely:— 

• (f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including— 

• (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; 

• (ii) assets that may or may not be in possession of the corporate debtor ; 

• (iii) tangible assets, whether movable or immovable; 

• (iv) intangible assets including intellectual property; 

• (v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies; 

• (vi) assets subject to the determination of ownership by a court or authority; (Emphasis Supplied) 

# 6) Section 25(1) & (2) (a), extracted below, also mandates the Resolution Professional as below: 

• Section 25: Duties of resolution professional. 

• (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. 

• (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:— (a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor; 

# 7) Under the provisions of the Code, the Resolution Professional is clearly mandated to take possession and to preserve and protect the assets of the corporate debtor. In the present case, the two vehicles should have been in the custody of the Resolution Professional right after the initiation of the CIRP. Furthermore, the respondent’s reliance on the decision of the Hon’ble Supreme Court in the case of Embassy Property Developments Private Limited (supra) does not further his case. For the sake of clarity, the relevant part of the said decision is extracted below:

•  " If NCLT has been conferred with jurisdiction to decide all types of claims to property, of the corporate debtor, Section 18(F)(vi) would not have made the task of the interim resolution professional in taking control and custody of an asset over which the corporate debtor has ownership rights, subject to the determination of ownership by a court or other authority…Section 25(1) and 25(2)(b) reads as follows: 

• 25. Duties of resolution professional - 

• (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor 

• (2) For the purposes of Sub-section (1), the resolution professional shallundertake the following actions: (a)... (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial and arbitration proceedings. 

This shows that wherever the corporate debtor has to exercise rights in judicial, quasi-judicial proceedings, the resolution professional cannot short-circuit the same and bring a claim before NCLT taking advantage of Section 60(5)". A perusal of the abovementioned extract clarifies that only with respect to those properties on which the corporate debtor has to “exercise rights in judicial and quasi-judicial proceedings”, the Resolution Professional cannot bring a claim before the NCLT. This situation however, does not apply to the present case as there is no dispute over the ownership of the vehicles in question and hence, the respondent's reliance on the aforementioned decisions of the Hon’ble Supreme Court is clearly misplaced. Therefore, the respondent is directed to handover the possession of above mentioned vehicles to the applicant-resolution professional within 15 days of the date of this order. 

8) As regards the payment of car rental upto the date of delivery we are of the view that this issue does not pertain to our jurisdiction as it is not directly related to the insolvency proceedings of the corporate debtor. The aggrieved party is, however, at liberty to move an appropriate forum for redressal of its grievances in accordance with the Law. 

9) The present application i.e., IA No. 586/2020 is allowed and disposed of accordingly. 

IA No. 942/2020 

The present application has been filed by Resolution Professional seeking direction against the respondent to deliver the Refrigeration Vehicle bearing Registration no. PB22G9523 in good condition to the Respondent along with insurance, Registration documents and other tools and tackles and further direction to the Respondent to make payment of Rs.9,94,372/- as per calculation shown in Annexure A-8 with further directions to make payment of rent from 01-12-2020 up to the date of delivery of Refrigeration vehicle @ Rs.25,000/- per month plus GST (total Rs.29,500/- P.M) plus interest thereon @15% p.a. up to the date of payment. 

# 2) In the instant application, the applicant is seeking possession of the above mentioned vehicle, the proof of ownership of the refrigerated vehicle as per the website of Government of India “Vahan” is in the name of corporate debtor, the same is attached as Annexure A-3 of the application. 

# 3) The respondent has filed its reply vide Diary No. 01990/5 dated 03.03.2022, whereby the similar averments have been made as in above mentioned IA. No. 586/2020 and it is further stated that the present vehicle was not deliberately taken into possession by Resolution Professional since the same was not in working condition. The Resolution Professional has filed its rejoinder, whereby the submissions made in reply have been reiterated. 

# 4) We have heard the learned counsels for the parties and perused the records. 

# 5) In view of the observations made above in IA No. 586/2020, the respondent is directed to deliver the Refrigeration Vehicle bearing Registration no. PB22G9523 to the Respondent along with insurance, Registration documents and other tools. As regards the payment of car rental/payments upto the date of delivery we hold that this issue does not pertain to our jurisdiction as it is not directly related to the insolvency proceedings of the corporate debtor. The aggrieved party is, however, at liberty to move an appropriate forum for redressal of its grievances in accordance with the Law. 

6) The present application i.e. IA No. 942/2020 is allowed and disposed of accordingly. 

 

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Sikander Singh Jamuwal Vs. Vinay Talwar Resolution Professional. - However, as no provisions of the Employees Provident Funds and Miscellaneous Provision Act, 1952’ is in conflict with any of the provisions of the ‘I&B Code’ and, on the other hand, in terms of Section 36 (4) (iii), the ‘provident fund’ and the ‘gratuity fund’ are not the assets of the ‘Corporate Debtor’

 NCLAT (11.03.2022) in Sikander Singh Jamuwal Vs. Vinay Talwar Resolution Professional. (Company Appeal(AT) (Ins)No. 483 of 2019) held that;

• However, as no provisions of the Employees Provident Funds and Miscellaneous Provision Act, 1952’ is in conflict with any of the provisions of the ‘I&B Code’ and, on the other hand, in terms of Section 36 (4) (iii), the ‘provident fund’ and the ‘gratuity fund’ are not the assets of the ‘Corporate Debtor’

Excerpts of the order;

# 1. The present appeal has been filed by the Appellant under Section 61 of the ‘Insolvency and Bankruptcy Code, 2016’ (in short ‘Code’) against the impugned order dated 02.04.2019 passed by the ‘Adjudicating Authority’ (National Company Law Tribunal), New Delhi in CA 371/C-II/ND/2018 (IB) -334(ND)/2017.

 

# 2. In order to bring clarity it is mentioned that originally as per the Appeal filed on 29th April, 2019 there were 5 (five) Appellants; but as per the order dated 19th October, 2020 Mr. Santanu, Ld. Counsel for the Appellant made the statement at Bar that Appellants No. 1, 3, 4 & 5 (names given in the memo of parties in bracket as ‘withdrawn’) have reached settlement with the Respondents and he has instruction to withdraw the Appeal. The Appeal was accordingly ‘dismissed as withdrawn’ insofar as the same relates to Appellant No.1, 3 4 & 5. Insofar as, the Appellant No.2 (Sikandar Singh Jamuwal, New Delhi) is concerned, the Appeal was heard and finally ‘reserved for judgment’ on 17th February, 2022.

 

# 3. The Appellant is an ‘ex-employee of the Respondent No.3’ who worked as ‘Supervisor’ (R&D) and he has a total outstanding dues of Rs. 12,49,702/-. It is the grievance of the employee that the employee and workman are the backbone of the Respondent No.3 Company/Corporate Debtor (CD) in CIRP who stood by Respondent No.3 by not resigning even when their rightful dues and salaries were not being paid / irregularly paid from the year 2012 which is much prior to CIRP. It is also their grievance that the ‘Resolution Plan’ has not considered the full Provident Fund (PF) dues (1,35,06,391 full dues –(minus) considered in the Resolution Plan Rs.78,00,000) ‘Provident Fund’ (PF) dues of the employees which R3 /CD in CIRP was supposed to remit to the PF Authority under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 for the default period from 1st October, 2012 to 31st March, 2018 as assessed and communicated by the Assistant Provident Fund Commissioner regional officer Noida, Ministry of Labour and Employment, Govt. of India vide its order no.15521/Noida/48763/Comp.-III dated 19th March, 2019. Apart from the fact that the Resolution Plan is discriminatory insofar as it relates to the employees. It has also been submitted that the ‘Financial Creditors’ (21.6%) have been paid much more than the ‘Operational Creditors’ (12.67%). It is also their grievance that they have not been paid the gratuity amount as required under the ‘Payment of the Gratuity Act, 1952’. In view of the above, the Appellant prays for setting aside the impugned order dated 02.04.2019 passed by the Adjudicating Authority.

 

# 4. Pursuant to issue of demand notice issued to Respondent No.3 by one of the employee of the Company i.e. Nitin Gupta and subsequently on his filing petition, the Adjudicating Authority vide its order dated 26th October, 2017 initiated the CIRP of the CD/Respondent No.3 under Section 9 of the Code. Mr. Naveen Kumar jain was appointed as the Interim Resolution Professional by the Adjudicating Authority who took charge on 18th November, 2017. The IRP was changed in the 1st ‘Committee of Creditors’ (CoC) meeting held on 22nd December, 2017 and Mr. Vinay Talwar, the Resolution Professional (RP) was confirmed by the Adjudicating Authority on 29th January, 2018 (appearing at page no.42 at para 3 of the impugned order).

 

# 5. The CD in CIRP is engaged in designing and manufacturing of customized solutions in the field of electronic/IT applications including digital solutions. The liabilities of the CD as verified by the RP is Rs.68.50 Crore. The Resolution Applicant has provided an amount of Rs.12.99 Crore towards settlement of all past dues and liabilities of the CD which includes an amount of Rs.9 crore towards ‘Secured Financial Creditors’ and Rs. 50 lac towards ‘Unsecured Financial Creditors’. The employees and workman are getting Rs.1.03 crore against the claim of Rs.8.17 crore. What is stated in the impugned order at page 45 para 5 (a) that the Resolution Application will infuse Rs.5 crore as working capital requirement of the Company out of the sale proceeds of the assets of the CD.

 

# 6. The Ld counsel for the Appellant is stated that the Resolution Applicant / R2 is in the business of manufacturing Ghee and schemed milk powder. It is one of the numerous groups of companies headed by ‘Director’ Sharad Maheshwari (appearing at page 11 of the Appeal paper book). It is also revealed from page 41 of the Reply of RP / R1 that Sharad Maheshwari has been supporting the CD since 4-5 years by providing financial facilities.

 

# 7. Pursuant to the issue of notification directing the ‘Prospective Resolution Applicant’ to submit their Resolution Plan by 25th March, 2018. The R2/Successful Resolution Applicant who is also one of the Financial Creditor of the CD submitted the Resolution Plan. The said Resolution Plan was presented in the 5th CoC meeting on 18th April, 2018 but could not be approved due to non-receipt of final approval from head office of Bank of India who is majority shareholder comprising approx. 90% of the voting power. The representative of Operational Creditor expressed their displeasure due to non – payment of gratuity and PF. Their rightful dues were not being paid. However, the revised Resolution Plan was submitted by the R2 to the RP. The revised plan was subsequently approved in the 9th meeting of the CoC of the CD held on 21st July, 2018 (page 46 of the reply of the RP). The extract from the voting on the Resolution Plan reflects the following:

“As per Schedule 8 of Resolution Plan, RA proposed to pay the dues of Rs. 2.80(as 2.25 Crores to BOI) crores before the expiry of 30 days from effective date which is as defined in the Resolution Plan and balance of Rs. 6.75 crores would be paid to Bank of India by 31.03.2019 and to the others within 9 months of the effective date. Further as Schedule 8 on the request of CoC, RA also agreed and ordered to pay 75% of the amount recovered/ realized after the effective date out of the amount outstanding from debtors as per list attached in the Schedule 10.”

 

# 8. It is also revealed from the appeal paper book at page 71 that EPF organization, Govt. of India vide order under Section 7A of the EPF and MP Act, 1952 has determined an amount of Rs.1,35,06,391/- as the dues from the CD for the period upto March, 2018 against which only Rs.78 lacs has been provisioned for in the Resolution Plan submitted by the Resolution Applicant. The Ld counsel for the Appellant has submitted that this is a misconduct on the part of R1/RP in calculating the provident fund amount. The employee has alleged that there is a disparity in releasing the percentage of payment between the dues of Financial Creditor and rightful due of employees and workmen. The plan is discriminatory and non-payment of PF dues amounts to violation of the provisions of EPF and MP Act, 1952. They have also alleged that initiation of CIRP has been filed first by the employees and workmen under Section 9 of the Code and their interest has not been taken care of in the Resolution Plan. The Resolution plan provides for unequal treatment to the employees and is violative of the principles enshrined under Article 14 of the Constitution of India. There is a large gap between the percentage of payment released to the Financial Creditor and workman. They have also challenged that how Resolution Applicant who is in totally unrelated business in dairy industry is eligible to take over highly technical and specialized field working on projects of national importance requiring expertise in the related field. They have alleged that the IRP Mr. Jain has leveled allegations in relation to extortionate transactions inter se between the R3 and sister concerned of R2 and others. They have also alleged that the Director of the Resolution Applicant is a related party and is covered by Section 29A of the Code and is disqualified for being considered as Resolution Applicant.

 

11. The Ld. Counsel for the R2 &3 has stated the followings:

a. The Appellant is the employee/Operational creditor. The Resolution Amount of Rs.12.99 Crore is more than the fair value and the liquidation value.

b. The non priority due of workman and employees were proposed at 7.5% but, however, on the request of the representative of the operational creditor was enhanced to 10% & finally to 12.67% and the Resolution Plan has been unanimously approved in the 9th meeting of the CoC where representative of the Operational creditor was present.

c. They have also stated that since the company has no separate gratuity fund so the employees are not eligible to get the gratuity however the Resolution Applicant has committed to make a payment of 20% of the gratuity claim. They have also stated that the commercial decision of the CoC is non-justiciable. Hence, the appeal needs to be dismissed.

 

# 12. The Adjudicating Authority has approved the Resolution Plan vide impugned order dated 02nd April, 2019 in terms of the approval of the CoC and has also made the following observations as depicted below:

“While we are not endorsing any specified waivers or extinguishing of claims, the Resolution Applicant shall be entitled to all such waivers as are legally permissible under law.”

 

# 13. We have carefully gone through the submissions made by the Ld counsel for the parties and the documents available on records and laid down provisions of the I& B Code, 2016, r/w the provisions of other related Acts as applicable to the case like the Employee Provident Funds and Miscellaneous Provisions Act, 1952 (EPF & MP Act), and we are having the following observations:-

a. What is very much clear from the submissions made by the Ld counsel for the parties and the documents available on record that the Resolution Plan fails to consider the payment of provident fund dues as computed by the Assistant Provident Fund Commissioner vide its order dated 19th March, 2019. The Resolution Plan approved by the Adjudicating Authority is on 02nd April, 2019. The amount so computed is Rs.1,35,06,391/- whereas the provisions has been made for Rs.78 lacs only.

 

b. Financial Creditors are being paid 21.6% whereas Operational creditors are being paid 12.67%.

 

c. Let us look at the provisions of Section 31 (1), Section 30(2), Section 36(4)(a) (iii) & Section 238 of the I& B Code, 2016. For ease of convenience the same is extracted below:

It is very much clear vide Section 30(2) (e) that the Resolution Plan does not contravene any of the provisions of the law for the time being in force. The Resolution Professional/Adjudicating Authority is to look at the compliance of the provisions of law. In this context, we have to refer to Section 17-B of the Employees Provident Funds and Miscellaneous Act, 1952 which is depicted below:

“17B. Liability in case of transfer of establishment.—Where an employer, in relation to an establishment, transfers that establishment in whole or in part, by sale, gift, lease or licence or in any other manner whatsoever, the employer and the person to whom the establishment is so transferred shall jointly and severally be liable to pay the contribution and other sums due from the employer under any provision of this Act or the Scheme or [the [Pension] Scheme or the Insurance Scheme], as the case may be, in respect of the period up to the date of such transfer: Provided that the liability of the transferee shall be limited to the value of the assets obtained by him by such transfer.]”

From the above stated provisions of the PF Act that the Resolution Applicant is also liable to pay the contribution and other sums due from the employer under any provisions of this act as the case may be in respect of the period up to the date of such transfer.

All this requires that the explicit provisions of the above said PF Act needs to be complied with. This aspect is justiciable as a duty has been casted on the Resolution Professional/Adjudicating Authority/ on this Tribunal. This is not a commercial wisdom as compliance of law is a must. The aspect of parity for payment of Finance Creditors and Operational creditors are not being looked into by this Tribunal as it is a commercial wisdom of CoC.

d. Since no provisions of the above said Act is in conflict with any of the provisions of the I& B Code, the applicability of even Section 238 of the I& B Code does not arise. PF dues are not the assets of the CD as amply made clear by the provisions of Section 36(4)(a)(iii) of the I& B Code, 2016

 

e. In this context, the following judgments are also referred to:

 

i. The judgment of this Tribunal (3 Members Bench – comprising of Hon’ble Chairperson & two Members) in C.A (AT)(Ins) No.354 of 2019, decided on 19th August, 2019 Tourism Finance Corporation of India Ltd. Vs. Rainbow Papers Ltd. & Ors. 2019 SCC Online NCLAT 910 para 44 45 & 46 given below: 

“44. However, as no provisions of the ‘Employees Provident Funds and Miscellaneous Provision Act, 1952’ is in conflict with any of the provisions of the ‘I&B Code’ and, on the other hand, in terms of Section 36 (4) (iii), the ‘provident fund’ and the ‘gratuity fund’ are not the assets of the ‘Corporate Debtor’, there being specific provisions, the application of Section 238 of the ‘I&B Code’ does not arise. 

45. Therefore, we direct the ‘Successful Resolution Applicant’- 2nd Respondent (‘Kushal Limited’) to release full provident fund and interest thereof in terms of the provisions of the ‘Employees Provident Funds and Miscellaneous Provision Act, 1952’ immediately, as it does not include as an asset of the ‘Corporate Debtor’. The impugned order dated 27th February, 2019 approving the ‘Resolution Plan’ stands modified to the extent above. The appeal preferred by ‘Regional Provident Fund Commissioner’ is allowed with aforesaid observations and directions. No costs.

46. In the result, Company Appeal (AT) (Insolvency) Nos. 354, 364 & 404 of 2019 are dismissed. Company Appeal (AT) (Insolvency) No. 1001 of 2019 is allowed. No costs.”

 

ii. The Hon’ble Apex court Judgment in State of Jharkhand and Ors. Vs. Jiterdra Kumar Srivastava and Anr. (2013) 12 SCC 210 held at para 7 & 8

“7. It is an accepted position that gratuity and pension are not the bounties. An employee earns these benefits by dint of his long, continuous, faithful and un-blemished service. Conceptually it is so lucidly described in D.S. Nakara and Ors. Vs. Union of India; (1983) 1 SCC 305 by Justice D.A. Desai, who spoke for the Bench, in his inimitable style, in the following words:

“The approach of the respondents raises a vital and none too easy of answer, question as to why pension is paid. And why was it required to be liberalised? Is the employer, which expression will include even the State, bound to pay pension? Is there any obligation on the employer to provide for the erstwhile employee even after the contract of employment has come to an end and the employee has ceased to render service? 

What is a pension? What are the goals of pension? What public interest or purpose, if any, it seeks to serve? If it does seek to serve some public purpose, is it thwarted by such artificial division of retirement pre and post a certain date? We need seek answer to these and incidental questions so as to render just justice between parties to this petition.

The antiquated notion of pension being a bounty a gratituous payment depending upon the sweet will or grace of the employer not claimable as a right and, therefore, no right to pension can be enforced through Court has been swept under the carpet by the decision of the Constitution Bench in Deoki Nandan Prasad v. State of Bihar and Ors.[1971] Su. S.C.R. 634 wherein this Court authoritatively ruled that pension is a right and the payment of it does not depend upon the discretion of the Government but is governed by the rules and a Government servant coming within those rules is entitled to claim pension. It was further held that the grant of pension does not depend upon any one’s discretion. It is only for the purpose of quantifying the amount having regard to service and other allied maters that it may be necessary for the authority to pass an order to that effect but the right to receive pension flows to the officer not because of any such order but by virtue of the rules. This view was reaffirmed in State of Punjab and Anr. V. Iqbal Singh (1976) IILLJ 377SC”.

8. It is thus hard earned benefit which accrues to an employee and is in the nature of “property”. This right to property cannot be taken away without the due process of law as per the provisions of Article 300 A of the Constitution of India.

 

f. Hence, We direct the Respondent No.2/Successful Resolution Applicant to release full provident fund dues in terms of the provisions of the Employees Provident Funds and Miscellaneous Provident Fund Act, 1952 immediately by releasing the balance amount of (Rs. 1,35,06,391 full dues – (minus) considered in the Resolution Plan Rs.78,00,000). The impugned order dated 02nd April, 2019 approving the ‘Resolution Plan’ stands modified to the extent above.

 

g. Accordingly, the appeal is disposed of with aforesaid observations and directions. The Appeal is partially allowed.

Pending applications, if any, stands disposed of. No order as to costs.

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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