Pension, Gratuity, PF Dues Not Included in Liquidation of Assets: NCLT

The New Delhi bench of National Company Law Tribunal (NCLT) has ruled that dues of provident fund, pension and gratuity do not form part of liquidation estate of corporate debtor and cannot be included in the assets to be liquidated for settling claims of creditors as per Section 53 of the Insolvency and Bankruptcy Code (IBC).

The ruling was given in an application filed by workmen seeking release of their dues of PF, pension and gratuity from the "waterfall mechanism" -- the scheme for distribution of proceeds from the liquidation of assets of the corporate debtor in the preferential order mentioned in Section 53 of the IBC.

The Official Liquidator took the stand that dues of PF, pension and gratuity will not come under the ambit of "workmen dues" under Section 53. As per Explanation II to Section 53, "workmen dues" have the same meaning as assigned in Section 326 of the Companies Act 2013, which does not mention dues of PF, pension and gratuity, said the liquidator.

In this backdrop, the workmen approached the NCLT through advocates Swarnendu Chatterjee, Dinkar Singh, Itisha Gulati and Pankaj Agarwal. The NCLT said there was a "basic flaw" in the reasoning of the Official Liquidator. It said that under Section 36(4) (a) (III), the expression 'liquidation estate' has been defined and it is clarified that all sums due to any workman or employee from the provident fund, pension fund and gratuity fund, were not included in the expression "liquidation estate assets".

"Once the sum due to any workman or employee from the provident fund, pension fund and gratuity fund are not constitute a part of the liquidation estate, we fail to understand as to how Section 53 could be invoked along with its explanation. According to Section 53, the proceeds from the sale of the liquidation assets are to be distributed in the manner specified therein. Therefore, the aforesaid amount of the workmen dues cannot be a part of liquidation estate assets", said the Tribunal.

The bench of President M M Kumar and Technical Member S K also made reference to a similar ruling by Mumbai bench. The Mumbai bench had ruled that since Section 36(4)(iii) has excluded the PF dues of the workmen from the liquidation estate assets treating it as an asset of the workmen lying with the corporate debtor, Section 53 is not applicable to say that these dues fall within the ambit of liquidation estate.

Based on this, the New Delhi bench observed that the liquidator has taken a "perverse view by unnecessarily referring to explanation II of Section 53 and Section 326 of the Companies Act". 

The application was allowed and the Liquidator was directed to consider the claim of workmen afresh.