Provident fund and gratuity dues stay outside liquidation estate, with statutory priority and attachments upheld against competing creditor claims.

Provident fund, pension fund and gratuity fund dues payable to employees are excluded from the liquidation estate under the Insolvency and Bankruptcy Code and are treated as assets belonging to workmen or employees, not as distributable liquidation assets. Section 53 cannot be used to subordinate these dues to other claims. The Employees' Provident Funds and Miscellaneous Provisions Act also gives provident fund dues statutory priority and treats them as a first charge on the establishment's assets. On that basis, attachments made by provident fund authorities were not invalid merely because the assets were otherwise charged to secured creditors or because liquidation had commenced; the attachments were liable to be vacated and the liquidator was to pay those dues in priority.

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Issues: Whether provident fund, pension fund and gratuity fund dues payable to employees of the corporate debtor form part of the liquidation estate under the Insolvency and Bankruptcy Code, 2016, and whether attachments made by the provident fund authorities on the corporate debtor's assets could be vacated.

Analysis: Section 36 of the Insolvency and Bankruptcy Code, 2016 forms the liquidation estate but expressly excludes from it all sums due to workmen or employees from the provident fund, pension fund and gratuity fund under section 36(4)(a)(iii). Those dues are treated as assets belonging to the workmen and not as assets available for distribution under the liquidation waterfall. The Code therefore does not permit such dues to be absorbed into the liquidation estate, nor can section 53 be invoked to subordinate them to other claims. The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 also confers statutory priority on provident fund dues and treats them as a first charge on the establishment's assets. On that basis, the attachments made by the provident fund authorities could not be treated as invalid merely because the assets were otherwise charged in favour of secured creditors or because liquidation had commenced.

Conclusion: Provident fund, pension fund and gratuity fund dues do not form part of the liquidation estate, and the attachments were liable to be vacated with a direction that the liquidator pay those dues in priority before distribution of the remaining liquidation assets.

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