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Issues: Whether provident fund, pension fund and gratuity fund dues of workmen form part of the liquidation estate and can be distributed under the waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016.
Analysis: Section 36(4)(iii) of the Insolvency and Bankruptcy Code, 2016 expressly excludes sums due to workmen or employees from provident fund, pension fund and gratuity fund from the liquidation estate. Once such dues are not part of the liquidation estate, they cannot be brought within the distribution scheme under Section 53. The reference to Section 326 of the Companies Act, 2013 and the explanation to Section 53 does not alter that express exclusion. The decision of the co-equal NCLT Bench was followed, holding that these funds are assets of the workmen and not assets available for liquidation distribution.
Conclusion: Provident fund, pension fund and gratuity fund dues are excluded from the liquidation estate and cannot be subjected to the waterfall mechanism under Section 53. The application was therefore allowed in favour of the workmen.
Ratio Decidendi: Amounts due towards provident fund, pension fund and gratuity fund of workmen are statutorily excluded from the liquidation estate and are not available for distribution under the waterfall mechanism in insolvency liquidation.
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