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Issues: Whether gratuity dues of employees, where no separate gratuity fund had been maintained by the corporate debtor, could be directed to be provided for and paid by the liquidator, or whether such dues stood excluded from the liquidation estate and outside the liquidation distribution framework.
Analysis: Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code, 2016 excludes sums due to workmen or employees from the provident fund, pension fund and gratuity fund from the liquidation estate. The liquidation estate under Section 36 is the pool of assets to be held by the liquidator for the benefit of creditors, and assets outside that estate cannot be appropriated for distribution under Section 53. The gratuity entitlement under Section 4(1) of the Payment of Gratuity Act, 1972 depends on eligibility, but the absence of a separately maintained gratuity fund does not enlarge the liquidator's powers to create a liability out of non-estate assets. The statutory scheme and prior binding reasoning relied upon in the order show that gratuity, like provident fund and pension fund, is protected from liquidation distribution and cannot be treated as part of the estate merely because no separate fund was maintained.
Conclusion: The direction requiring the liquidator to make provision for payment of gratuity was unsustainable and was set aside.
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