Appellate Tribunal: Gratuity not part of liquidation estate

The Appellate Tribunal allowed the appeal, setting aside the direction for the Liquidator to pay gratuity without a separate fund. It concluded that gratuity dues are not part of the liquidation estate under Section 36(4)(a)(iii) of the IBC. The Tribunal emphasized that the Liquidator cannot deal with assets not part of the estate, giving priority to gratuity payment over other claims. The decision highlighted that gratuity funds are distinct from the liquidation estate, as per legal precedents and the Payment of Gratuity Act, 1972.

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Issues Involved:
1. Whether the Liquidator is obligated to pay gratuity to employees despite the absence of a separate gratuity fund.
2. Whether gratuity dues should be treated as part of the liquidation estate.
3. Applicability of Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code (IBC), 2016 in relation to gratuity dues.
4. Priority of gratuity payment over other creditors under the waterfall mechanism in Section 53 of the IBC.
5. Legal precedents and statutory provisions relevant to the payment of gratuity.

Issue-wise Detailed Analysis:

1. Obligation of the Liquidator to Pay Gratuity:
The Adjudicating Authority directed the Liquidator to pay gratuity to employees as per the Payment of Gratuity Act, 1972, despite the Corporate Debtor not maintaining a separate gratuity fund. The Liquidator was instructed to make necessary arrangements for the payment of gratuity according to the eligibility of the employees. The Liquidator contended that since the Corporate Debtor never maintained a separate gratuity fund, gratuity could not be paid from the running accounts of the Corporate Debtor.

2. Gratuity Dues as Part of the Liquidation Estate:
The Adjudicating Authority rejected the Liquidator's contention that payment of gratuity cannot be treated as part of the liquidation estate. Section 36(4)(a)(iii) of the IBC excludes gratuity dues from the liquidation estate assets, treating them as assets of the employees lying with the Corporate Debtor. Therefore, gratuity dues should not be treated at par with other creditors' claims.

3. Applicability of Section 36(4)(a)(iii) of the IBC:
Section 36(4)(a)(iii) of the IBC specifically excludes sums due to any workman or employee from the provident fund, pension fund, and gratuity fund from the liquidation estate. This statutory provision mandates that these funds cannot be utilized, attached, or distributed by the Liquidator to satisfy the claims of other creditors.

4. Priority of Gratuity Payment:
The Applicant argued that under Section 36(4)(a)(iii) of the IBC, gratuity dues should be paid in priority to any payment made under the waterfall mechanism in Section 53 of the IBC. The Adjudicating Authority supported this view, emphasizing that the Liquidator must arrange for the payment of gratuity to eligible employees, giving it priority over other claims.

5. Legal Precedents and Statutory Provisions:
The judgment referenced the case of State Bank of India v. Moser Baer Karamchari Union and Another, where it was held that provident fund, pension fund, and gratuity fund do not form part of the liquidation estate for the purpose of asset distribution under Section 53 of the IBC. Additionally, the Payment of Gratuity Act, 1972, mandates the payment of gratuity to employees who have rendered continuous service for not less than five years.

Conclusion:
The Appellate Tribunal concluded that the Adjudicating Authority erred in directing the Liquidator to make provision for the payment of gratuity without a separate fund being maintained by the Corporate Debtor. The appeal was allowed, and the impugned direction to the Liquidator to make provision for gratuity payment was set aside. The Tribunal emphasized that the Liquidator has no domain to deal with properties of the Corporate Debtor that are not part of the liquidation estate.

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