IBC resolution plan limits clarified on provident fund protection, liquidation value floor, and secured creditor treatment

Provident fund and gratuity dues owed to workmen and employees remain outside the liquidation estate and must be paid in full up to the insolvency commencement date, subject to any amounts already paid under the resolution plan. CIRP-period wages qualify as insolvency resolution process costs only where the corporate debtor was run as a going concern and the relevant employees actually worked; claims beyond the retained team were not covered. The resolution plan had to satisfy the minimum liquidation value disclosed in the record for workmen and employees, and the demerger-based transfer of employees did not amount to illegal retrenchment on the material shown. Secured creditor distribution was linked to the admitted debt, not merely the security value, and GST dues did not create secured priority against the insolvency framework.

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Issues: (i) whether provident fund and gratuity dues of workmen and employees are excluded from the liquidation estate and payable in full; (ii) whether workmen and employees were entitled to CIRP-period wages as insolvency resolution process costs; (iii) whether the resolution plan violated the minimum liquidation value requirement for workmen and employees; (iv) whether the demerger and transfer of employees to AGSL contravened labour law so as to violate Section 30(2)(e); (v) whether secured financial creditors are to be computed on the basis of the value of security interest or the entire admitted debt, and whether GST dues created a secured charge in favour of the State Tax Department.

Issue (i): whether provident fund and gratuity dues of workmen and employees are excluded from the liquidation estate and payable in full.

Analysis: Section 36(4)(a)(iii) excludes sums due to workmen and employees from provident fund, pension fund and gratuity fund from the liquidation estate. The protection operates to keep such dues outside distribution under Section 53. Where the Corporate Debtor had statutory provident fund obligations and gratuity had become due before the insolvency commencement date, the unpaid balance could not be diluted by the resolution plan merely because the amounts were not part of a separately maintained internal fund.

Conclusion: The dues towards provident fund and gratuity were required to be paid in full up to the insolvency commencement date, after adjusting any amount already paid under the resolution plan.

Issue (ii): whether workmen and employees were entitled to CIRP-period wages as insolvency resolution process costs.

Analysis: CIRP costs include wages only where the resolution professional actually ran the Corporate Debtor as a going concern and the concerned workmen or employees actually worked during that period. On the facts, the Corporate Debtor had ceased airline operations and there was no material to show that the appellants, apart from the retained asset protection team, had worked during CIRP.

Conclusion: The claim for CIRP-period wages beyond the retained team was not as CIRP cost.

Issue (iii): whether the resolution plan violated the minimum liquidation value requirement for workmen and employees.

Analysis: Section 30(2)(b) requires payment of at least the higher of the liquidation value payable under Section 53 or the amount distributable under the priority waterfall. The compliance certificate and Form H reflected a minimum liquidation value for workmen and employees of about Rs.113 crores, whereas the plan originally earmarked Rs.52 crores. The undertaking in the plan that liquidation value, if not nil, would be paid to workmen and employees made the minimum statutory floor enforceable.

Conclusion: The workmen were entitled to at least Rs.113 crores as the minimum liquidation value, and the plan had to be worked out on that basis.

Issue (iv): whether the demerger and transfer of employees to AGSL contravened labour law so as to violate Section 30(2)(e).

Analysis: The demerger scheme retained 50 employees and transferred the remaining employees and workmen to AGSL with continuity of service and without treating the arrangement as termination. On the scheme terms, the transfer fell within the proviso to Section 25FF, and the record did not justify treating it as illegal retrenchment. The challenge to the plan on this ground therefore did not establish a contravention of law.

Conclusion: The demerger scheme did not invalidate the resolution plan under Section 30(2)(e) on the ground of retrenchment.

Issue (v): whether secured financial creditors are to be computed on the basis of the value of security interest or the entire admitted debt, and whether GST dues created a secured charge in favour of the State Tax Department.

Analysis: Section 53(1)(b)(ii) speaks of debts owed to a secured creditor, not merely the value of security interest. The amount payable to a secured creditor under the liquidation waterfall is therefore linked to the admitted debt, not a self-selected security valuation. As to GST dues, Section 82 of the Maharashtra Goods and Services Tax Act, 2017 itself yields to the Insolvency and Bankruptcy Code, 2016, so the State Tax Department could not claim priority or secured status on that basis.

Conclusion: The value of security interest could not replace the admitted debt for Section 53 distribution, and the State Tax Department was not entitled to secured-creditor priority on its GST claim.

Final Conclusion: The approval of the resolution plan was substantially upheld, but the plan was modified to secure full payment of unpaid provident fund and gratuity dues to eligible workmen and employees and to enhance the amount payable to workmen to the minimum liquidation value determined in the record.

Ratio Decidendi: Dues towards provident fund and gratuity that fall outside the liquidation estate cannot be extinguished by a resolution plan, and the minimum payment protection under Section 30(2)(b) must be satisfied in accordance with the liquidation value reflected in the resolution process documents.

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