Provident fund and gratuity dues must be paid in full and kept outside insolvency distribution waterfall.

Provident fund dues are treated as outside the liquidation estate and cannot be reduced through distribution under the insolvency waterfall; they must be paid in full. The same protection was applied to gratuity dues, on the basis that employee welfare amounts preserved under the applicable labour law cannot be diluted in a resolution process. A resolution plan that provides only partial payment would conflict with the statutory scheme and impair its validity. The dues were therefore required to be included and honoured in full in the resolution plan.

---

---

Issues: Whether provident fund and gratuity dues are required to be paid in full and kept outside the resolution plan and the liquidation distribution waterfall under the insolvency regime.

Analysis: The claim in question related to provident fund dues, and the governing statutory framework treated such dues as outside the liquidation estate. The prior precedent relied upon by the Court had already held that provident fund dues are not to be subjected to distribution under the waterfall mechanism under section 53 of the insolvency law and that such statutory dues must be honoured in full. The same approach was extended to gratuity dues, following the principle that amounts preserved for employees under the relevant welfare legislation cannot be diluted by the resolution process. Since payment of only a partial percentage would violate the statutory scheme and impair the validity of the resolution plan, full payment was held necessary.

Conclusion: Provident fund and gratuity dues were held payable in full and were directed to be included in the resolution plan, in favour of the appellant.

---