2018 (7) TMI 2362 - AT - IBC

Retired Employees' Gratuity Rights Protected; Gratuity Trust Fund Not for Creditor Payments Under I&B Code Section 53

Somesh Bagchi & Ors. Versus Nicco Corporation Ltd., through Liquidator

The NCLAT addressed the appeal by retired employees of a corporate debtor under liquidation, focusing on whether the Gratuity Trust Fund could be used to ... Paying off creditors as per Section 53 of the I&B Code - waterfall mechanism - gratuity of the employees can be used for payment of dues of Creditors in terms of Section 53 of the I&B Code or not - HELD THAT:- The gratuity amount of the employees/workmen lying in the ‘Gratuity Trust Fund’ has not been treated as asset of the Corporate Debtor. The details relating to the Fund have been shown but we find that there is a shortage of Rs.5.70 Crore in the said Fund. How such shortage in Gratuity Trust Fund has occurred and who is to make good of such amount and the competent authority, who is to ensure that the amount is paid to the ex-employees/workmen/officers of the Corporate Debtor to the extent they are entitled as per their share and law, could not be decided by the Adjudicating Authority or this Appellate Tribunal in the Company Petition or in this appeal. Any decision of the Adjudicating Authority relating to the ‘Gratuity Trust Fund’ or observation made in the impugned order dated 8th March, 2018 should be treated as mere observation not binding on the Competent Authority or any Court of Law. In view of the fact that the ‘Gratuity Trust Fund’ has not been treated as asset of the Corporate Debtor, we leave other questions open for determination by appropriate authority/ a court of competent jurisdiction. Conclusion - Taking into consideration that the Corporate Debtor is undergoing liquidation and the creditors are entitled for their share in terms of Section 53 including wages, salaries of the employees, but the employees who are also entitle to withdraw their gratuity amount from the Fund, the Appellants or any other employee or other association are allowed to move before appropriate authority or a court of competent jurisdiction who may take care of their grievances. Appeal disposed off. The National Company Law Appellate Tribunal in this case considered the appeal filed by retired employees of Nicco Corporation Limited, a Corporate Debtor undergoing liquidation under the Insolvency and Bankruptcy Code, 2016. The main issue was whether the gratuity of the employees, held in the Gratuity Trust Fund, could be used to pay off creditors as per Section 53 of the I&B Code.The Appellants argued that the gratuity belonging to the employees/workers could not be disbursed to creditors and that the Liquidator was deviating from this principle. The Liquidator, Mr. Vinod Kothari, contended that the Gratuity Trust Fund was not considered an asset of the Corporate Debtor and had not been used to pay any creditors. The Liquidator provided details of the fund and stated that there was a shortage of Rs.5.70 Crore in the fund, but did not clarify how this shortage occurred or who was responsible for making up the deficit.The Tribunal appreciated the Liquidator's stance that the Gratuity Trust Fund was not treated as a Corporate Debtor asset but noted the fund's shortage. The Tribunal held that decisions or observations on the Gratuity Trust Fund in previous orders were not binding and left the matter open for determination by the appropriate authority or court. The Tribunal emphasized that while creditors were entitled to their share under Section 53, employees also had the right to withdraw their gratuity. Therefore, the Tribunal allowed employees to address their grievances before the competent authority or court. The Tribunal disposed of the appeal and related applications, stating that the issue of the Gratuity Trust Fund required further adjudication.In conclusion, the Tribunal recognized the importance of protecting employees' gratuity rights during the liquidation process and emphasized the need for a proper resolution of the Gratuity Trust Fund issue by the competent authority or court.