2025 (8) TMI 1227 - AT - IBC

Resolution Plan upheld: unpaid gratuity included in employee payout, no breach of Section 30(2) of IBC

Jadeja Ravirajsinh Juvansinh Versus Nuvoco Vistas Corporation Ltd. & Ors.

Jadeja Ravirajsinh Juvansinh Versus Nuvoco Vistas Corporation Ltd. & Ors. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether unpaid gratuity dues of employees are payable in addition to the Employee Payment Amount specified in the approved Resolution Plan, or whether gratuity is included within the Employee Payment Amount. 2. Whether an email communication by the Resolution Professional reallocating part of the Employee Payment Amount to satisfy gratuity dues is contrary to the payouts envisaged in the approved Resolution Plan and Form-H. 3. Whether the Clauses of the approved Resolution Plan (notably Clauses 13.1.2, 13.1.3 and 13.1.4) violate Section 30(2) of the Insolvency and Bankruptcy Code or other mandatory IBC requirements with respect to treatment of employee claims. 4. Whether valuation issues or liquidation value/fair value computations may be entertained for the first time in the appeal challenging approval of the Resolution Plan where Form-H records liquidation/fair value and the plan value exceeds fair value. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Interpretation of Employee Payment Amount vis-à-vis gratuity dues Legal framework: Resolution Plans must specify treatment of creditors including operational creditors and comply with IBC framework. Payment obligations in a plan are to be interpreted by reference to the language of the plan and its constituent clauses. Precedent treatment: No specific authority from higher courts was invoked in the judgment to alter the interpretive approach; the Court applied contractual and plan interpretation principles to the plan clauses and Form-H. Interpretation and reasoning: Clause 13.1.2 of the Resolution Plan expressly states that the Employee Payment Amount of INR 6,30,10,916 shall be paid 'in full and final satisfaction of all their Claims including the Employee Claim Amount and any Claims in relation to unpaid dues ... towards provident funds, pension fund or gratuity funds.' Clause 13.1.3 separately records that INR 10,51,00,841 is admitted towards provident fund and is being paid in full. Clause 13.1.4 provides a fallback that any shortfall required by law (e.g., additional provident/gratuity liability as may be crystallised by judicial pronouncement) may be met from the Total SFC Payment Amount. The plain language indicates gratuity falls within the Employee Payment Amount unless a judicially determined excess arises which would be recoverable under Clause 13.1.4 from SFC payment amount. Ratio vs. Obiter: Ratio - The Resolution Plan's express clauses govern the allocation: gratuity is included within the Employee Payment Amount unless and until an additional amount is mandated by law, in which case Clause 13.1.4 supplies the source for the shortfall. Obiter - Observations that employee payout represents 10% of admitted employee claims and that provident fund payment is separately 100% are explanatory to factual matrix. Conclusion: Gratuity dues are payable out of the Employee Payment Amount (INR 6,30,10,916) as per Clause 13.1.2; there is no standalone or additional gratuity entitlement beyond that amount under the Plan unless additional liability crystallises and triggers Clause 13.1.4. Issue 2 - Validity of RP's email reallocating Employee Payment Amount to satisfy gratuity Legal framework: Communications by the Resolution Professional implementing a Resolution Plan must conform to the approved plan's terms; plan interpretation follows the plan language and Form-H summary. Precedent treatment: The Tribunal treated the email as an explanation of implementation consistent with the Plan's clauses rather than a unilateral variation. No precedent was overruled or followed on this narrow point. Interpretation and reasoning: The RP's email states that the Employee Payout of INR 6,30,10,916 shall be utilised first to pay unpaid gratuity dues of INR 2,86,32,757 and the balance distributed pro-rata. That allocation mirrors Clause 13.1.2 which includes gratuity within Employee Payment Amount and the RP's affidavit confirming gratuity crystallised amount falls within the Employee Payment Amount. The asterisked note in Form-H relied upon by the appellant ('Employee dues do not include gratuity dues ...') is a part of Form-H compliance certificate but, when read in context, does not displace the clear language of Clause 13.1.2 and the summary in paragraph 20(D) of the adjudicating authority's order which records both the INR 6,30,10,916 employee payment and INR 10,51,00,841 provident fund payment. The email therefore implements, rather than contradicts, the plan. Ratio vs. Obiter: Ratio - Implementation email is consistent with and permitted by the Plan where the Plan itself contemplates gratuity payable from the Employee Payment Amount; such communications do not alter the Plan terms. Obiter - Characterisation of the Form-H asterisk as not displacing the Plan is explanatory. Conclusion: The RP's email reallocation is in conformity with the Resolution Plan and not contrary to payouts envisaged in the approved Plan or Form-H when construed in context. Issue 3 - Compliance of Clauses 13.1.2-13.1.4 with Section 30(2)/IBC requirements Legal framework: Section 30(2) requires a resolution plan to comply with statutory mandates of the IBC and its regulations including the treatment of creditors as provided therein; the adjudicating authority must be satisfied of compliance before approval. Precedent treatment: The Tribunal reviewed whether the appellant alleged non-compliance with Section 30(2) or other mandatory IBC provisions and found no such contention pressed substantively; the Court analysed Plan clauses on their face. Interpretation and reasoning: The Court observed that the appellant did not contend that the Plan failed to meet Section 30(2) or other specified requirements. Clauses 13.1.2-13.1.4 expressly state the treatment of employee claims, provide for full payment of provident fund separately, include gratuity within the Employee Payment Amount, and provide a mechanism to address any legally mandated excess (deduction from SFC payment). The adjudicating authority had recorded these features in its summary and approved the Plan with 100% CoC support. There was no textual or substantive inconsistency with statutory requirements apparent on the record. Ratio vs. Obiter: Ratio - Clauses are not violative of Section 30(2) where they expressly set out treatment of employee dues and provide a contingency for legally required additional payments; absence of any pleaded statutory non-compliance precludes interference. Obiter - Remarks on the Plan making payments despite liquidation value being Nil are factual observations. Conclusion: Clauses 13.1.2-13.1.4 are compliant with IBC requirements as interpreted in the judgment; no illegality or non-compliance under Section 30(2) was found to exist. Issue 4 - Permissibility of raising valuation/liquidation value objections at appeal stage Legal framework: Approval of a Resolution Plan involves consideration of value and liquidation/fair value; procedural objections as to valuation must ordinarily be raised before the Adjudicating Authority or demonstrably show non-compliance with statutory requirements to succeed on appeal. Precedent treatment: The Tribunal treated belated valuation challenges as inadmissible in the present appeal absent a challenge showing the Plan contravened statutory mandates; it relied on Form-H and the record where liquidation and fair value were recorded and the plan value exceeded fair value. Interpretation and reasoning: The Court noted Form-H recorded average liquidation value and fair value and that the Plan value exceeded fair value. The appellant's attempt to revisit valuation was not permitted at this stage where the statutory compliance and CoC approval were not alleged to be defective; valuation contention could not be entertained for the first time on appeal absent a specific statutory defect demonstrated. Ratio vs. Obiter: Ratio - Valuation objections raised for the first time on appeal, without showing statutory non-compliance or illegality in the approval process, are not maintainable. Obiter - The finding that plan value exceeds fair value is factual and explanatory. Conclusion: Valuation objections cannot be advanced at this appellate stage in the absence of a showing that the Plan violated statutory requirements; the record showed plan value exceeded fair value and liquidation value was disclosed in Form-H. OVERALL CONCLUSION Interpreting the Resolution Plan as a whole, gratuity dues are included within the Employee Payment Amount of INR 6,30,10,916; the RP's email allocation to pay crystallised gratuity first from that amount aligns with Clauses 13.1.2 and 13.1.4 and with the approved Plan and Form-H; there is no demonstrated contravention of Section 30(2) or other IBC requirements; valuation issues cannot be entertained at this stage. The impugned approval of the Resolution Plan is therefore free of illegality in the respects challenged.