Gratuity claims in liquidation and funding of arbitration proceedings were addressed in relation to corporate debtor funds.

Amounts held with the corporate debtor could be used to pay erstwhile employees' gratuity dues only if those claims were duly admitted in liquidation; where the claims were belated or not admitted, the balance had to be released to the appellant. The liquidator was also allowed to use the corporate debtor's funds to continue arbitration proceedings against BSNL, because the sale notice contemplated distribution of any arbitration proceeds under the insolvency framework but did not bar expenditure from the debtor's funds for prosecuting that claim. The order was modified on gratuity payment and otherwise left undisturbed on the arbitration issue.

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Issues: (i) Whether the amount lying with the corporate debtor could be used for payment of gratuity dues of erstwhile employees if such claims were admitted. (ii) Whether the liquidator could utilise the corporate debtor's funds for prosecuting the arbitration against BSNL.

Issue (i): Whether the amount lying with the corporate debtor could be used for payment of gratuity dues of erstwhile employees if such claims were admitted.

Analysis: The appellant had given no objection for utilisation of the bank balance towards gratuity dues, but the liquidator stated that the claims received were belated and had not been admitted. The entitlement to payment therefore depended on whether such gratuity claims were accepted in liquidation.

Conclusion: The amount could be applied towards gratuity only if the claims were admitted; failing admission, the amount was to be made available to the appellant.

Issue (ii): Whether the liquidator could utilise the corporate debtor's funds for prosecuting the arbitration against BSNL.

Analysis: The sale notice provided that any proceeds from the BSNL arbitration would be distributed to creditors under the insolvency framework, but that did not prohibit the liquidator or the stakeholders' consultation committee from using the corporate debtor's funds to continue the arbitration.

Conclusion: The challenge on this ground was rejected and the liquidator was permitted to use the funds for prosecuting the arbitration.

Final Conclusion: The impugned order was modified only to permit payment of gratuity if the claims were admitted, otherwise the amount was to be released to the appellant, while the refusal to restrain use of funds for the BSNL arbitration was sustained.

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