2026 (4) TMI 163 - AT - IBC

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; ... Liquidation proceedings - Utilisation of corporate debtor's balance funds towards gratuity claims - Use of corporate debtor's funds for prosecution of pending arbitration. Gratuity claims - Conditional utilisation of funds - HELD THAT: - The Appellate Tribunal noted the appellant's no-objection for use of the available balance towards discharge of gratuity dues of erstwhile employees. It also recorded the liquidator's stand that the gratuity claims received were beyond time and that acceptance of such belated claims could be directed only by the Adjudicating Authority. On that basis, the Tribunal held that the amount may be utilised for gratuity only in the event the claims are accepted; otherwise, that amount must go to the appellant. [Paras 10, 13] The impugned order was modified to provide that the amount may be used for gratuity only if the erstwhile employees' claims are admitted, failing which it shall be available to the appellant. Sale notice clause - Prosecution of arbitration proceedings - HELD THAT: - On a reading of clause 6 of the sale notice, the Appellate Tribunal held that the clause governed the distribution or assignment of amounts received from the BSNL proceedings to the creditors of the corporate debtor. It did not deprive or prohibit the liquidator or the Stakeholder Consultation Committee from utilising available funds for prosecuting the pending arbitration itself. The appellant's objection to such use of funds was therefore rejected. [Paras 12, 13] The challenge to utilisation of the corporate debtor's funds for prosecuting the BSNL arbitration was rejected. Final Conclusion: The appeal was disposed of with a limited modification of the impugned order. Funds could be used towards gratuity only if the erstwhile employees' claims are admitted; otherwise, the amount must be made available to the appellant, while the liquidator's use of funds to prosecute the BSNL arbitration was upheld. 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.