TaxTMI 
TaxTMI 
2020 (8) TMI 491
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....orporate Debtor' didn't have separate funds for payment of gratuity. The Adjudicating Authority further directed the Liquidator to provide sufficient provision for payment of Gratuity, according to the eligibility of the employees. By the impugned order, the Adjudicating Authority has rejected the contention of the Liquidator that payment of Gratuity cannot be treated as part of Liquidation Estate. Parties are represented by their original status represented in the Interim Application for the sake of convenience. 2. Brief facts of the case are as follows: The Interim Application was filed by the ex-employees of the 'Corporate Debtor' seeking direction to the Liquidator, to treat Gratuity dues of the applicants on the highest priority, by not treating it as part of the Estate of the 'Corporate Debtor.' 3. The Applicant contends that the Adjudicating Authority vide its order dated 13th July 2018 directed the Resolution Professional to pay Gratuity, if payable to the Applicants after verifying the records of the Company, subject to availability of necessary funds out of its operations on 27th August 2018. The list of ex-employees and workmen, along with their dues as on 0....
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....sets of the 'Corporate Debtor', until the gratuity dues have been paid off, before making any payment, to any entity falling under waterfall mechanism, devised under Section 53 of the Code. The I&B Code gives statutory priority to the amount payable to the employees on account of gratuity, over other debts of the 'Corporate Debtor'. 9. We have heard the arguments of the Learned Counsel for the parties and perused the record. 10. In reply to the contention of the applicant, the liquidator contended that the gratuity fund of the employees had not been treated as part of the Liquidation Estate. Since the 'Corporate Debtor' never maintained a separate fund for payment of gratuity to its employees, thus it can not be paid from the running accounts of the Corporate Debtor, as and when the same became due. 11. It is further contended by the Liquidator, that out of 66 employees, who have filed the present application, most have left the organization, much before the commencement of the insolvency resolution process period, and only 14 employees worked with the Corporate Debtor after the commencement of CIRP. The employee's dues before the commencement of CIRP can in no event b....
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....ss of employees and specify the [establishments] or class of [establishments] to which the said Scheme shall apply [and there shall be established, as soon as may be after the framing of the Scheme, a Fund in accordance with the provisions of this Act and the Scheme]. [(1-A) The Fund shall vest in, and be administered by, the Central Board constituted under Section 5-A. (1-B) Subject to the provisions of this Act, a Scheme framed under sub-section (1) may provide for all or any of the matters specified in Schedule II.] [(2) A Scheme framed under sub-section (1) may provide that any of its provisions shall take effect either prospectively or retrospectively on such date as may be specified in this behalf in the Scheme.] Payment of Gratuity Act, 1972 Section 4. Payment of gratuity 4. Payment of gratuity.- (1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,- (a) on his superannuation, or (b) on his retirement or resignation, or (c) on his death or disablement due to accident or disease: P....
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....t the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer. (6) Notwithstanding anything contained in sub-section (1),- (a) the gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused; (b) the gratuity payable to an employee [may be wholly or partially forfeited]- (i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or (ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment. Section 6-A. Employees' Pension Scheme [6-A. Employees' Pension Scheme.- (1) The Central Government may, by notification in the Official Gazette, frame a scheme to be called the Employees' Pension Scheme for the purpose of providing for- ....
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....riod of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the scheme or both Houses agree that the scheme should not be made, the scheme shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that scheme.] Insolvency and Bankruptcy Code, 2016 Section 36. Liquidation Estate 36. Liquidation Estate.- (1) For the purposes of liquidation, the liquidator shall form an estate of the assets mentioned in sub-section (3), which will be called the liquidation estate in relation to the corporate debtor. (2) The liquidator shall hold the liquidation estate as a fiduciary for the benefit of all the creditors. (3) Subject to sub-section (4), the liquidation estate shall comprise all liquidation estate assets which shall include the following:- (a) any assets over which the corporate debto....
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....assets of any Indian or foreign subsidiary of the corporate debtor; or (e) any other assets as may be specified by the Board, including assets which could be subject to set off on account of mutual dealings between the corporate debtor and any creditor. Sec 5 of the I& B Code 2016 (13) 'Insolvency Resolution Process costs' means- (a) the amount of any interim finance and the costs incurred in raising such finance; (b) the fees payable to any person acting as a resolution professional; (c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern; (d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and (e) any other costs as may be specified by the Board; In case of State Bank of India v Moser Baer Karamchari Union and Another ,2019 SCC OnLine NCLAT 447 the coordinate bench of this Appellate Tribunal has held that: '16. In terms of sub-section (4) (a) (iii) of Section 36, as all sums due to any workman or employees from the provident fund, the pension fund and the gratuity fund, do not form....
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.... to interfere with the impugned order dated 19th March, 2019." Thus it is the settled position of law, that the provident fund, the pension fund and the gratuity fund, do not come within the purview of 'liquidation estate' for the purpose of distribution of assets under Section 53 of the Code. Based on this, the only inference which can be drawn is that Pension Fund, Gratuity Fund and Provident Fund can't be utilised, attached or distributed by the liquidator, to satisfy the claim of other creditors. Sec 36(2) of the I B Code 2016 provides that the Liquidator shall hold the Liquidation Estate in fiduciary for the benefit of all the Creditors. The Liquidator has no domain to deal with any other property of the corporate debtor, which is not the part of the Liquidation Estate. In a case, where no fund is created by a company, in violation of the Statutory provision of the Sec 4 of the Payment of Gratuity Act, 1972, then in that situation also, the Liquidator cannot be directed to make the payment of gratuity to the employees because the Liquidator has no domain to deal with the properties of the Corporate Debtor, which are not part of the liquidation estate. On perusal of th....