TaxTMI 
TaxTMI 
2026 (7) TMI 1197
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....la, Advocates for R-1 JUDGEMENT Per Justice N. Seshasayee, Member (Judicial) 1. The appellant herein was the former director of the corporate debtor, who now challenges an Order, dated 04.09.2024, dismissing his application in I.A.868 of 2021, which he had taken out for treating his claim for payment of gratuity and leave encashment dues as part of CIRP costs. The Adjudicating Authority however, has held that he is entitled to be paid only in terms of the Resolution Plan. FACTS 2. The relevant facts are: a) On 05.03.2020, the CD was admitted to CIRP. The appellant claims that he had been in the employ of the CD for over 25 years and superannuated on 30.04.2021, after the commencement of CIRP. The appellant was entitl....
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....lea for treating his claims of gratuity and leave encashment as CIRP costs and held that they could only be dealt with in terms of the Resolution Plan, principally on the ground that that appellant's claim does not fall within the definition of CIRP costs under Sec.5(13) of the Code. Subsequently, the Adjudicating Authority vide its order dated 18.10.2024 approved the resolution plan. Arguments 4. The Learned Counsel for the Appellant argued: a) The appellant, having rendered more than 25 years of continuous service to the Corporate Debtor, became statutorily entitled to gratuity and other retiral dues upon superannuation, which are not in the nature of ordinary claims but constitute statutory rights and are required to be ho....
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....ible under Section 5(13) of the Insolvency and Bankruptcy Code, 2016 read with Regulation 31 of the CIRP Regulations, 2016. The scope of CIRP cost is limited and does not extend to terminal benefits payable upon cessation of employment. b) gratuity, being a statutory retiral benefit, is payable from the gratuity fund, if maintained by the Corporate Debtor. In the absence of such a fund, the same constitutes a statutory due which is required to be provided for in the resolution plan and cannot, by any stretch of interpretation, be treated as CIRP cost. Similarly leave encashment is purely a contractual obligation arising out of the terms of employment and does not fall within the ambit of CIRP cost under Section 5(13) of the Code, n....
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....atuity and the encashable leave of an employee should be part of CIRP costs. It is not in dispute that the appellant has been an employee of the corporate debtor before and after the commencement of CIRP, that he has superannuated during the CIRP, and that the resolution professional did not reject the amount claimed as gratuity payable to the appellant. It is about when it has to be paid. Unfortunately, the corporate debtor did not maintain any Gratuity fund to support its employees for the appellant to fee more secured. And, the strategy of the appellant makes evident his underlying anxiety: If his claim of gratuity is made of CIRP cost he will not only be entitled to the actuals but also receive the same in priority. 7. Sec.5(13) defi....