Workmen Dues Of Pension, Gratuity, PF Not Included In Liquidation Assets : NCLAT Affirms NCLT View [Read Judgment]

The National Company Law Appellate Tribunal (NCLAT) ,while dismissing an appeal filed by SBI, one of the financial creditors of Moser Baer India Ltd.(MBIL), against the Workmen's Trade Union of Moser Baer India Ltd., has upheld the view taken by the NCLT Principal Bench that provident fund, pension fund and gratuity fund dues are not treated as a part of 'liquidation estate'. The Appellate Tribunal confirmed that the dues should be paid to the workers directly, and would not fall under the waterfall mechanism of distribution of assets under section 53 of the IBC.

The Corporate Insolvency Resolution Process (CIRP) was initiated against Moser Baer after an application filed by Alchemist Asset Reconstruction Ltd. one of the Financial Creditors, under section 7 of the IBC, which was admitted on 14th November, 2017.

The Expression of Interest to put forward a Resolution Plan was invited. However, even after extending the last date 5 times, since no Resolution Plan had been received, the Committee of Creditors (CoC) by a 100% voting share, decided to liquidate Moser Baer India Ltd.

The average liquidation value of the Corporate Debtor came to around Rs. 337.45 crores and total financial debts owed to financial creditors, as on the corporate insolvency commencement date was Rs. 4356.12 crores.

After the liquidation order, an application was filed in NCLT on behalf of the workmen of Moser Baer for excluding the dues owed to them under the welfare funds from the 'liquidation assets' of the company and paying it to them directly.

'Liquidation estate' comprises of the assets over which the Corporate Debtor has ownership rights.

The Liquidator of Moser Baer took a stand that according to the explanation of section 53 of IBC, "workmen's dues" shall have the same meaning as that assigned to it under section 326 of the Companies Act, 2013 and hence, gratuity is included in the "liquidation estate assets", thus making it as an asset of the Corporate Debtor.

The NCLT Bench was of the view that the term 'liquidation estate' has been defined under section 36 of the IBC and specifically excludes these dues from the purview of recovery made under liquidation.

While referring to a judgment passed by NCLT Mumbai, the Delhi bench held that even though gratuity, pension and provident fund dues are dues payable by the Corporate Debtor, but they are essentially assets of the workmen lying with the Corporate Debtor's company and thus, the provisions of IBC cannot be made applicable to them.

The NCLT also clarified that in the event of any deficiency to the funds, the liquidator has to ensure that the amounts are available, even if the Corporate Debtor has not diverted the requisite amount.

The appeal filed against the NCLT order was dismissed on Monday by the NCLAT Bench comprising of Hon'ble Mr. Justice S.J. Mukhopadhaya, the Chairperson, Hon'ble Mr. Justice A.I.S. Cheema, Member (Judicial) and Hon'ble Mr. Kanthi Narahari, Member.

A writ challenging the constitutionality of Section 327(7) of the Companies Act, 2013, was also filed by the Moserbaer KaramChari Union with the Supreme Court and notice was issued to the Centre and Moserbaer India Ltd. The petition claimed, since the definition of workmen dues is not included in the Insolvency and Bankruptcy Code (IBC) and, due to the non-exclusion of the application of Companies Act, a gap exists, regarding the definition of 'workmen dues' under IBC. With the application of Section 326 excluded by Section 327(7, a void is created insofar as the definition of "workmen's dues' is concerned. The petition is pending with the Supreme Court. 

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