The National Company Law Appellate Tribunal (“NCLAT”) in the matter of SBI v. Moser Baer Karamchari Union upheld the decision of the principal bench of the National Company Law Tribunal (“Adjudicating Authority”) which held that the dues under pension fund, provident fund and gratuity fund (“Dues”) do not form a part of the “liquidation assets” under Section 53 of the Insolvency and Bankruptcy Code, 2016 (“IBC”)
Insolvency process was initiated against Moser Baer and the liquidator who was appointed to undertake the proceedings held that the abovementioned Dues to the workmen formed a part of the liquidation assets. The Moser Baer Karamchari Union filed an appeal to the Adjudicating Authority seeking exclusion of the Dues from the liquidation assets. The liquidator argued that Section 53 of the IBC, which deals with distribution of assets, refers to the definition of “Workmen’s dues” as provided in Section 326 of the Companies Act, 2013 (“Act”), which includes the abovementioned Dues within its ambit. On this basis, the liquidator implied that on a joint reading of Section 53 of the IBC and Section 326 of the Act, the Dues payable under pension fund, provident fund and gratuity fund should be made a part of the liquidation assets.
However, the Adjudicating Authority rejected this argument of the liquidator and instead applied Section 36 of the IBC which deals with liquidation estates. Section 36(4) explicitly excludes all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund. The Adjudicating Authority noted that since such Dues are specifically excluded from the definition of liquidation assets, the inclusion of same as part of liquidation asset by the liquidator was wrong and the Dues should be paid to the workmen.
Aggrieved by the decision of Adjudicating Authority, SBI filed an appeal in NCLAT. NCLAT rejected the appeal filed by SBI and upheld the findings of the Adjudicating Authority.
Quick View
Even though Section 36 of the IBC defines the term ‘liquidation estates’, Section 53 of the IBC also includes the definition provided in Section 326 of the Companies Act. However, it is also important to note that by way of sub section 7 of Section 327 of the Act, Sections 326 and 327 are not applicable in cases of liquidation under the IBC. This creates a gap in understanding the definition of “liquidation assets”.
This judgment by the NCLAT provides clarity on definition of the “liquidation assets”. Moser Baer Karamchari Union have also filed a writ in this regard seeking clarification on the issue, which is pending in the Supreme Court of India. It will be interesting to see whether the Supreme Court takes the same stand as the NCLAT.
Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.