Case Note & Summary
The dispute arose from the denial of gratuity and leave encashment claims by the Liquidator of M/s. Lanco Vidarbha Thermal Power Limited, which led the workmen to file an application before the NCLT. The workmen contended that their dues, which accrued during the pre-CIRP period, should be treated as part of the CIRP costs. The NCLT ruled in favor of the workmen, directing the Liquidator to pay these amounts, citing the principle that employee benefits cannot be denied due to procedural issues. The Appellant, Punjab National Bank, challenged this order before the NCLAT. The NCLAT upheld the NCLT's decision, referencing previous judgments that established the entitlement of employees to gratuity and leave encashment, regardless of the existence of a dedicated fund. The court emphasized that such payments are essential for employee welfare and must be included in CIRP costs as per the IBC provisions. Ultimately, the NCLAT dismissed the appeal, affirming the lower court's ruling and reinforcing the legal principle that employee dues are protected under the law.
Headnote
A) Insolvency Law - Treatment of Employee Dues - Gratuity and Leave Encashment as CIRP Costs - Insolvency and Bankruptcy Code, 2016, Section 60(5) - The Tribunal held that gratuity and leave encashment dues payable to employees during CIRP must be treated as CIRP costs, irrespective of the absence of a separate gratuity fund maintained by the Corporate Debtor. This decision aligns with previous judgments emphasizing employee rights under beneficial legislation (Paras 2-15).
Issue of Consideration
Whether gratuity and leave encashment dues payable to employees during CIRP can be treated as CIRP costs.
Final Decision
The NCLAT dismissed the appeal, affirming the NCLT's order that gratuity and leave encashment dues are to be treated as CIRP costs and must be paid to the employees, holding that the appeal lacked merit.
Law Points
- CIRP costs
- gratuity payment
- leave encashment
- IBC provisions
- employee rights
Case Details
2026 LawText (NCLAT) (06) 5
Comp App (AT) (CH) (Ins) No. 307 /2024
Justice Sharad Kumar Sharma, Jatindranath Swain
Ms. Shweta Dubey, Ms. Kanishka Prasad, Mr. Ravi Rajagopalan
Mr. Nagireddy Venkata Pratap Reddy, Mr. Pramod Gaikwad, Mr. M. Krishnamacharyulu, Mr. Devender Kumar, Mr. Praveen Kumar Dahiya, Mr. Neeraj Kumar Pradhan, Mr. Roshan Niranjan Telange, Mr. Sunil Anandrao Tadas, Mr. Vijay Kumar Garg
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Nature of Litigation
Appeal against the NCLT's order regarding employee dues during CIRP.
Remedy Sought
Punjab National Bank sought to overturn the NCLT's order directing payment of gratuity and leave encashment.
Filing Reason
The Liquidator denied the claims based on the absence of a separate gratuity fund.
Previous Decisions
NCLT had previously ruled that employee dues must be paid as CIRP costs, referencing established legal principles.
Issues
Whether gratuity and leave encashment dues can be treated as CIRP costs despite no separate fund being created.
Submissions/Arguments
Appellant argued that without a gratuity fund, the Liquidator cannot be compelled to pay these dues from the liquidation estate.
Respondents contended that employee rights to gratuity and leave encashment are protected under law and must be paid as CIRP costs.
Ratio Decidendi
The court held that employee dues, including gratuity and leave encashment, must be treated as CIRP costs, reinforcing the principle that employee rights are paramount under the law.
Judgment Excerpts
The grievance of the Respondents / workmen, before the Ld. Adjudicating Authority had been against the denial by the Liquidator.
The Liquidator cannot avoid the liability to pay gratuity to the employees on the ground that Corporate Debtor did not maintain separate funds.
The Tribunal held that gratuity and leave encashment dues payable to employees during CIRP must be treated as CIRP costs.
Procedural History
The Respondents filed IA (IBC)/640/2023 in CP (IB) No.529/7/HDB/2018 before NCLT, which ruled in their favor on 11.06.2024. The Appellant then appealed to NCLAT.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: 60(5), 53(1), 5(13)
- Payment of Gratuity Act, 1972: 4
