Case Note & Summary
The judgment arose from appeals concerning the liquidation of Jet Airways, which ceased operations in April 2019. The State Bank of India initiated insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), leading to the appointment of an Interim Resolution Professional. A resolution plan was approved in October 2020, but disputes regarding the payment of dues to workmen persisted. The Adjudicating Authority directed the liquidator to distribute assets according to the waterfall mechanism under Section 53 of the IBC while safeguarding workmen's interests. The appeals challenged the authority's orders regarding the exclusion of provident fund and gratuity dues from the liquidation estate. The court examined whether such exclusions were contingent on the existence of dedicated funds and whether the adjudicating authority's directions complied with statutory provisions. The court found that workmen's dues should be prioritized and excluded from the liquidation estate, emphasizing the need to protect their rights. The appeals were heard together, and the court ultimately upheld the adjudicating authority's orders, affirming the entitlement of workmen to their dues and clarifying the interpretation of relevant sections of the IBC.
Headnote
A) Insolvency Law - Liquidation Estate - Exclusion of Workmen's Dues - Insolvency and Bankruptcy Code, 2016, Section 36(4)(a)(iii) - The court held that workmen's dues from provident fund and gratuity fund are excluded from the liquidation estate, irrespective of the existence of a segregated fund. This interpretation aligns with the statutory intent to protect workmen's rights during liquidation (Paras 20-21).
Issue of Consideration
Whether workmen's dues from provident fund and gratuity fund can be excluded from the liquidation estate under the Insolvency and Bankruptcy Code, 2016.
Final Decision
The court dismissed Company Appeal (AT) (Insolvency) No. 419 - 420 of 2026 and partly allowed Company Appeal (AT) (Insolvency) No. 551 of 2026, affirming that workmen's dues from provident fund and gratuity fund are excluded from the liquidation estate and must be paid in full. The appeals were disposed of accordingly.
Law Points
- Insolvency proceedings
- Liquidation estate
- Workmen's dues
- Waterfall mechanism
- Provident fund
- Gratuity fund
- Exclusion of assets
- Statutory provisions
- Judicial principles
Case Details
2026 LawText (NCLAT) (06) 72
Company Appeal (AT) (Insolvency) No. 419 & 420 & 440 & 551 of 2026
Mr. N. Venkatraman, Mr. Abhijeet Sinha, Mr. Pawanshree Agrawal, Ms. Kriti Jain, Mr. Raghav Chadha, Ms. Ronita Bhattacharya
State Bank of India and Ors.
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Nature of Litigation
Appeals against orders of the Adjudicating Authority regarding liquidation and distribution of assets.
Remedy Sought
State Bank of India and other financial creditors sought to challenge the exclusion of workmen's dues from the liquidation estate.
Filing Reason
Disputes arose regarding the payment of provident fund and gratuity dues to workmen during the liquidation process.
Previous Decisions
The Adjudicating Authority had directed the liquidator to pay workmen's dues outside the liquidation estate.
Issues
Whether exclusion of workmen's dues from the liquidation estate is contingent on the existence of such funds.
Whether the adjudicating authority's direction to pay workmen's dues is in accordance with the statutory scheme under the IBC.
Submissions/Arguments
Financial creditors argued that workmen's dues can only be paid if segregated funds exist.
Workmen contended that their dues should be prioritized and excluded from the liquidation estate regardless of fund existence.
Ratio Decidendi
The court clarified that workmen's dues from provident fund and gratuity fund are excluded from the liquidation estate under Section 36(4)(a)(iii) of the IBC, irrespective of the existence of dedicated funds.
Judgment Excerpts
The liquidator is liable to pay the provident fund and gratuity dues to the workmen and employees as are payable to them in terms of provisions of Employees' Provident Funds and Miscellaneous Provisions Act, 1952 and Payment of Gratuity Act, 1972 and such dues shall not form part of the liquidation estate.
The exclusion of time for determination of liquidation commencement date for the purpose of section 53(1)(b) cannot be allowed by this Tribunal in terms of its inherent powers.
Procedural History
The appeals arose from orders of the Adjudicating Authority regarding the distribution of assets in the liquidation of Jet Airways, following the approval of a resolution plan and subsequent litigation concerning workmen's dues.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: Section 7, Section 36(4)(a)(iii), Section 53
- Employees' Provident Funds and Miscellaneous Provisions Act, 1952: Section 11
- Payment of Gratuity Act, 1972:
