NCLAT: non-payment of full PF and gratuity dues to employees violative of IBC

NCLAT: non-payment of full PF and gratuity dues to employees violative of IBC

The tribunal was hearing a batch of appeals filed by the employees and workers of the defunct Hindustan Newsprint Limited

The National Company Law Appellate Tribunal (NCLAT) has held that non-payment of full provident fund (PF) and gratuity dues to workmen and employees by any successful resolution applicant would amount to non-compliance with provisions of the Insolvency and Bankruptcy Code (IBC), 2016.

Justice M Venugopal (judicial member) and Shreesha Merla (technical member) also added that allocating only a 'partial amount' for such dues also breached the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and the Payment of Gratuity Act, 1972.

The tribunal was hearing a batch of appeals filed by employees and workers of the defunct Central public sector undertaking Hindustan Newsprint Limited (HNL), challenging a January 2021 order of the Kochi bench of the National Company Law Tribunal (NCLT).

The bench had approved the resolution plan (RP) for HNL, admitting only 35.13 percent of the appellants' PF and gratuity claims.

The appellants argued that the approved RP was in contravention of the IBC, as the resolution professional and the committee of creditors (CoC) ignored the applicability of the EPF and Gratuity Acts.

The NCLAT noted that IBC mandated that any PF or gratuity amount due to a workman or employee must be excluded from the liquidation estate.

It stated, "In the case, Clause (iii) of sub-section 4(a) is relevant which is all sums due to any workman/employee from the 'Provident Fund', 'Pension Fund' or the 'Gratuity Fund'. Hence, sums due to any workman from the above 'funds' are excluded from the 'Liquidation Estate'. The legislative intent is clear that any 'sums' due to any workman from aforesaid 'fund' are excluded and cannot be used for 'recovery' in the liquidation."

However, the respondents, the resolution professional and the successful resolution applicant Kerala Industrial Infrastructure Development Corporation (KIIDC) argued that the RP was approved after 'proper application of mind by the adjudicating authority' and it was in compliance with all the legal provisions.

They disputed that IBC clearly stated that stakeholders could not raise subsequent claims if those were not a part of the originally approved RP.

But the tribunal maintained that the adjudicating authority had the power to intervene if an approved RP breached any IBC provisions. It cited the case of Jet Airways, where the NCLAT and the Supreme Court directed the airlines to pay the PF and gratuity dues in full to its employees.

NCLAT held that workmen and employees were entitled to payment of the full amount of PF and gratuity till the date of commencement of the insolvency. The amount was to be paid by the successful resolution applicant consequent to the approval of the RP.

While advocates KR Jinan and Abhilash Nediyalil Abraham, appeared for the appellant workers and employees, the RP was represented by advocates PV Vinod and PV Dinesh.

Senior counsel Arvindh Pandian, Shivshankar R Panicker, and Sirshti Thukral appeared for Kerala Industrial Infrastructure Development Corporation.