Successful Resolution Applicant Must Pay Full PF & Gratuity to Employees till Date of Commencement of Insolvency: SC

Case Details: Jalan Fritsch Consortium v. Regional Provident Fund Commissioner - [2023] 149 taxmann.com 454 (SC)

Judiciary and Counsel Details

• • Dr Dhananjaya Y Chandrachud, CJI, Pamidighantam Sri Narasimha & J.B. Pardiwala, JJ.
  • Saurav Kripal, Sr. Adv., Ms Pooja Mahajan, Ms Mahima Singh, Ms Arveena Sharma, Ms Komal Abrol, Ms Mehak Nayak, Advs. & Avinash B. Amarnath, AOR for the Appellant.
  • Gaurav H. Sethi, Rahul D. Oak, Sujoy C. Datta, Siddharth Bhatnagar, Sr. Adv., Swarnendu Chatterjee, AOR, Aditya Sidhra, Pracheta Kar, Nadeem Afroz, Ms Deepakshi Garg, Yashwardhan Singh, Ms Megha Saha, Dr Abhishek Manu Singhvi, Sr. Adv., Raunak Dhillon, Ms Isha Malik, Niharika Shukla, Advs., Vikas Mehta, Mayan Prasad, Adv., Ms Anshula Vijay Kumar Grover, AOR, Ms Nitika Grover, Adv. Ms Gayatri Singh, Sr. Adv. & Ms Nupur Kumar, AOR for the Respondent.

Facts of the Case

In the present case, an appeal was made to the Supreme Court against the order passed by the NCLAT. The NCLAT in its impugned order held that the workmen and employees were entitled to payment of the full amount of provident fund and gratuity till the date of commencement of insolvency.

This amount was to be paid by the successful resolution applicant consequent to the approval of the resolution plan, in addition to 24 months of workmen dues as stipulated u/s 53(1)(b).

Section 53 of the IBC read as follows –

Section 53: Distribution of assets

*53. (1) The proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely:

(a) the insolvency resolution process costs and the liquidation costs paid in full;

(b) the following debts which shall rank equally between and among the following:

(i) workmen’s dues for the period of twenty-four months preceding the liquidation commencement date; and

(ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52……

NCLAT Held

The NCLAT, further held that it is clear that, in addition to the partial amount of provident fund and gratuity as proposed in the resolution plan for workmen, the successful resolution applicant was obliged to make payment of the balance unpaid amount of provident fund and gratuity to workmen and employees. The successful resolution applicant had not made provision of full payment of provident fund dues that were due till the insolvency commencement date.

Therefore, to ensure justice, the successful resolution applicant was directed to make payment of the full provident fund dues, which were unpaid till the insolvency commencement date, after adjusting the payment to workmen towards the provident fund in the plan.

Consequently, an appeal was made to the Supreme Court. The Supreme Court held that there was no error in the order of NCLAT and therefore, the appeal against the said order was to be dismissed.

List of Cases Reviewed

• • Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia, Resolution Professional of Jet Airways (India) Ltd. [2023] 146 taxmann.com 31 (NCLAT- New Delhi) (para 2) affirmed.