Jet Airways Workmen's PF, Gratuity Dues Must Be Paid, Fall Outside Liquidation Estate: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has held that provident fund, gratuity and pension dues owed to Jet Airways workmen must be paid as they fall outside the liquidation estate, even if no segregated funds existed on the liquidation commencement date.

It also directed the liquidator to exclude the 1,656 days beyond the statutory 330-day Corporate Insolvency Resolution Process (CIRP) period while computing the 24-month look-back period under the Insolvency and Bankruptcy Code (IBC).

In doing so,the appellate tribunal dismissed appeals filed by State Bank of India (SBI) and other financial creditors, while partly allowing appeals filed by the workmen.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra observed:

“The purpose of excluding all sums due to the workmen from provident fund, gratuity fund, pension fund is clear and categorical that the said dues of the workmen has to be discharged without undertaking any distribution under Section 53A by the liquidator. We, thus, are not persuaded to accept the submission of the Counsel for the Financial Creditor that the entitlement of workmen to receive all dues from provident fund, pension fund and gratuity fund is contingent only on existence of such fund on the liquidation commencement date.”

Jet Airways ceased operations in April 2019, following which SBI initiated the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC.

The National Company Law Tribunal (NCLT) approved a resolution plan in 2021. However, after holding that the successful resolution applicant had failed to implement the plan, the Supreme Court directed liquidation of the airline in November 2024.

After Jet Airways entered liquidation, the workmen approached the Mumbai bench of the National Company Law Tribunal seeking payment of provident fund and gratuity outside the liquidation estate. They also asked the tribunal to recognise salary dues covered by a Recovery Certificate and exclude the nearly four-and-a-half years spent in insolvency litigation while calculating their dues under the IBC.

The NCLT directed that provident fund and gratuity dues be paid outside the liquidation estate but declined the workmen's request to exclude the 1,656-day period. Both SBI and the workmen challenged different parts of that order before the NCLAT.

SBI argued that the exclusion under Section 36(4)(a)(iii) applies only where segregated provident fund or gratuity funds existed on the liquidation commencement date. In the absence of such funds, it contended, the dues should be distributed under the waterfall mechanism in Section 53.

It further argued that directing payment of provident fund and gratuity outside the waterfall despite the absence of segregated funds effectively granted those dues super priority contrary to the IBC.

SBI also backed the NCLT's refusal to exclude the 1,656-day period. It argued that the IBC does not allow the look-back period or the liquidation commencement date to be altered.

The workmen maintained that provident fund and gratuity are statutory entitlements and do not depend on whether separate funds were maintained. They also argued that SBI could not dispute those dues after relying on the successful resolution applicant's failure to pay them while seeking liquidation before the Supreme Court.

On the computation of workmen's dues, they argued that years of litigation between the financial creditors and the successful resolution applicant effectively wiped out their claims under Section 53. Excluding the excess period, they contended, was necessary to ensure their dues were not reduced to nil.

The tribunal examined provisions of the Companies Act, the IBC, the Employees' Provident Funds and Miscellaneous Provisions Act, the Payment of Gratuity Act, and earlier decisions, including Jaswant Singh Gill, in which the Supreme Court held that gratuity is a statutory right and not a charity.

The bench held that the statutory scheme under the IBC excludes provident fund, gratuity and pension dues from the liquidation estate and keeps them outside the Section 53 waterfall. It rejected SBI's argument that workmen's entitlement depends on the existence of segregated funds on the liquidation commencement date.

The bench observed, “To accept the above submission is to clearly disregard the entitlement of workmen and employees to receive payment of provident fund, pension fund and gratuity fund and to washout the obligation of the Corporate Debtor on the premise that those funds are not segregated and available on the date of liquidation commencement date.”

On the workmen's appeal, the tribunal held that the 1,656 days beyond the statutory 330-day CIRP period should be excluded while computing the 24-month look-back period under Section 53 so that time lost in prolonged litigation did not defeat the statutory scheme. It accordingly directed the liquidator to recompute the workmen's dues after granting the exclusion.

However, it refused to keep salary dues covered by the Recovery Certificate outside the liquidation estate, holding that those claims must continue to be dealt with under the Section 53 waterfall mechanism.

Accordingly, the NCLAT dismissed SBI's appeals, upheld the NCLT's direction requiring provident fund and gratuity dues to be paid outside the liquidation estate, reiterated that provident fund, gratuity and pension dues fall outside the liquidation estate, and partly allowed the workmen's appeals by directing exclusion of the 1,656-day period while computing the 24-month look-back period.

For Appellants: ASG N. Venkatraman & Senior Advocate Abhijeet Sinha, with Advocates Dhananjay Kumar, Raunak Dhillon, Srideepa Bhattacharya, Isha Malik, Mehul Kumar, Anchit Jasuja, Mitali Jain and Ilina Rechu

For Respondents: Advocates Pawanshree Agrawal, Kriti Jain, Aakriti Goel and Divya Kamana Sree,for Workmen; Ronita Bhattacharya and A. Reyna Shruti for R 297; Advocates Raghav Chadha, Dhiraj Kumar Totla, Nishant Upadhyay and Vasudha Jain, for the Liquidator