NCLT | Provident Fund dues, Pension Funds and Gratuity Fund dues cannot be recovered under the ‘Waterfall Mechanism’

National Company Law Tribunal, New Delhi: The Bench of M.M. Kumar, Chief Justice (Retd.), President and S.K. Mohapatra, Member (Technical) disposed of an application while making it clear that,

“Provident Fund dues, Pension Funds and Gratuity Fund dues are not treated as a part of the liquidation estate and would not, therefore, be recovered by Section 53 of the Code which provides for waterfall mechanism.”

Factual matrix of the case:

The present application has been filed by the workmen of Moser Baer India Ltd. which is going into liquidation. Workmen of the company have filed the present application in order to seek directions to be issued to the liquidator for excluding the amount due to them towards provident fund, pension fund and gratuity fund from the waterfall mechanism envisaged under Section 53 of the Insolvency and Bankruptcy Code, 2016 and pay them under the stated heads.

Further directions have also been sought to pay the dues to the workmen in accordance with Section 25FFF of the Industrial Disputes Act, 1947.

The Tribunal on keeping in consideration the facts and circumstances of the case, stated that, “there is a basic flaw in the reasoning adopted by the liquidator as under Section 36(4)(a)(iii), the expression ‘liquidation estate’ has been defined and clarified that – all sums due to any workman or employee from the provident fund, pension fund and gratuity fund, were not to constitute and included in the expression “liquidation estate assets”.  Coram also stated that, once the above mentioned three heads do not constitute a part of the liquidation estate, we fail to understand as to how Section 53 could be invoked along with its explanation. Therefore, the amount mentioned of the workmen dues cannot be a part of liquidation estate assets.

Relying on the case of Asset Reconstruction Company (India) Ltd. v. Precision Fasteners Ltd., the bench stated that liquidator has unnecessarily taken a perverse view. The order was concluded by stating that “If there is any deficiency to the Provident Fund, pension Fund and Gratuity Fund, then the liquidator shall ensure that the fund is made available in the aforesaid accounts, even if their employer has not diverted the requisite amount.” Tribunal disposed of the application and asked the needful to be done in 2 weeks preferably. [Alchemist Asset Reconstruction Co. Ltd. v. Moser Baer (India) Ltd., 2019 SCC OnLine NCLT 118, Order dated 19-03-2019]

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