Supreme Court (30.01.2023) in Jalan Fritsch Consortium Vs. Regional Provident Fund Commissioner & Anr [Civil Appeal No 407 of 2023 With Civil Appeal Nos. 465-469 of 2023 ] found no error in the order of the National Company Law Appellate Tribunal dated 21 October 2022 read with clarification order dated 2 December 2022 in Company Appeal (AT) (Ins) Nos 987, 643, 801, 915 and 771 of 2022 & dismissed the appeals.
Excerpts of the order;
# 1 We find no error in the order of the National Company Law Appellate Tribunal dated 21 October 2022 read with clarification order dated 2 December 2022 in Company Appeal (AT) (Ins) Nos 987, 643, 801, 915 and 771 of 2022.
# 2 The appeals are accordingly dismissed.
# 3 Pending application, if any, stands disposed of.
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NCLAT (21.10.2022) in Jet Aircraft Maintenance Engineers Welfare Association Vs. Ashish Chhawchharia RP of Jet Airways (India) Ltd. & Ors. [Company Appeal (AT) (Insolvency) Nos. 752, 643, 792, 801 915 of 2021, 361, 771 & 987 of 2022] held that;
The workmen are entitled to full payment of provident fund and gratuity, hence, the balance of above dues are to be paid by the Successful Resolution Applicant, to satisfy statutory obligations. Non-payment of full provident fund and gratuity shall lead to violation of Section 30(2)(e), hence, to save the plan the above payments have to be made.
We, thus, do not find any substance in the submission of the learned Counsel that payment to the Secured Financial Creditors under Section 53(1)(b) has to be made as per their value of the security interest and the Resolution Plan did not take into consideration their debt, which is the debt of the Financial Creditors while allocating the amount.
We have already held that the employees were also entitled to receive their full amount of provident fund to which they were entitled under 1952 Act and gratuity due till commencement of insolvency under the Payment of Gratuity Act, 1972, which they were entitled as per Section 30(2)(e) of the Code.
We hold that provident fund dues were entitled to be paid in full. In view of the judgment of Supreme Court in “Maharashtra State Cooperative Bank Limited vs. Assistant Provident Fund Commissioner & Others” (Supra), the claim of Appellant was to be satisfied in full, otherwise breach of provision of Section 30(2)(e) would have occurred. We, thus, are inclined to issue direction to the Successful Resolution Applicant to make payment of the admitted claim of the Appellant towards provident fund dues to save the plan from invalidity.
Excerpts of the Order;
# 33. From the submissions of learned counsel for the parties and the materials on record following questions arise for consideration in these appeals:
Questions;
I. What is the extent and the limitation of the judicial review by the Adjudicating Authority and the Appellate Tribunal in context of a Resolution Plan approved by the CoC with requisite majority?
II. Whether the workmen and employees are entitled to receive the payment of provident fund, gratuity and other retirement benefits in full since they are not part of the liquidation estate under Section 36(4)(b)(iii) of the Code?
III. Whether the workmen and employees are entitled to receive their dues from the Corporate Debtor as per the provisions of the Code i.e. the minimum liquidation value envisaged under Section 30(2)(b) by referring to waterfall mechanism provided under Section 53(1) of the Code?
IV. Whether the Resolution Plan approved by the Adjudicating Authority violates the provisions of Section 30(2)(b) of the Code since it does not provide the minimum amount to the workmen/ employees as contemplated under Section 30(2)(b)?
V. Whether the Resolution Plan as approved by the Adjudicating Authority violates provisions of Section 30(2)(e) of the Code since it contravenes provisions of Industrial Disputes Act, 1947 it having not provided for retrenchment compensation to the workmen/employees who were so entitled under Section 25-F and 25-FF of the Industrial Disputes Act, 1947 and other legislations?
VI. Whether the demerger of entire workforce except of 50 employees as Asset Protection Team to AGSL is illegal and contrary to the provision of Section 25-FF of Industrial Disputes Act, thus, violates Section 30(2) of the Code?
VII. Whether the workmen/employees are entitled for payment of Rs.750 crores (or more) as CIRP cost subsequent to insolvency commencement date they being on the roll of the Corporate Debtor and principle of no work no pay could not have been applied by the Resolution Professional?
VIII. Whether for computing the payment to secured financial creditors under Section 53(1)(b) only the value of their security interest has to be taken into consideration or their entire financial debt is to be considered while computing their entitlement?
IX. Whether the Resolution Plan being contingent and conditional ought not to have been approved in view of the law laid down by the Hon’ble Supreme Court in “Ebix Singapore Pvt. Ltd. Vs. CoC of Educomp Solutions Ltd. & Anr., (2022) 4 SCC 401”?
X. Whether the allocation of fixed amount of Rs.15,000/- each to the Operational Creditors (other than workmen/employees) in the resolution plan can be held to be fair and equitable and deserves no interference by this Appellate Tribunal?
XI. Whether the claim of Regional Provident Fund Commissioner verified to the extent of Rs.24,40,65,594/- arising out of an order dated 17.10.2018 passed under Section 14B of Employees’ Provident Funds & Miscellaneous Provisions Act 1952 can be treated as secured debt and the Appellant was entitled to receive the amount as secured creditors?
XII. Whether the claim of Department of State Tax which was submitted within time created a charge in favour of the Department on the assets of the Corporate Debtor by virtue of operation of law and the State Tax Department has the security interest and is a secured creditor?
XIII. Reliefs, if any, to which the appellants are entitled?
Question- I;
# 41. It is, thus, settled that commercial wisdom of CoC in approving the Resolution Plan is not to be interfered in exercise of jurisdiction of judicial review by Adjudicating Authority or by this Appellate Tribunal except in cases where Resolution Plan violates mandatory requirement as provided under Sub-section (2) of Section 30 of the Code. We, thus, need to proceed to examine the contention of both the parties in light of the above ratio laid down by the Hon’ble Supreme Court in above noted cases.
Question- II & III;
# 71. In view of the aforesaid discussion, we arrive at following conclusions:
(i) The workmen and employees are entitled for payment of full amount of provident fund and gratuity till the date of commencement of the insolvency which amount is to be paid by the Successful Resolution Applicant consequent to approval of the Resolution Plan in addition to the 24 months workmen dues as the workmen is entitled to under Section 53(1)(b) of the Code. It is made clear that in addition to part amount of provident fund and gratuity as proposed in Resolution Plan to workmen, Successful Resolution Applicant is obliged to make payment of balance unpaid amount of provident fund and gratuity to workmen and employees.
# 72. Our answer to Question II and III is as follows:
(i) The workmen and employees are entitled to receive the amount of provident fund and gratuity in full since they are not part of the liquidation estate under Section 36(4)(b)(iii).
(ii) The workmen are entitled to receive their dues from the Corporate Debtor for period of 24 months as per provision of Section 53(1)(b) at least to minimum liquidation value envisaged under Section 30(2)(b) read with Section 53(1).
# 73. To further examine the issues, we need to look into few more provisions of the Code as well as facts on record relating to provident fund, gratuity fund and other retirement benefits.
# 80. As observed above, in admitted claim of workmen provident fund, gratuity and leave encashment was included, and payment proposed in plan partly satisfy above dues also. The workmen are entitled to full payment of provident fund and gratuity, hence, the balance of above dues are to be paid by the Successful Resolution Applicant, to satisfy statutory obligations. Non-payment of full provident fund and gratuity shall lead to violation of Section 30(2)(e), hence, to save the plan the above payments have to be made.
Question-IV;
# 88. We, thus, arrive at a conclusion that had there not been an undertaking as contained in paragraph 6.4.2 (c) for payment of liquidation value, allocation of Rs.52 crores only was in clear violation of Section 30, sub-section (2), sub-clause (b), but in view of the undertaking by the Resolution Applicant, we do not find any necessity of interfering with the Resolution Plan except issuing a direction for payment of Rs.113 crores, which is a minimum liquidation value of workmen dues.
Question – V & VI;
# 94. Now we come to submission that non-compliance of provisions of Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 and Payment of Gratuity Act, 1972. It is an admitted case that Corporate Debtor was covered by 1952 Act and Employees Provident Fund Scheme and it was statutory obligation of the Corporate Debtor to deposit provident fund contribution to EPFO. Resolution Professional in its affidavit dated 25.07.2022 has stated that no contribution was deposited after February, 2019, thus depositing of the provident fund contribution till 20.06.2019 was statutory obligation of Corporate Debtor and making no provision in plan for unpaid provident fund dues may lead to breach of Section 30(2)(e). Further, the payment of Gratuity Act, 1972 also cast a statutory obligation on Corporate Debtor to make payment of Gratuity for those workmen and employee for which it became due till insolvency commencement date.
# 95. The Successful Resolution Applicant in plan has not made provision of full payment of provident fund dues which were due till insolvency commencement date. Ends of justice be served in directing the Successful Resolution Applicant to move payment of full provident fund dues which were unpaid till insolvency commencement dated after adjusting the payment to workmen towards provident fund in the Plan.
# 96. The employees have not been paid anything in the plan towards provident fund which became due till insolvency commencement date. The employees are entitled to be paid provident fund amount as admitted by Resolution Professional till insolvency commencement date. Similarly, the workmen whose gratuity amount became due before insolvency commencement date are also entitled to receive the same after adjusting the part amount of gratuity paid in the Plan. Employees who became entitled to gratuity before insolvency commencement date are also entitled to receive the same. At this juncture, we may clarify that those workmen and employees who were demerged from the Corporate Debtor to AGSL and have not been treated to be terminated were not entitled for any gratuity or leave encashment.
# 97. The above deficiencies in the plan need to be remedied by issuing appropriate direction to the Successful Resolution Applicant to make requisite plan so that plan may become compliant of Section 30(2)(e).
Question – VII;
# 101. The Corporate Debtor had stopped its airline operations since April 2019 and during CIRP period till the approval of Resolution Plan, Corporate Debtor was not a going concern. There is no material on record to indicate that Corporate Debtor was a going concern during CIRP period. Hon’ble Supreme Court has clearly laid down in the above case that dues towards wages and salaries of only those workmen and employees who actually worked during CIRP are to be included in the CIRP Costs. We, thus, do not find any error in not including the aforesaid claim of salary and wages of the workmen and employees after insolvency commencement date.
Question – VIII;
# 105. In the above judgment, the Report of the Insolvency Law Committee (February 2020) also was considered, in reference of which, following observation was made in paragraph 21:
“21. Learned Counsel for the Appellant has also referred to Report of Insolvency Law Committee (February, 2020) which report discussed Section 52, 53(1)(b)(ii). The Committee in paragraph 7.4 opined that provision does not necessitate any further amendment to the provisions of the Code. What was said by the Committee was that priority to secured creditors under Section 53(1)(b)(ii) should be applicable only to the extent of the value of the security interest that is relinquished by the secured creditor. The said observation was for different purpose i.e. in reference to priority which with respect to debt owed to secured creditor, in the event secured creditor relinquishes the security in the manner set out in Section 52. The Committee in its report nowhere even suggested that secured financial creditor is entitled to distribution as per value of security. The conclusion of the committee is that the priority under Section 53(1)(b)(ii) shall be only to the extent of security interest of the secured creditor. The secured creditor cannot claim priority under Section 53(1)(b)(ii) of the whole debt where only part of the debt is secured, the above report of the Committee in no manner helps the appellant to support the submission which is canvassed before us.
# 106. The Report of the Insolvency Law Committee (February 2020) has opined that priority under Section 53(1)(b)(ii) should be only to the extent of the security interest of the Secured Creditor, but in the earlier part of the Report, it was opined that provision does not necessitate any further amendment. When no amendments have been made in the statute, i.e., Section 53(1)(b)(ii), the provisions cannot be interpreted in any manner except the plain and literal reading of the provisions. The Report of Insolvency Committee (February 2020) can at best be reason for making any further amendment in the statute, but till amendment is made, the provision of the statute has to be read as it exists as on the date.
# 107. We, thus, do not find any substance in the submission of the learned Counsel that payment to the Secured Financial Creditors under Section 53(1)(b) has to be made as per their value of the security interest and the Resolution Plan did not take into consideration their debt, which is the debt of the Financial Creditors while allocating the amount.
Question – IX;
# 109. When we look into the relevant clauses of the plan which has also been captured by the Resolution Applicant in Form H. Para 7.6.1 refers to condition precedents i.e. obligation of the Resolution Applicant to re-commence operations as an aviation company subject to fulfillment of conditions after the approval date mentioned therein. Para 7.6.2 deals with fulfilment of condition precedents and Para 7.6.4 deals with automatic withdrawal. In view of the judgment of Hon’ble Supreme Court in “Ebix Singapore” (Supra), as noted above, after approval by the CoC, the clause for automatic withdrawal becomes redundant and Resolution Applicant has no jurisdiction to withdraw from the Resolution Plan. The condition precedents as mentioned in Para 7.6.1 are basically condition precedents required for aviation business which are must for any company carrying on aviation business. Enumeration of condition precedent is only for purposes of noticing obligations of the Resolution Applicant to recommence the operations as an aviation company after obtaining necessary approvals. Such condition precedent cannot be said to be any hindrance in the approval of the plan by the Adjudicating Authority. We, thus, do not find any substance in the submission of the Appellant that the resolution plan ought to have rejected in view of the condition precedent contained in the resolution plan. The Resolution Applicant has also completed all necessary condition precedents to the satisfaction of the Monitoring Committee. We, thus, are of the view that the judgment of Hon’ble Supreme Court in “Ebix Singapore” does not help the Appellant to support his contention that the Resolution Plan is liable to be rejected due to condition precedents.
Question – X;
# 116. In the present case, there is material on record to indicate that as explained by the Resolution Professional in Additional Affidavit dated 25.07.2022 that liquidation value for employees and other Operational Creditors except workmen is nil. We have already held that the employees were also entitled to receive their full amount of provident fund to which they were entitled under 1952 Act and gratuity due till commencement of insolvency under the Payment of Gratuity Act, 1972, which they were entitled as per Section 30(2)(e) of the Code. However, the liquidation value of employees being nil under Section 30(2)(b), they were not entitled to receive any amount. Similarly, other Operational Creditors whose liquidation value was nil were not entitled to receive any amount under Section 30(2)(b). This conclusion is subject to decision with regard to Operational Creditor, Provident Fund Commissioner whose claim we will consider hereinafter.
Question – XI;
# 118. Challenge to the Resolution Plan by the Appellant is on the ground that Section 11 of the 1952 Act requires priority over all other dues and further Section 36(4)(a)(iii) excludes provident fund dues from the liquidation estate of the Corporate Debtor. We have already dealt with provisions of Section 36(4)(a)(iii) in foregoing paras of this judgment. Now, we, need to look into Section 11 of 1952 Act. The Section 11 of the 1952 Act provides for priority of payment of contributions over other debts. Learned counsel for the Appellant has relied on judgment of the Hon’ble Supreme Court in “Maharashtra State Cooperative Bank Limited vs. Assistant Provident Fund Commissioner & Others, (2009) 10 SCC 123”. The Hon’ble Supreme Court dealing with Section 11 of 1952 Act laid down following in Para 67:
“67. The expression “any amount due from an employer” appearing in sub-section (2) of Section 11 has to be interpreted keeping in view the object of the Act and other provisions contained therein including sub-section (1) of Section 11 and Sections 7A, 7Q, 14B and 15(2) which provide for determination of the dues payable by the employer, liability of the employer to pay interest in case the payment of the amount due is delayed and also pay damages, if there is default in making contribution to the Fund. If any amount payable by the employer becomes due and the same is not paid within the stipulated time, then the employer is required to pay interest in terms of the mandate of Section 7Q. Likewise, default on the employer’s part to pay any contribution to the Fund can visit him with the consequence of levy of damages.”
# 119. The above judgment lays down that any amount due from employer appearing in sub-section (2) of Section 11 also covers the amount determined under Section 14B and there cannot be any quarrel to the preposition as laid down by the Hon’ble Supreme Court in the above case. The priority for payment of debt under Section 11 of the 1952 Act has to be looked into in view of the mechanism which is specifically provided under Section 53(1) of the Code. We have already dealt the provision of Section 36(4)(a)(iii) of the Code and held that provident fund dues are not subject to distribution under Section 53(1) of the Code. The issue is fully covered by three member bench judgment of this Tribunal in “Tourism Finance Corporation of India Ltd. vs. Rainbow Papers Ltd. & Ors.” (Supra). In view of foregoing discussion, we hold that provident fund dues were entitled to be paid in full. In view of the judgment of Supreme Court in “Maharashtra State Cooperative Bank Limited vs. Assistant Provident Fund Commissioner & Others” (Supra), the claim of Appellant was to be satisfied in full, otherwise breach of provision of Section 30(2)(e) would have occurred. We, thus, are inclined to issue direction to the Successful Resolution Applicant to make payment of the admitted claim of the Appellant towards provident fund dues to save the plan from invalidity.
Question – XII;
# 127. The above judgment of the Hon’ble Supreme Court was passed on the strength of Section 48 of Gujarat Value Added Tax Act and the reason for holding the State Tax Officer as secured creditor was clearly mentioned in Paras 55, 56 and 57, as noted above, which judgment also does not come to any aid to the Appellant before us in view of the specific exclusion of I&B Code under Section 82 of the Maharashtra GST Act, 2017, as noticed above. We, thus, are of the view that Department of State Tax, the Appellant, is an Operational Creditor and its liquidation value being nil, on the ground raised by the Appellant, no interference is called for in approval of the Resolution Plan.
Question – XIII;
# 134. In result, the Appeal(s) are decided in following manner:
(I) The Appeal(s) of workmen and employees being Company Appeal (AT) (Insolvency) Nos. 643 of 2021, 752 of 2021, 801 of 2021, 915 of 2021, 771 of 2022 are partly allowed with following directions:
(a) Successful Resolution Applicant is directed to make payment of unpaid provident fund to the workmen till date of insolvency commencement, after deducting the amount already paid towards provident fund in the Resolution Plan to the workmen.
(b) The workmen are also entitled for payment of their gratuity dues as on insolvency commencement date, after adjusting any amount towards gratuity paid under the Resolution Plan.
It is made clear that entitlement of those employees and workmen, who were demerged into AGSL shall not be there, since demerger has not been treated as termination of their services.
(c) The employees are also entitled for the payment of their full provident fund, unpaid up to the date of insolvency commencement date. It is made clear that full payment of provident fund would be of that unpaid part of provident fund, which has not been deposited by the Corporate Debtor in the EPFO.
(d) Employees shall also be entitled for the gratuity, which fell due up to insolvency commencement date.
(e) The rest of the prayers of the workmen and employees are denied.
(f) The Chairman of the Monitoring Committee, erstwhile Resolution Professional is directed to compute the payments to be made to workmen and employees within one month from today and communicate the same to the Successful Resolution Applicant to take steps for payment.
(II) Company Appeal (AT) (Insolvency) No. 987 of 2022 – Regional P.F. Commissioner vs. Ashish Chhawchharia, Resolution Professional for Jet Airways (India) Ltd. & Anr. – is allowed. The Successful Resolution Applicant is directed to make payment to the Appellant of provident fund dues as admitted by the Resolution Professional.
(III) Company Appeal (AT) (Insolvency) No. 792 of 2021 and Company Appeal (AT) (Insolvency) No. 361 of 2022 are dismissed.
(IV) The order of the Adjudicating Authority dated 22.06.2021 approving the Resolution Plan is upheld subject to orders as above.
# 135. Before we close, we record our deep appreciation to learned Counsel for the parties, who have rendered valuable assistance to the Court in deciding somewhat complicated issues, which had arisen in this group of Appeals. No costs.
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