Sabu K.V. & Anr. Vs. Ravindra Chaturvedi Liquidator of Excel Glasses Limited - The claim of wages cannot be sanctioned unless the statutorily constituted forums either under the Industrial Dispute Act, Payment of Wages Act and Bonus Act have rendered its decision.

  NCLT Kochi (18.11.2021) in Sabu K.V. & Anr.  Vs. Ravindra Chaturvedi Liquidator of Excel Glasses Limited, [MA/221/KOB/2020 & MA/222/KOB/2020 in IBA/258/2019 (Chennai Bench)] held that;

• The claim of wages cannot be sanctioned unless the statutorily constituted forums either under the Industrial Dispute Act, Payment of Wages Act and Bonus Act have rendered its decision. However, no such decision or award is available in favour of the workmen entitling them to claim these amounts. It is also seen that the Respondent admitted the claim amount on the basis of the financial records of the Corporate Debtor and the value ascertained by the Registered Actuarial Valuer vide his Report dated 10.02.2020 for Gratuity liability outstanding as on 21.10.2019.

Excerpts of the Order;

# 1. These appeals have been filed by the Petitioners/Appellants who were workmen/ employees of Excel Glasses Limited under Section 42 of Insolvency & Bankruptcy Code, 2016 (hereinafter referred as Code), aggrieved by the decision of the liquidator in the Claims of Workmen/ Employees in the matter of Excel Glasses Limited.

 

The brief facts are: -

# 3. Pursuant to the order of liquidation, the Liquidator, (respondent herein) had issued Public Announcement on 21.10.2019 intimating liquidation of the subject company and calling upon the stakeholders of the subject company to submit proof of their claims on or before 20.11.2019 to the respondent. The said public announcement were published on 24.10.2019 in two newspapers. Subsequently the Appellants submitted their claim in Form E before the respondent. Thereafter nothing was heard from the respondent and on 09.03.2020, the appellants herein came to know that their total claim being rejected by admitting only part of the claim amount. On 10.08.2020, an order was passed by this Tribunal in MA/78/KOB/2020 under Section 33(1)(n) of the Insolvency and Bankruptcy Code, 2016, for modification of the list of stakeholders.

 

# 4. The claim amounts which included gratuity etc. were never paid to them till 21.10.2019, the date on which order directing liquidation of the subject Company was passed by this Tribunal. On 24.08.2020 an impugned communication has been issued by the Liquidator under Section 40(2) of the IBC wherein the Liquidator has partly rejected the claims made by the Appellants. Therefore, the Appeals were filed by the Appellants.

 

Brief description of claim of the appellants:

MA/221/KOB/2021

The appellant Sabu K. V. stated that he was an Ex-employee of the Corporate Debtor since 14.09.1996 and was in continuous service till 21.10.2019. He had submitted his claim in Form E on 20.11.2019 to the respondent claiming amounts on various counts such as salary arrears, bonus, lay off compensation, closure/ retrenchment compensation, and notice pay and gratuity. His total claim amount is Rs 18,00,000/-.

However, from the communication issued by the Respondent dated 24.08.2020, the appellant came to know that an amount of Rs. 1,36,686/- has only been admitted by the respondent.

Aggrieved by the decision of the respondent rejecting the claim of the appellant, he filed this application under Section 42 of the Code.

 

MA/222/KOB/2021

The appellant Sunil Kumar O.N. stated that he was an Ex-employee of the Corporate Debtor from 04.04.1997 and was in continuous service till 21.10.2019. He had submitted his claim in Form E on 20.11.2019 to the respondent claiming amounts on various counts such as salary arrears, bonus, lay off compensation, closure/ retrenchment compensation, and notice pay and gratuity. His total claim amount is Rs 17,24,372/-.

However, from the communication issued by the Respondent dated 24.08.2020, the appellant came to know that an amount to the tune of Rs. 1,36,885/- has only been admitted by the respondent.

Aggrieved by the decision of the respondent rejecting the claim of the appellant, he filed this application under Section 42 of the Code.

 

# 5. The respondent -Liquidator, filed counter in each case, inter alia, stating as under: -

• I. Appellants claims are already partially admitted to the extent of gratuity as per records of Corporate Debtor and as per report of Actuarial Valuer with all requisite supporting to substantiate the same. The Appellants claims has been partially admitted by the Respondent after careful perusal of documents and with abundant caution.

• II. The claims of Gratuity made by the Appellants has been admitted on the basis of audited books/record and actuarial valuer’s report with detailed reasoning for rejection of other claims have been communicated as per Section 40(2) through mail. The Respondent has followed the principles and provisions of the Code by the book and has partially admitted the claim of the Appellants based on the said provisions and documents submitted by the Appellants considering the audited books of accounts and all the data available to the Respondent.

• III. The Appellants are not entitled to any interest on gratuity, since they did not provide the Respondent with any order from controlling authority under the Payment of Gratuity Act which directs the Respondent to pay specific interest on gratuity even after repeated requests by the Respondent to furnish the said documents. The only claims admissible were of gratuity up to the date of liquidation or date of retirement whichever earlier which are admitted.

 

Findings:

# 6. We have gone through the case records and the arguments advanced by the learned counsel for the appellants as well as the learned Senior Counsel for the respondent – Liquidator as gone through the extant provisions of the Code and Rules made thereunder. After hearing the arguments made by both parties through video conferencing and on verification of records it is found that the submission of the Respondent that he has not been provided with any order from the appropriate authority in connection with payment of gratuity etc. Since the Appellants have not produced any order of the Labour Court or such authorities the Liquidator on his own cannot decide on disputed liability of them. He can only act on the strength of crystalized claims.

 

# 7. We have also gone through the Settlement Agreement dated 02.12.2015 which was arrived at between the Management of Excel Glasses and the Trade Unions, in which it was stated that the lock-out was valid and legally done by the company.

 

# 8. This Tribunal suggested modification in the list of stakeholders vide order dated 10.08.2020 in IA 78/KOB/2020 filed under Section 35(1)(n) of the Code and that the Respondent had duly complied with that order. It is the settled position of law that the provident fund, the pension fund and the gratuity fund, do not come within the purview of ‘liquidation estate’ for the purpose of distribution of assets under Section 53 of the Code. Based on this, the only inference which can be drawn is that Pension Fund, Gratuity Fund and Provident Fund can’t be utilised, attached or distributed by the liquidator, to satisfy the claims. Section 36(2) of the I&B Code 2016 provides that the Liquidator shall hold the Liquidation Estate in fiduciary for the benefit of all the Creditors. The Liquidator has no domain to deal with any property of the Corporate Debtor, which is not the part of the Liquidation Estate. It is clear that in terms of sub-Section (4)(a)(iii) of Section 36 all sums due to any workman or employees from the Provident Fund, Pension Fund and the Gratuity Fund, do not form part of the liquidation estate/liquidation assets of the ‘Corporate Debtor. To get further clarity on this issue, we have gone through Section 36(4)(a)(iii) of the IBC, 2013 which reads as under:

• Section 36: Liquidation estate

• (4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation: —

• (a) assets owned by a third party which are in possession of the corporate debtor, including—

• (i) assets held in trust for any third party;

• (ii) bailment contracts;

• (iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund;

 

# 9. The above Section leads us to go through Section 53 of the Act which is as under: -

Section 53: Distribution of assets.

• 53. (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, 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) (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 

 

# 10. Moreover, some of the Appellants failed to provide any proof of having been appointed in service of employment of the Corporate Debtor and that the benefit accruing to the Appellants shall be subject to documents available on record with the Respondent unless otherwise proven with sufficient evidence that the Appellants were in employment of Corporate Debtor and that the Appellants without properly responding to the communication addressed to them, have now come with the above appeals. This cannot be accepted. In the light of the above findings, we came to the conclusion that the claim of wages cannot be sanctioned unless the statutorily constituted forums either under the Industrial Dispute Act, Payment of Wages Act and Bonus Act have rendered its decision. However, no such decision or award is available in favour of the workmen entitling them to claim these amounts. It is also seen that the Respondent admitted the claim amount on the basis of the financial records of the Corporate Debtor and the value ascertained by the Registered Actuarial Valuer vide his Report dated 10.02.2020 for Gratuity liability outstanding as on 21.10.2019. 

 

Hence we do not find any merit in any of the appeals. Appeals MA/221/KOB/2020 and MA/222/KOB/2020 are dismissed.

 

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Blogger’s Comments; Following are some of the provisions of statutes governing Provident Fund, Pension & Gratuity payments.

 

A. PF, Pension & Gratuity are terminal benefits, basically employees’ dues under statutory provisions, which are provided through contributions to the dedicated funds, out of expenditure head - “workmen/employees cost'' by a company. 

 

For PF &/or Pension, the contributions are placed either with the EPFO or with the exempted PF Trust &/or Pension Fund Trust as per the provisions of “Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.  Similarly for Gratuity, either the employer has to obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under section 4A(1) of  “The Payment of Gratuity Act, 1972. from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 (31 of 1956) or has established an approved gratuity fund in respect of his employees under the provisions of section 4A(2) of  “The Payment of Gratuity Act, 1972 

 

Liability of the company (CD) towards these funds/trusts is calculated as per “Accounting Standard 15 (AS 15): Employee Benefits''

 

B. Section 33 Initiation of liquidation. -

(7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.

 

Thus, this notice of discharge tantamount to retrenchment of employees / workmen & accordingly retrenchment compensation becomes payable in terms of section 2(oo) read with section 25F of “The Industrial Disputes Act” & gratuity under “Payment of gratuity Act, 1972”, irrespective of quantum of provisions under gratuity fund. 

 

C.  Employees‟ Provident Funds and Miscellaneous Provisions Act, 1952.

# Section 11. Priority of payment of contributions over other debts.—

XXXXX

(2) Without prejudice to the provisions of sub-section (1), if any amount is due from an employer whether in respect of the employee’s contribution (deducted from the wages of the employee) or the employer’s contribution, the amount so due shall be deemed to be the first charge on the assets of the establishment, and shall, notwithstanding anything contained in any other law for the time being in force, be paid in priority to all other debts.

 

D. Case Law;

i). NCLT (PB) New Delhi (19.03.2019) in Alchemist Asset Reconstruction Co. Ltd vs. Moser Baer India Ltd. [Item No.119 (IB)-378(PB) 2017] Citing ruling of NCLT Mumbai (12.09.2018) in Asset Reconstruction Co. (India) Ltd. vs. Precision Fasteners Ltd. [MA 576 & 752 of 2018 in CP No. (IB) -1339 (MB) / 2017 ] held that; dues in respect of Provident Fund / Pension Fund / Gratuity Fund shall not be treated as part of the liquidation estate.

• # 4. A perusal of the aforesaid para shows that the provident fund dues, pension fund dues and gratuity 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.

• # 5 ………….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 had not diverted the requisite amount,"

 

In appeal to the above orders of NCLT dated 19.03.2019, NCLAT (19.08.2019) in State Bank of India vs. Moser Baer Karamchari Union & Anr.[CA (AT) (Insolvency) No. 396 of 2019] held that; the provident fund, the pension fund and the gratuity fund do not come within the meaning of ‘liquidation estate & found no ground to interfere with the impugned order dated 19th March, 2019.

• # 16. In terms of sub-section (4) (a) (iii) of Section 36, as all sums due to any workman or employees from the provident fund, the pension fund and the gratuity fund, do not form part of the liquidation estate / liquidation assets of the ‘Corporate Debtor’, the question of distribution of the provident fund or the pension fund or the gratuity fund in order of priority and within such period as prescribed under Section 53(1), does not arise.

• # 24. Once the liquidation estate / assets of the ‘Corporate Debtor’ under Section 36(1) read with Section 36 (3), do not include all sum due to any workman and employees from the provident fund, the pension fund and the gratuity fund, for the purpose of distribution of assets under Section 53, the provident fund, the pension fund and the gratuity fund cannot be included. 

• # 25. The Adjudicating Authority having come to such finding that the aforesaid funds i.e. the provident fund, the pension fund and the gratuity fund do not come within the meaning of ‘liquidation estate’ for the purpose of distribution of assets under Section 53, we find no ground to interfere with the impugned order dated 19th March, 2019. 

 

NCLAT in it’s orders dated 19.08.2019 had upheld the orders of NCLT dated 19.03.2019, inter alia ruling under the “doctrine of merger” as under;

• # 5 ………….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 had not diverted the requisite amount,"

 

ii). NCLAT (19.12.2019) in Regional Provident Fund Commissioner-I, Ahmedabad  Vs. Ramchandra D. Choudhary [Company Appeal (AT) (Insolvency) No. 1001 of 2019] held that; 

• However, as no provisions of the ‘Employees Provident Funds and Miscellaneous Provision Act, 1952’ is in conflict with any of the provisions of the ‘I&B Code’ and, on the other hand, in terms of Section  36 (4) (iii), the ‘provident fund’ and the ‘gratuity fund’ are not the assets of the ‘Corporate Debtor’, there being specific provisions, the application of Section 238 of the ‘I&B Code’ does not arise.

• Therefore, we direct the ‘Successful Resolution Applicant’- 2nd Respondent (‘Kushal Limited’) to release full provident fund and interest thereof in terms of the provisions of the ‘Employees Provident Funds and Miscellaneous Provision Act, 1952’ immediately, as it does not include as an asset of the ‘Corporate Debtor’. The impugned order dated 27th February, 2019 approving the ‘Resolution Plan’ stands modified to the extent above. The appeal preferred by ‘Regional Provident Fund Commissioner’ is allowed with aforesaid observations and directions. No costs.

 

In appeal the Hon'ble Supreme Court (20.05.2020) In Kushal Limited vs The Regional Provident Fund Commissioner and others (Civil Appeal No.1920 of 2020) upheld the orders of NCLAT on the matter as under;;

• “We find no ground to interfere with the impugned order passed by the Tribunal. The appeal is, accordingly, dismissed.

• Pending interlocutory application(s), if any, is/are disposed of.”

 

E. The Doctrine of "Merger "

The doctrine of merger is neither a doctrine of constitutional law nor a doctrine statutorily recognised. It is a common law doctrine founded on principles of propriety in the hierarchy of justice delivery system.

 

SCI (26.07.2010) in Pernod Ricard India(P) Ltd vs Commr. Of Customs, Icd Tughlakabad (Civil Appeal No. 5840 of 2008) held that;

• The logic underlying the doctrine of merger is that there cannot be more than one decree or operative orders governing the same subject-matter at a given point of time. 

• Once the superior court has disposed of the lis before it either way - whether the decree or order under appeal is set aside or modified or simply confirmed, it is the decree or order of the superior court, tribunal or authority which is the final, binding and operative decree or order wherein merges the decree or order passed by the court, tribunal or the authority below. 

• Once a special leave petition has been granted, the doors for the exercise of appellate jurisdiction of this Court have been let open. 

• It would not make a difference whether the order is one of reversal or of modification or of dismissal affirming the order appealed against. It would also not make any difference if the order is a speaking or non-speaking one.

 

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