Tribunal clarifies that entitlement to provident fund, pension, and gratuity dues is independent of existence of segregated funds on liquidation commencement date; excludes 1,656 days of litigation from calculation of priority workmen dues under IBC
In a significant judgment dated June 30, 2026, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, in the matter of State Bank of India v. Manoj Kumar Das & Ors., has upheld the rights of the workmen and employees of Jet Airways India Ltd. to receive full payment of their provident fund, pension fund, and gratuity dues notwithstanding the absence of segregated funds on the liquidation commencement date. The Tribunal further ruled that the prolonged litigation period of 1,656 days during the Corporate Insolvency Resolution Process (CIRP) shall be excluded for the purpose of computing the 24-month lookback period under Section 53(1)(b) of the Insolvency and Bankruptcy Code, 2016 (IBC).
Background:
Jet Airways, operational since 1993, ceased operations on April 17, 2019. The State Bank of India (SBI) initiated insolvency proceedings against Jet Airways on June 22, 2019, leading to a lengthy and complex insolvency resolution process involving multiple appeals and litigation. The Supreme Court, on November 7, 2024, directed the liquidation of Jet Airways after the failure of the resolution plan implementation, appointing a liquidator.
Key Issues:
The core issues before the NCLAT included:
1. Whether provident fund, pension fund, and gratuity dues are to be excluded from the liquidation estate only if segregated funds exist on the liquidation commencement date.
2. Whether these dues fall within the waterfall distribution mechanism of Section 53(1)(b) or are payable in full outside the liquidation estate.
3. Whether the litigation period exceeding the statutory 330-day CIRP limit can be excluded while computing the 24-month dues period for workmen.
4. Whether salary dues certified by a Recovery Certificate should be excluded from the liquidation estate.
Findings and Reasoning:
The NCLAT extensively analyzed the statutory provisions of the IBC, Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, Payment of Gratuity Act, 1972, and relevant provisions of the Companies Act, along with a plethora of Supreme Court and Tribunal precedents.
1. Entitlement to Provident Fund, Pension, and Gratuity Dues:
The Tribunal held that Section 36(4)(a)(iii) of the IBC excludes all sums due to workmen and employees from provident fund, pension fund, and gratuity fund from the liquidation estate. This exclusion is due-centric and not asset-centric. Therefore, the absence of segregated funds on the liquidation commencement date does not deprive the workmen of their statutory dues, which are protected rights under Article 300-A of the Constitution. The liquidator is obligated to pay these dues from the corporate debtor’s assets, and these are not subject to the waterfall distribution under Section 53(1)(b).
2. Rejection of Financial Creditor’s Contention:
The financial creditor’s argument that exclusion applies only if separate funds exist was rejected as inconsistent with the legislative intent and judicial precedents, including the Tribunal’s own earlier judgment in Jet Aircraft Maintenance Engineers Welfare Association (2022), which was affirmed by the Supreme Court.
3. Computation of the 24-Month Lookback Period:
The Tribunal allowed the exclusion of 1,656 days spent in litigation beyond the statutory CIRP limit of 330 days for the purpose of computing workmen dues under Section 53(1)(b). The liquidation commencement date remains fixed as November 26, 2024, but the lookback period for dues calculation is adjusted to exclude the litigation period, ensuring workmen are not prejudiced by delays.
4. Salary Dues under Recovery Certificate:
Claims relating to salary dues from January to March 2019, evidenced by the Recovery Certificate, do not fall outside the liquidation estate. These are to be admitted and dealt with under the waterfall mechanism of Section 53(1)(b), and no special priority was accorded.
5. Balance between Creditors and Workmen:
The Tribunal emphasized that while the liquidation process cannot be stalled due to pending claims or disputes, adequate safeguards must be maintained to protect workmen’s interests.
Implications:
This judgment reinforces the priority and protection accorded to workmen and employees in insolvency proceedings, ensuring their statutory dues related to provident fund, pension, and gratuity are paid in full and are not diluted in the liquidation process. It also provides clarity on the computation of the priority period for dues considering litigation delays, balancing the rights of creditors and employees.
The ruling affirms the legislative intent to safeguard employees’ social security benefits even in insolvency and sets a precedent that these rights cannot be negated due to absence of segregated funds or prolonged legal processes.
Bottom line:-
Workmen and employees are entitled to full payment of provident fund, pension fund, and gratuity dues, which are excluded from the liquidation estate under Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code (IBC), 2016, and are not subject to the waterfall distribution under Section 53(1)(b).
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 33, 34, 35, 36(4)(a)(iii), 53(1)(b); Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 Section 11; Payment of Gratuity Act, 1972 Section 4; Companies Act, 1956 Sections 529, 529A; Companies Act, 2013 Section 326; Constitution of India Article 300-A
