2019 (5) TMI 1516 - Tri - Insolvency and Bankruptcy

Distribution of assets - Workmen dues - whether part of liquidation estate assets or not? - Section 53 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - There is a basic flaw in the reasoning adopted by the liquidator Under Section 36(4) (a) (111), the expression 'liquidation estate' has been defined and it is 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 - Once the sum due to any workman or employee from the provident fund, pension fund and gratuity fund are not constitute a part of the liquidation estate, we fail to understand as to how Section 53 could be invoked along with its explanation. According to Section 53, the proceeds from the sale of the liquidation assets are to be distributed in the manner specified therein. Therefore, the aforesaid amount of the workmen dues cannot be a part of liquidation estate assets. The provident fund dues, pension funds dues 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 - The liquidator has taken a perverse view by unnecessarily referring to explanation Il of Section 53 and Section 326 of the Companies Act, 2013. - Application allowed.

Summary

Issues:
1. Exclusion of workmen's dues from the waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016.
2. Payment of provident fund, pension fund, and gratuity fund dues to workmen.
3. Interpretation of Section 326 of the Companies Act, 2013 in relation to workmen's dues.
4. Application of Section 53 of the Code to workmen's dues.

Analysis:

1. The application sought directions to exclude workmen's dues from the waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016. The workmen argued that provident fund, pension fund, and gratuity fund dues should not be part of the liquidation estate. The Tribunal noted that Section 36(4)(a)(111) clarified that such dues were not to be included in the liquidation estate assets. Therefore, invoking Section 53 for distribution was not appropriate for these dues.

2. The Tribunal considered the provisions of the EPF Act and noted that the Code specified that dues from provident fund, pension fund, and gratuity fund were not part of the liquidation estate. The Tribunal emphasized that these dues were assets of the workmen with the corporate debtor and not part of the liquidation estate. Thus, the liquidator's argument based on Section 326 of the Companies Act, 2013 was rejected.

3. The Tribunal highlighted that the provident fund, pension fund, and gratuity fund dues were not to be treated as part of the liquidation estate. Therefore, the Tribunal allowed the application, directing the liquidator to ensure any deficiency in these funds is rectified, even if the employer failed to divert the requisite amount. The Tribunal also mentioned that decisions regarding bonus and compensation would be made in accordance with the law.

4. Two other applications were disposed of, with directions to be carried out promptly. The Tribunal emphasized the need to revisit the distribution list. Notice was issued to non-applicants for further proceedings. The Tribunal's decision clarified the treatment of workmen's dues in liquidation scenarios, emphasizing the exclusion of provident fund, pension fund, and gratuity fund from the liquidation estate and the inapplicability of Section 53 of the Code to these dues.