Mumbai, Feb 04: The National Company Law Tribunal (NCLT) has directed the liquidator of Jet Airways (India) Limited to pay provident fund and gratuity dues of former employees and workmen in full, holding that such statutory dues do not form part of the liquidation estate.
“The liquidator is liable to pay the provident fund and gratuity dues to the workmen and employees as are payable to them in terms of the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, and the Payment of Gratuity Act, 1972, and such dues shall not form part of the liquidation estate,” the order reads.
Applications by former employees
The applications were moved by former workmen associated with the Jet Aircraft Maintenance Engineer’s Welfare Association (JAMEWA) and by a former senior executive of the airline, Gopalkrishnan, seeking exclusion of provident fund and gratuity dues from the liquidation estate, payment of unpaid salaries for January to March 2019, and other consequential reliefs.
Background of insolvency proceedings
Jet Airways entered the corporate insolvency resolution process (CIRP) in June 2019. Although a resolution plan was approved in June 2021, its failure led to the company’s liquidation by an NCLT order dated November 26, 2024, following directions of the Supreme Court.
Arguments by SBI and liquidator
State Bank of India and the liquidator vehemently argued that Section 36(3) of the IBC deals with the assets of the corporate debtor, while Section 36(4)(a) expressly excludes certain third-party assets in the possession of the liquidator from the liquidation estate to be formed under Section 36(1) of the IBC.
They contended that these provisions cannot be read to mean that liabilities on account of provident fund, pension fund, or gratuity fund due from the corporate debtor are necessarily excluded from the liquidation estate comprising the assets of the corporate debtor.
It was further emphasised that only sums due from the provident fund, pension fund and gratuity fund are excluded, and not sums due from the corporate debtor itself.
Tribunal’s findings on statutory dues
After examining earlier rulings of the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court, the NCLT held that provident fund and gratuity dues are statutory obligations and must be paid in full to employees, irrespective of whether a separate fund had been maintained by the corporate debtor.
The tribunal clarified that these dues are excluded from the liquidation estate under Section 36(4) of the IBC and must be paid outside the waterfall mechanism under Section 53.
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Direction on unpaid salaries
On the issue of unpaid salaries for January to March 2019, the tribunal directed the liquidator to admit and adjudicate the claim on merits in accordance with Section 53 of the IBC, noting that claims are to be invited afresh in liquidation proceedings, notwithstanding their earlier rejection during the CIRP.
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