In a significant judgment, the Calcutta High Court, presided over by Justice Shampa Dutt (Paul), reaffirmed that employees' gratuity dues are statutorily protected under the Payment of Gratuity Act, 1972, and do not form part of a corporate debtor's liquidation estate under the Insolvency and Bankruptcy Code, 2016 (IBC). This ruling underscores the court's commitment to safeguarding employees' rights, even amidst corporate insolvency proceedings.
Background of the Case
The case originated from a writ petition filed by Stesalit Limited, challenging an order dated November 11, 2024, issued by the Assistant Labour Commissioner (Central) and Controlling Authority. This order had directed Stesalit Limited to pay gratuity, along with interest, to Arun Roy, a former Manager (Technical Operations) who had served the company from September 18, 2002, until his resignation on December 3, 2014. During the Corporate Insolvency Resolution Process (CIRP) of Stesalit Limited, Roy had submitted his claim for gratuity, which was admitted by the Interim Resolution Professional (IRP). However, the amount awarded under the approved resolution plan was ₹38,808.43, significantly less than Roy's entitlement. Dissatisfied, Roy initiated proceedings under the Payment of Gratuity Act, 1972, leading to the Controlling Authority's order in his favor.
Petitioner's Contentions
Stesalit Limited contended that Roy's gratuity claim had already been settled under the CIRP's resolution plan and that the provisions of the IBC, being a special legislation, override the Payment of Gratuity Act, 1972. The company argued that allowing a separate claim under the Payment of Gratuity Act amounted to forum shopping and that the Controlling Authority lacked jurisdiction in this matter.
Respondent's Arguments
Arun Roy, the respondent, maintained that gratuity is a statutory right under the Payment of Gratuity Act, 1972, and that Section 36(4) of the IBC specifically excludes gratuity dues from forming part of the liquidation estate. He argued that gratuity payments are distinct from other liabilities under the IBC and must be paid in full, irrespective of the resolution plan.
Court's Observations and Ruling
The court observed that gratuity is a sum payable by the employer to workers upon completing a prescribed period of service and that such payments are statutorily protected under the Payment of Gratuity Act, 1972. It noted that Section 36(4)(a)(iii) of the IBC stipulates that all sums due to any workman or employee from the provident fund, the pension fund, and the gratuity fund do not form part of the liquidation estate. The court referred to precedents, including the National Company Law Appellate Tribunal's (NCLAT) decision in State Bank of India v. Moser Baer Karamchari Union, which held that provident fund, pension fund, and gratuity fund do not come within the meaning of assets of the corporate debtor for distribution under Section 53 of the IBC. Additionally, the Supreme Court's observation in Savan Godiwala, the Liquidator of Lanco Infratech Limited v. Apalla Siva Kumar, emphasized that even if no fund is maintained, the liquidator must make adequate provisions for paying gratuities to eligible employees.
The court further noted that the Payment of Gratuity Act, 1972, has an overriding effect, ensuring that employees' statutory rights are upheld even in insolvency proceedings. It held that gratuity payments are outside the waterfall mechanism under Section 53 of the IBC and must be paid in full, irrespective of the resolution plan. Consequently, the court dismissed the writ petition filed by Stesalit Limited, upholding the Controlling Authority's order directing the payment of gratuity to Arun Roy.
Implications of the Judgment
This judgment reinforces the principle that employees' gratuity dues are sacrosanct and cannot be compromised during corporate insolvency proceedings. By affirming that such dues do not form part of the liquidation estate and must be paid in full, the court has ensured that employees' rights are protected, even when a company undergoes insolvency or liquidation. This ruling serves as a precedent, emphasizing that statutory obligations toward employees, such as gratuity payments, remain enforceable despite the financial distress or restructuring of a company.
Conclusion
The Calcutta High Court's decision highlights the judiciary's role in upholding employees' statutory rights amidst corporate insolvency proceedings. By ensuring that gratuity dues are excluded from the liquidation estate and must be paid in full, the court has reinforced the protective framework established by labor laws. This judgment serves as a crucial reminder to corporations and insolvency professionals that employees' entitlements, particularly statutory dues like gratuity, cannot be disregarded or diminished during insolvency or restructuring processes.
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