"Under Section 36(4) of the Code, gratuity dues are distinct; they are not simply part of the debtor's assets but represent the earned entitlements of employees." This statement was made by the Calcutta High Court in a dispute concerning the payment of gratuity under the Payment of Gratuity Act, 1972.
A writ petition was filed against an order directing the payment of gratuity with interest, arising from an ex-employee’s claim that was partially adjudicated during insolvency proceedings. The petitioner contended that the order was arbitrarily allowed, while the respondent maintained that his claim remained valid. This judgment delves into the intersection of labor law and insolvency, questioning statutory obligations and the rightful protection of employees’ dues.
Brief Facts:
A writ petition was filed against the Order dated 11.11.2024 by the Assistant Labour Commissioner (Central) & Controlling Authority in Case No. 48(24) 2020-E2 (Shri Arun Roy v M/s Stesalit Limited). The Order directed payment of gratuity along with interest under the Payment of Gratuity Act, 1972. The petitioner claimed that Respondent No. 4, an ex-employee who served as Manager, Technical Operations from 18.09.2002 to 03.12.2014, had already had his gratuity claim considered during CIRP, where an amount of Rs. 38,808.43 was awarded under the approved Resolution Plan.
Contentions of the Petitioner:
The petitioner argued that the Controlling Authority had wrongly and arbitrarily allowed Respondent No. 4’s application under the Payment of Gratuity Act despite the claim having been adjudicated during CIRP. It was contended that the petitioner company, now under new management via CIRP, should not be subjected to forum shopping or an abuse of the legal process when the Insolvency and Bankruptcy Code’s provisions override the Gratuity Act.
Contentions of the Respondent:
Respondent No. 4 maintained that alternative remedies existed before the Regional Labour Commissioner and the Appellate Authority. He argued that his position as Management Staff (supervisory) did not exclude him from the ambit of the Payment of Gratuity Act, and that the petitioner had approached the Writ Court without exhausting all available avenues, thereby justifying the maintainability of his claim.
Observation of the Court:
The Court observed that the Payment of Gratuity Act, 1972, uses a broader definition by employing "employee" instead of "workman." It noted, "Under Section 36(4) of the Code, gratuity dues are distinct; they are not simply part of the debtor's assets but represent the earned entitlements of employees." The Court further stated, "Even if the issue of fund creation is considered literally, it holds relevance only when evaluating workmen's dues under Section 53 of the Insolvency and Bankruptcy Code (IBC). The absence of such a fund does not influence the treatment of excluded dues-like gratuity dues-under Section 36 of the Code. Gratuity payments are classified as excluded dues, and thus they remain outside the scope of asset distribution among creditors, as stipulated by the waterfall mechanism in Section 53. Therefore, the respondent's reliance on the absence of a gratuity fund is unfounded in this context."
Regarding the resolution plan, the Court remarked, "When submitting the resolution plan, the respondent needed to recognize that, until the company ceased operations, any dues owed to workers-including salaries, provident fund contributions, and gratuity-constituted assets already earned by the workers. The employer held no proprietary right over these amounts, as they had been accrued through the employees' services. Consequently, these dues fell into the category of excluded assets in possession of the Corporate Debtor. The respondent was therefore obligated to prioritize the release of these dues and to explicitly include them within the resolution plan. Failing to account for these obligations reflects a significant oversight by River Rail in the submission of the resolution plan and the acquisition process. This negligence compromised the rightful entitlements of the workers, disregarding their status as earned and excluded dues."
The Court also relied on established precedents, stating, "Provident fund Dues, Pension Fund Dues and Gratuity Fund Dues cannot be part of Section 53 of the Code." It further emphasized, "even if no fund is kept, the liquidator must make adequate provisions for paying gratuities to the applicants in accordance with their eligibility. The Liquidator cannot avoid the obligation to pay gratuities to the employees on the grounds that the CD did not maintain separate funds." Additionally, it was noted, "Due to their exclusion from the liquidation estate under Section 36(4)(b)(iii), the workers and employees are entitled to the full amount of the provident fund and gratuity."
Overall, the Court concluded that River Rail's failure to account for gratuity obligations in its resolution plan was a significant oversight, warranting full payment of the gratuity dues to the employees.
The decision of the Court:
The findings of the controlling authority were found to be in accordance with law and were not interfered with. The writ petition, WPA 532 of 2025, was dismissed, and all connected applications were disposed of. The interim order was vacated, and an urgent photostat certified copy of the judgment was to be supplied to the parties expeditiously after all necessary legal formalities had been complied with.
Case Title: M/s. Stesalit Limited v. Union of India & Ors.
Case no: WPA 532 of 2025
Coram: Hon‟ble Mr. Justice Shampa Dutt (Paul)
Advocate for Petitioner: Sr. Adv. Mr. Jishnu Chowdhury, Adv. Mr. Divyakant Lahoti, Adv. Ms. Shrinalli Kajaria, Adv. Mr. Vijay Kumar, Adv. Ms. Pramena Bisht, Adv. Mr. Madhus Jhaver, Adv. Mr. Siddharth Tripathi.
Advocate for Respondent: Adv. Mr. Subhash Chandra Sarkar
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