Jet Airways liquidation: Supreme Court declines to interfere with PF, gratuity relief for workers

The Supreme Court on Monday declined to interfere with a National Company Law Appellate Tribunal (NCLAT) ruling granting relief to former Jet Airways employees over provident fund (PF) and gratuity dues in the airline’s liquidation proceedings [SBI Vs Manoj Kumar Das].A bench comprising Chief Justice of India (CJI) Surya Kant and Justices Joymalya Bagchi and V Mohana left open larger questions on whether unpaid provident fund and gratuity dues can be excluded from the liquidation estate when no separate fund was maintained for PF and gratuity.The bench said that while the appeals raised arguable questions of law, it was not inclined to interfere with the NCLAT judgment on the facts of the case.However, the Court left those legal questions open to be decided in an appropriate case. “Even though there are arguable points raised in this appeal, which ordinarily would have required this Court to decide, in the particular facts and circumstances, we are not inclined to interfere with the impugned order,” the top court stated in its order..Jet Airways stopped operations in April 2019 and was eventually ordered into liquidation by the Supreme Court in November 2024 after the Jalan-Fritsch consortium failed to implement its resolution plan.The dispute arose from a June 30 judgment of the NCLAT in the Jet Airways liquidation proceedings.The appellate tribunal had dismissed appeals filed by State Bank of India (SBI) and other financial creditors against an NCLT direction requiring PF and gratuity dues of Jet Airways employees to be paid outside the liquidation estate.The NCLAT rejected SBI’s interpretation and held that Section 36(4)(a)(iii) of Insolvency and Bankruptcy Code (IBC) was “due centric and not asset centric”. It ruled that employees could not lose their statutory entitlement merely because the corporate debtor had failed to maintain a separate PF or gratuity fund.The NCLAT also allowed exclusion of 1,656 days spent in litigation while calculating the 24-month period for determining workmen’s dues under Section 53The central issue before the Supreme Court was whether such dues can be excluded from the liquidation estate under Section 36(4)(a)(iii) of the IBC even when the employer had not maintained a separate or identifiable PF or gratuity fund..Solicitor General Tushar Mehta, appearing for SBI, urged the Court to examine the issue, saying it was a recurring question involving the interplay between Sections 36 and 53 of the IBC.He argued that a provident fund, as contemplated under the statutory framework, is a corpus created through periodic deposits by the employer. If such deposits were not made, there was no existing “fund” which could be excluded from the liquidation estate, he submitted..However, the Bench asked whether an employer’s failure to deposit statutory PF dues could ultimately work to the benefit of financial creditors.It observed that non-payment of PF could itself attract penal consequences and asked whether amounts which ought to have been deposited for employees could simply become part of the assets available for distribution under the Section 53 waterfall.The Court also drew an analogy with proceeds of crime, noting that not every asset held by a corporate debtor necessarily becomes available for distribution merely because liquidation has commenced.It thus dismissed the appeal.