NCLT Chandigarh: No gratuity is payable, when corporate debtor does not create a gratuity gund

The National Company Law Tribunal (“NCLT”) in the case Small Industries Development Bank of India (SIDBI)v International Mega Food Park Limited, the Chandigarh Bench, comprising of Judicial Member, Shri Harnam Singh Thakur and Technical Member, Shri Subrata Kumar Dash observed while adjudicating an application has held that if the Corporate Debtor had not created a Gratuity Fund then the Resolution Professional is not directed to pay Gratuity to the employees. The bench stated that the leave encashment and the salary of employees accrued during CIRP period fall within the definition of insolvency resolution process cost under Section 5(13)(c) of IBC.
Facts of the Case:
The Corporate Debtor, International Mega Food Park Ltd was being admitted into the Corporate Insolvency Resolution Process (“CIRP”) on 28.02.2019, by the Adjudicating Authority. The Resolution Professional appointed was Mr. Sumat Gupta.
In the present case, the Applicant, Mr. Rakesh Sharma has worked in the Corporate Debtor as AGM Accounts and Finance for 7 years and on 18.05.2019, his services were terminated post commencement of CIRP. It had been stated that the Applicant had sought full and final clearance of pending Gratuity dues, Leave Encashment and salary from the Corporate Debtor and when the amounts were not released, an application was filled by the Applicant before the Adjudicating Authority, wherein seeking release of Gratuity dues, Leave Encashment and salary during the CIRP period and the same does not form a part of the liquidation estate for the Corporate Debtor.

NCLT Decision
It was observed by the bench that it is undisputed that the Applicant worked for the Corporate Debtor during CIRP. The Applicant expenses incurred by the Applicant will come under the Insolvency Resolution Process cost under Section 5(13)(c) of IBC.
It was further held by the bench that in absence of a Gratuity Fund created by the Corporate Debtor and the Resolution Professional cannot be directed to pay gratuity to employee. Thus, the leave and the salary encashment of employees accrued during CIRP period fall within the definition of insolvency resolution process cost under Section 5(13)(c) of IBC.
The bench observed that reliance placed on the Supreme Court judgment in the case Sunil Kumar Jain and others v Sundaresh Bhatt and others, wherein the Top Court held that the Salaries/Wages of the Workmen/Employees during CIRP period can only be included in the CIRP costs if it is established that the IRP/Resolution Professional managed the operations of the Corporate Debtor as a going concern and the concerned employees/workmen actually worked during the CIRP.
It has further been directed by the bench that the Resolution Professional to make provisions for payment of salary and leave encashment to the Applicant after taking necessary information and as per the Applicant’s entitlement, the resolution plan may be modified by the Resolution Professional to that extent with the approval of CoC.
Accordingly, the bench disposed of the application.

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