Concor Air Limited v. MR Ashish Chhawchharia: Reinforcing Protections for Workmen's Provident and Gratuity Funds Under IBC

Introduction

The case of Concor Air Limited v. MR Ashish Chhawchharia adjudicated by the National Company Law Appellate Tribunal (NCLAT) on October 21, 2022, addresses critical issues concerning the treatment of workmen's dues under the Insolvency and Bankruptcy Code, 2016 (IBC). The appeal revolves around the approval of the Resolution Plan submitted by the Jalan Fritesch Consortium for Jet Airways (India) Limited, a corporate debtor that ceased operations in April 2019. The primary litigants in the appeals are the workmen and employees of Jet Airways, along with certain operational creditors, challenging the tribunal's order that seemingly undermines their statutory rights to provident fund (PF) and gratuity dues.

Summary of the Judgment

The NCLAT upheld the tribunal's order approving the Resolution Plan but modified it to ensure that workmen and employees receive their full statutory dues. The Resolution Plan initially proposed a fixed sum of ₹52 crore to settle all claims by workmen and employees, which was substantially lower than the minimum liquidation value of ₹113 crore recognized by the Resolution Professional. The tribunal directed the Successful Resolution Applicant (Jalan Fritesch Consortium) to make payments of unpaid PF and gratuity dues to workmen and employees in addition to the amounts already provided in the Resolution Plan.

Analysis

Precedents Cited

The judgment extensively references several pivotal cases and statutory provisions to bolster its decision:

K. Sashidhar v. Indian Overseas Bank: Affirmed the limited scope of judicial review over the Committee of Creditors' (CoC) commercial decisions.
State Bank Of India v. Moser Baer Karamchari Union: Established that provident fund and gratuity dues are excluded from the liquidation estate under Section 36(4)(a)(iii) of the IBC.
Tourism Finance Corporation Of India Ltd. v. Rainbow Papers Ltd.: Reinforced the protection of provident fund and gratuity dues from being part of the liquidation estate.
Sikander Singh Jamuwal v. Vinay Talwar: Clarified that provident fund and gratuity dues must be fulfilled in full apart from what is covered under the Resolution Plan.
Ebix Singapore Pvt. Ltd. v. CoC of Educomp Solutions Ltd.: Addressed the non-justiciable nature of condition precedents in the Resolution Plan.
Relevant sections of the IBC, including Sections 30, 31, 36, and 53, were thoroughly examined to interpret the obligations of the Resolution Professional and the CoC.

Legal Reasoning

The tribunal's reasoning hinged on the clear statutory framework provided by the IBC concerning the treatment of workmen's dues:

Exclusion from Liquidation Estate: Under Section 36(4)(a)(iii) of the IBC, sums due to workmen from PF, pension, and gratuity funds are explicitly excluded from the liquidation estate, thereby ensuring these dues are protected from being used to satisfy other creditors' claims.
Minimum Liquidation Value: Section 53(1)(b) mandates that operational creditors (which include employees) must receive an amount not less than what they would have received in liquidation, referred to as the minimum liquidation value.
Judicial Review Limitations: Citing the aforementioned precedents, the tribunal emphasized the non-justiciable nature of the CoC's commercial decisions, thereby limiting its interference to statutory compliances without delving into the merits of the CoC’s business judgments.
Condition Precedents: The tribunal acknowledged that condition precedents in the Resolution Plan, such as obtaining necessary operational approvals, are business necessities and do not warrant rejection of the plan unless they contravene statutory mandates.
Prudent Management: The resolution professional’s refusal to classify dues during the Corporate Insolvency Resolution Process (CIRP) as costs was deemed appropriate given that the corporate debtor was not operating as a going concern during that period.

Impact

This judgment reinforces the protective measures for employees under the IBC, ensuring that their statutory benefits cannot be compromised in insolvency proceedings. By mandating the fulfillment of PF and gratuity dues irrespective of their exclusion from the liquidation estate, the tribunal sets a precedent that employers must honor these obligations fully, even during financial restructuring. This decision may influence future insolvency cases by compelling resolution professionals and CoCs to prioritize employee benefits alongside the statutory requirements, thereby balancing the interests of all stakeholders more equitably.

Complex Concepts Simplified

Insolvency Resolution Process Costs (CIRP Costs): Expenses incurred by the Resolution Professional in managing the corporate debtor during the insolvency process, such as running the business as a going concern, are recognized separately from other debts.
Liquidation Estate: The pool of assets available for distribution among creditors during liquidation. Certain assets, like provident fund and gratuity dues, are excluded to protect employees' interests.
Committee of Creditors (CoC): A body comprising financial creditors that has the authority to approve or reject Resolution Plans based on majority voting.
Resolution Plan: A proposal submitted by a Resolution Applicant detailing how the corporate debtor's affairs will be managed post-insolvency, including debt repayment and operational restructuring.
Minimum Liquidation Value: The least amount that operational creditors should receive, equivalent to what they would have been entitled to during a liquidation process.

Conclusion

The Concor Air Limited v. MR Ashish Chhawchharia judgment underscores the judiciary's commitment to upholding employee rights within the IBC framework. By ensuring that provident fund and gratuity dues are fully honored and are not subsumed under the liquidation estate, the tribunal provides a robust safeguard for workers against potential exploitation during insolvency processes. This decision not only reaffirms statutory protections but also emphasizes the imperative for Resolution Professionals and the CoC to align their practices with the legal mandates, thereby fostering a more balanced and equitable approach to corporate insolvency.