New Delhi, The NCLAT has dismissed an appeal by a former employee of Duncans Industries seeking priority payment of his gratuity and leave encashment dues by classifying them as insolvency resolution process costs.
A three-member bench upheld the earlier order passed by the Kolkata Bench of the National Company Law Tribunal (NCLT), which in September 2024 dismissed the plea of a former director of the previous management of Duncans Industries.
The appellate tribunal said such dues must instead be settled as per the company’s approved resolution plan.
“IRP cost essentially means those costs which are actually incurred by the resolution professional during the insolvency resolution process, but slated for deferred payment to be paid first in the order of priority when payment happens as per Section 53 formula,” it said.
Section 53 of the Insolvency and Bankruptcy Code (IBC) mandates the “waterfall mechanism”, a strict statutory formula dictating the priority in which liquidation proceeds are distributed to creditors.
“Very obviously, the obligation to pay gratuity is not an expense which the resolution professional has actually incurred. Indeed, it accrues to an employee as an aspect of his terminal benefit and hence cannot even be equated to the salary payable to an employee during an insolvency resolution process,” said the National Company Law Appellate Tribunal (NCLAT).
Subir Mukherje, who had served Duncans Industries for over 25 years before superannuating on April 30, 2021 — during the pendency of the Corporate Insolvency Resolution Process (CIRP) — had claimed over Rs 83.58 lakh in dues.
The resolution professional (RP) had partially admitted the claim, later revising the gratuity component to Rs 52.82 lakh, but withheld disbursement pending implementation of the resolution plan.
Aggrieved by this, Mukherjee moved the NCLT seeking a direction to the RP to release the amount as CIRP cost, arguing that his statutory dues could not be made contingent on the resolution process.
The NCLT rejected the plea in September 2024, following which he filed an appeal before the NCLAT.
However, the NCLAT also declined it and said section 5 (13) provides an exhaustive definition of CIRP costs, limited to expenses actually incurred by the RP during the resolution process such as interim finance, RP fees, and costs of running the debtor as a going concern.
The tribunal said gratuity is a “terminal benefit” accruing to an employee and cannot be equated with such expenses, or even with salary paid during the CIRP period.
To conclude, “we find that the appellant’s claim is misconceived and cannot be sustained in law. Accordingly, the appeal is dismissed as devoid of merits”, the NCLAT said.
