Supreme Court Upholds NCLAT Ruling on Jet Airways Liquidation
The Supreme Court of India has decided not to intervene in a significant ruling by the National Company Law Appellate Tribunal (NCLAT) that offers relief to former employees of Jet Airways regarding their provident fund (PF) and gratuity dues during the airline’s liquidation process. This decision was made in the case of SBI Vs Manoj Kumar Das.
A bench led by Chief Justice of India (CJI) Surya Kant, alongside Justices Joymalya Bagchi and V Mohana, considered the legal question of whether unpaid PF and gratuity dues could be excluded from the liquidation estate in instances where no distinct fund had been maintained for such dues. Despite recognizing the appeal’s arguable legal points, the bench chose not to disturb the NCLAT’s judgment, based on the specifics of the case. However, they left the broader legal questions open for future consideration.
The Court’s order stated, “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.”
Jet Airways ceased its operations in April 2019, eventually entering liquidation after the Supreme Court’s decision in November 2024, due to the failure of the Jalan-Fritsch consortium to implement its resolution plan. The contested issue arose from a June 30 NCLAT judgment during the Jet Airways liquidation process. The tribunal dismissed appeals by the State Bank of India (SBI) and other financial creditors against a National Company Law Tribunal (NCLT) directive, which required the payment of Jet Airways employees’ PF and gratuity dues outside the liquidation estate.
The NCLAT held that Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code (IBC) is “due centric and not asset centric,” affirming that employees should not forfeit their statutory entitlements simply because the corporate debtor did not maintain a separate PF or gratuity fund. The appellate body also allowed for the exclusion of 1,656 days spent in litigation when calculating the 24-month period for determining workmen’s dues under Section 53.
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The Supreme Court’s primary concern was whether such dues could be excluded from the liquidation estate under Section 36(4)(a)(iii) of the IBC, even if no separate PF or gratuity fund was maintained by the employer. Solicitor General Tushar Mehta, representing SBI, urged the Court to consider this recurring issue involving the interaction between Sections 36 and 53 of the IBC. He argued that a provident fund, as envisioned under the statutory framework, is a corpus formed through periodic employer deposits, and the absence of such deposits meant no “fund” existed for exclusion from the liquidation estate.
Nonetheless, the Supreme Court bench questioned whether an employer’s failure to deposit statutory PF dues should end up benefiting the financial creditors. The Court noted that non-payment of PF could lead to penal consequences and questioned whether amounts that should have been deposited for employees could simply be absorbed into the assets available for distribution under the Section 53 waterfall. Drawing a parallel with proceeds of crime, the Court remarked that not every asset held by a corporate debtor is automatically available for distribution upon the commencement of liquidation.
Ultimately, the Supreme Court dismissed the appeal, maintaining the NCLAT’s ruling.
