Gratuity With Interest Qualifies As Operational Debt U/S 5(21) Of IBC: NCLAT
Mohd Malik Chauhan
19 May 2025 1:25 PM IST
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) has held that the claim for gratuity along with interest falls within the definition of operational debt; therefore, an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code) based on such a claim, is...
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) has held that the claim for gratuity along with interest falls within the definition of operational debt; therefore, an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code) based on such a claim, is fully maintainable.
Brief Facts:
An application filed under section 9 of the Code by R-1 Devi Prasad came to be heard by adjudicating authority and by impugned order dated 19.01.2024, adjudicating authority admitted Section 9 application holding that the operational creditor has been able to prove the debt and default.
It was also held that the application filed by R-1 under Section 9 is well within time. Adjudicating authority appointed the Interim Resolution Professional (IRP) and declared the moratorium. Aggrieved by the order passed by the adjudicating authority dated 19.01.2024, this appeal has been filed.
Contentions:
The Appellant submitted that petition filed by R-1 is hit by res judicata. R-1 having already pressed his claim as part of JK Jute Mazdoor Morcha in Comp. App. (AT) (Ins.) No. 82/2019, which has been dismissed by this Tribunal on 17.03.2023, application filed by R-1 was barred by res judicata and adjudicating Authority committed an error in admitting Section 9 application.
It was also submitted that suits are pending and suits having been filed before issuance of demand notice, there is a pre-existing dispute between the parties and the adjudicating authority erred in admitting Section 9 application.
Per contra, the Respondent submitted that payment of gratuity claim by the creditor constitute an operational debt for admission of Section 9 application.
It was also argued that there is no pre existing dispute. Suit No. 500/2017, which has been filed by the corporate debtor seeking declaration against Union of India with the DRS or any other pleading before DRS by the company was only in order to compromise worker due and not an admission of debt.
It was further contended that Award by Labour Commissioner dated 26.02.2024 has become final and there are no pre-existing disputes between the parties regarding claim of gratuity amount.
Lastly, it was submitted that there is no question of applicability of res judicata since the proceeding which was initiated by the JK Jute Mazdoor Ekta Union came to be dismissed by this Tribunal on the ground that application was premature. No such issue was decided in that proceeding which may operate res judicata against the claim of R-1.
Observations:
The Tribunal noted that the JK Jute Mazdoor Morcha filed an application under section 9 of the Code which was initially dismissed by the adjudicating authority on 28.04.2017, and the appeal was also rejected by the Appellate Tribunal.
It further observed that however, in JK Jute Mills Mazdoor Morcha v. Juggilal Kamlapat Jute Mills Co. Ltd., (2019), the Supreme Court held that a trade union qualifies as a "person" under Section 3(23) and can be an operational creditor. It set aside the Tribunal's order and remanded the matter for fresh consideration.
It further noted that following the Supreme Court's remand, the Appellate Tribunal reheard the matter and, by its judgment dated 17.03.2023, dismissed the appeal. The Tribunal held that the Section 9 application filed by JK Jute Mazdoor Morcha was premature, as it was submitted within 10 days of the demand notice, rendering it non-maintainable.
It further added that it was after the dismissal of the said appeal and judgment of the Hon'ble Supreme Court that Section 9 application filed by the R-1 came to be admitted on 19.01.2024.
The Tribunal further said that all sums due to any workmen from the gratuity fund or any other fund for the welfare of the workmen is maintained by the company is specifically included in workman dues.
The Tribunal while distinguishing the present case from its own judgment in Kishore K. Lonkar' Vs. 'Hindustan Antibiotics Ltd.' 2022 held that the claim before the Tribunal was based on unpaid LTC and Earned Leave Encashment. The Tribunal held that initiating CIRP on such welfare-related grounds does not align with the intent and objective of the Code. It also noted that the gratuity amount had been paid and that interest could not be adjudicated in a Section 9 proceeding. Accordingly, the Tribunal affirmed the adjudicating authority's order rejecting the Section 9 application.
Based on the above, it held that the claim of gratuity with interest was fully included in operational debt and application under Section 9 was fully maintainable.
Coming to the next question, the Tribunal said that Suit No. 500/2017, filed in May 2017, did not raise any dispute concerning the workmen's claims. It pertained to a compromise proposal by the corporate debtor, which explicitly stated that it should not be treated as an admission of liability. Therefore, the suit does not amount to a pre-existing dispute regarding the workmen's claims.
It further said that On 06.12.2017, counsel for the corporate debtor submitted before the Delhi High Court that the workmen could invoke jurisdiction under Sections 8 and 9 of the IBC. Subsequently, Suit No. 2506/2017 was filed on 15.12.2017.
It further added that since the High Court permitted initiation of proceedings under Sections 8 and 9 with the company's consent, the filing of the suit immediately thereafter cannot be considered bona fide or as evidence of a pre-existing dispute regarding the workmen's claims.
The Tribunal further noted that Respondent No. 1 (R-1) stated that his claim may be adjudicated in the appeal and authorised JK Jute Mazdoor Morcha to represent him. This Tribunal, in its judgment dated 17.03.2023 in JK Jute Mazdoor Morcha, dismissed the appeal on the sole ground that the Section 9 application was premature, having been filed within 10 days of the demand notice (delivered on 21.03.2017 and filed on 28.03.2017).
Based on the above, it held that consequently, the adjudicating authority's rejection of the application merged with the Tribunal's order dated 17.03.2023, which was later affirmed by the Hon'ble Supreme Court on 17.05.2023. Since no substantive issue was decided in that appeal, the appellant's contention that R-1's claim is barred by res judicata is without merit and is hereby rejected.
Accordingly, the present appeal was dismissed.
Case Title: Sashi Kanta Jha and Anr. Versus Devi Prasad and Ors.
Case Number: Company Appeal (AT) (Insolvency) No. 214 of 2024
Judgment Date: 30/04/2025
For Appellant : Mr. Abhijeet Sinha, Sr. Advocate with Mr. Anuj Tiwari, Ms. Kaanchi Ahuja and Mr. Vaibhav Vats, Advocates.
For Respondent : Ms. Malvika Trivedi, Sr. Advocate with Mr. Ankit Kohli, Advocates for R-1.
Mr. Govind Bhardwaj, Mr. Ashwarya C. Jha and Mr. Anuj Kumar, Advocates for R-2 (IRP).
Mr. Ashok Kumar Jain, Mr. Amit Kasera, Mr. Arjun Aggarwal and Mr. Aman Kumar, Advocates for Intervenor.