Safiya Malik

The Calcutta High Court, in its judgment, upheld the statutory rights of employees concerning gratuity payments. The court dismissed a petition challenging an order passed by the Assistant Labour Commissioner (Central) and Controlling Authority, which directed an employer to pay gratuity along with interest. The court concluded that the employer’s objections were not legally sustainable, reinforcing that employees are entitled to gratuity as an earned benefit, irrespective of corporate insolvency proceedings.

The case originated from a dispute over the gratuity payment of a former employee of M/s. Stesalit Limited, a company that had undergone a management takeover through Corporate Insolvency Resolution Proceedings (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). The employee, Arun Roy, who had resigned on December 3, 2014, after serving the company for over a decade, approached the Assistant Labour Commissioner (Central) under the Payment of Gratuity Act, 1972, seeking his rightful dues.

The Assistant Labour Commissioner directed the employer to make the gratuity payment, prompting the company, now under new management post-CIRP, to challenge this decision through a writ petition before the High Court. The employer contended that:

• The employee had already filed a claim for gratuity during the CIRP process, which was considered and partly admitted under the approved resolution plan.

• The employee did not challenge the resolution plan’s award before the Adjudicating Authority under the IBC.

• The order directing the payment of gratuity beyond the CIRP settlement amounted to "forum shopping" and was an abuse of legal process.

• The IBC, as a special legislation, has overriding provisions over the Payment of Gratuity Act, thereby barring further claims.

• The company had not maintained a separate gratuity fund, and hence, no additional amount should be payable.

The employee, in response, argued that:

• The Payment of Gratuity Act, 1972, is a welfare legislation that overrides the provisions of IBC where worker benefits are concerned.

• The order of the Assistant Labour Commissioner was legally valid and enforceable as gratuity is a statutory right.

• Precedents from both the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court confirm that gratuity dues are excluded from the liquidation estate under IBC.

• The company’s failure to create a gratuity fund does not absolve it of its obligation to pay employees their rightful dues.

The court rejected the employer’s arguments, ruling that gratuity payments remain a statutory entitlement distinct from corporate debts settled under the IBC. The court noted:

“The Payment of Gratuity Act, 1972, uses the term ‘employee’ instead of ‘workman,’ reflecting a broader definition that includes both workers and supervisory personnel. Under Section 36(4) of the Code, gratuity dues are distinct; they are not simply part of the debtor’s assets but represent the earned entitlements of employees.”

It further stated that: “Even if no separate gratuity fund is maintained by the company, the liquidator or the corporate debtor remains obligated to pay gratuity dues. The absence of a fund does not absolve the employer of its statutory liability.”

The court relied on multiple judicial precedents, including:

• Dnyanaba Namdeo Karande & Ors. vs. Calyx Chemicals and Pharmaceuticals Limited, where the NCLT Mumbai Bench held that gratuity must be paid in full as per the Payment of Gratuity Act.

• IDBI Bank Limited vs. Lanco Infratech Limited, where the NCLT Hyderabad directed the liquidator to ensure gratuity payments despite liquidation proceedings.

• Savan Godiwala, the Liquidator of Lanco Infratech Limited vs. Apalla Siva Kumar, where the Supreme Court ruled that liquidators must make adequate provisions for gratuity payments even if no separate fund exists.

The court stated that: “Gratuity payments, along with provident and pension fund dues, do not form part of the liquidation estate and must be paid in full to the employees.”

Additionally, the court dismissed the employer’s assertion that CIRP extinguishes such claims, stating: “The jurisdiction of the Controlling Authority under the Payment of Gratuity Act is not ousted by CIRP proceedings. Gratuity dues are not classified as ‘liquidation estate assets’ but remain the statutory right of employees.”

The court upheld the order of the Assistant Labour Commissioner (Central), directing the employer to pay the employee gratuity dues amounting to Rs. 2,11,154/- along with 10% simple interest per annum from the date of resignation until actual payment.

The judgement also dismissed the employer’s writ petition, stating that: “The resolution plan must account for employees’ dues in full, and failure to do so does not diminish their entitlement. The new management, having taken over the corporate debtor, cannot escape liability on the ground of lack of due diligence.”

The court concluded that the principle of Caveat Emptor applies to corporate takeovers, meaning that the new management should have accounted for statutory obligations like gratuity payments before acquiring the company.

Case Title: M/s. Stesalit Limited vs. Union of India & Ors.
Case Number: WPA 532 of 2025
Presiding Judge: Justice Shampa Dutt (Paul)

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