Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), has held that a claim for gratuity, including interest awarded by the Labour Commissioner, qualifies as “operational debt” under Section 5(21) of the Insolvency and Bankruptcy Code, 2016 (IBC). Consequently, an application under Section 9 based on such a claim is fully maintainable.

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The Tribunal dismissed an appeal filed by a suspended director of the corporate debtor, M/s Juggilal Kamlapat Jute Mills Company Ltd. (now Geo Jute Ltd.), challenging the order dated 19.01.2024 passed by the Adjudicating Authority (NCLT Allahabad Bench), which had admitted a Section 9 application filed by a former employee, Devi Prasad, for unpaid gratuity dues with interest.

Background and Litigation History

The corporate debtor was a sick industrial company under the purview of the erstwhile Board for Industrial and Financial Reconstruction (BIFR) since 1994. After repeal of SICA, several legal proceedings emerged. Among them was a long-standing dispute regarding unpaid dues to workmen.

Devi Prasad, Respondent No. 1 in the appeal, had obtained an award from the Assistant Labour Commissioner dated 26.02.2014 directing the company to pay ₹70,700 as gratuity, along with 8% annual interest, amounting to ₹1,23,725 at the time of filing.

He subsequently issued a demand notice under the IBC on 29.05.2018 and filed a Section 9 application before the NCLT. The application was admitted on 19.01.2024, prompting the suspended director and a shareholder to challenge the admission before the NCLAT.

Appellant's Contentions

The appellants contended that:

• The claim was not maintainable under Section 9 as it did not qualify as “operational debt.”

• There were “pre-existing disputes” due to civil suits filed by the corporate debtor in 2017—prior to the demand notice.

• The claim was barred by res judicata since Devi Prasad had supported a prior insolvency application filed by JK Jute Mazdoor Morcha, which was dismissed in 2023.

Reliance was placed on the NCLAT’s earlier ruling in Kishore Kamlakar Lonkar v. Hindustan Antibiotics Ltd., where the Tribunal had rejected a Section 9 application seeking interest on already-paid gratuity and other welfare claims.

Respondent's Submissions

Devi Prasad, supported by counsel and intervening workmen, argued that:

• His claim was supported by a final, unchallenged award from the Labour Commissioner.

• Gratuity dues fall squarely under “operational debt” under Section 5(21), being related to employment and welfare of workers.

• There were no genuine pre-existing disputes—civil suits filed were only to disclaim liability under a compromise and did not challenge the debt.

• The res judicata argument did not apply because the earlier application was dismissed solely on the ground of premature filing, not on merits.

Tribunal's Findings

The NCLAT rejected all grounds raised by the appellants. It noted:

1. Gratuity with Interest is Operational Debt: The Tribunal affirmed that unpaid gratuity with interest awarded by a competent authority constitutes an operational debt under Section 5(21). It held that this was a legally adjudicated liability that remained unpaid, and thus provided sufficient basis for initiating CIRP under Section 9. The Tribunal distinguished the Kishore Lonkar case, where the gratuity had already been paid and the claim was only for interest on LTC and leave encashment.

2. No Pre-Existing Dispute: The civil suits cited by the appellants did not challenge the actual gratuity claims of workmen but sought declaratory reliefs disclaiming admissions made under draft rehabilitation schemes. Furthermore, one of the suits was filed after the company’s counsel conceded before the Delhi High Court that workmen could approach NCLT. The Tribunal found the suits to be “hypothetical” and “illusory.”

3. Res Judicata Inapplicable: The Tribunal held that the earlier Section 9 application filed by the JK Jute Mazdoor Morcha was dismissed as premature, not on substantive grounds. The Supreme Court had also dismissed the appeal on this limited basis. Since no issue was decided on merits, the principle of res judicata did not apply to Devi Prasad’s individual claim.

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Conclusion

The Tribunal concluded that the unpaid gratuity claim with interest was a valid operational debt. It held that the NCLT had rightly admitted the Section 9 application, initiated CIRP, and appointed an Interim Resolution Professional. The appeal was accordingly dismissed, and the interim stay on CIRP was vacated. Further, the Tribunal directed that the period between 02.02.2024 and 30.04.2025 (date of this judgment) shall be excluded for the purpose of calculating the CIRP period, ensuring that the resolution process proceeds without prejudice due to the litigation delay.

Appearance

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.

Cause Title: Sashi Kanta Jha and Anr. V. Devi Prasad and Ors.

Case No: Company Appeal (AT) (Insolvency) No. 214 of 2024

Coram: Justice Ashok Bhushan [Chairperson], Barun Mitra [Member (Technical)]

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